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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1994 Commission File Number
1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-1971791
(STATE OR OTHER JURISDICTION OF INCORPORATION OR
ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
211 South Rose Street, Kalamazoo, Michigan 49007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
(616) 376-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $10 Par Value
(TITLE OF CLASS)
Securities registered pursuant to Section 12(g) of the Act:
None
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 No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant, $2,038,232,632 on February 28, 1995.
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date.
CLASS OUTSTANDING AT FEBRUARY 28, 1995
- ---------------------------------------------------- ----------------------------------------------------
Common Stock, $10 Par Value 63,187,369
DOCUMENTS INCORPORATED BY REFERENCE
INFORMATION FROM THE FOLLOWING DOCUMENT HAS BEEN
INCORPORATED INTO THIS REPORT BY REFERENCE PARTS OF THIS REPORT INTO
TO THE EXTENT INDICATED IN THOSE PARTS WHICH INCORPORATED
- ------------------------------------------------- -------------------------------------------------
Proxy Statement dated March 15, 1995 for the
Annual Meeting of Shareholders to be
held on April 19, 1995 III
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PART I
ITEM 1. BUSINESS OF FIRST OF AMERICA BANK CORPORATION
GENERAL
First of America Bank Corporation (herein after referred to as First of
America or the Registrant) is a multi-bank holding company headquartered in
Kalamazoo, Michigan. The Registrant was incorporated as a Michigan corporation
in May 1971. Its principal activity consists of owning and supervising eight
affiliate financial institutions which operate general, commercial banking
businesses from 630 banking offices and facilities located in Michigan, Florida,
Illinois and Indiana. The Registrant also has divisions and non-banking
subsidiaries which provide mortgage, trust, data processing, pension consulting,
revolving credit, securities brokerage and investment advisory services. At
December 31, 1994, the Registrant had assets of $24.6 billion, deposits of $20.2
billion and shareholders' equity of $1.6 billion.
The Registrant has responsibility for the overall conduct, direction and
performance of its affiliates. The Registrant establishes direction and policies
for the entire organization and monitors compliance with these policies. The
Registrant provides capital funds to affiliates as required and assists
affiliates in asset and liability management, marketing, planning, accounting,
tax, internal audit, loan review, and human resource management for its 13,490
full time equivalent employees. The operational responsibilities of each
affiliate rest with its officers and directors. The Registrant derives its
income principally from dividends upstreamed from its subsidiaries.
SUBSIDIARY BANKS
As of December 31, 1994, the Registrant had two wholly owned subsidiaries,
First of America Bank-Michigan, N.A. and First of America Bank-Illinois, N.A.
which met the conditions for "significant subsidiary." First of America
Bank-Michigan, N.A., is a general commercial bank based in Kalamazoo, Michigan,
and at December 31, 1994, had $12.4 billion in assets and $10.5 billion in
deposits. First of America Bank-Illinois, N.A., is a general commercial bank
based in Bannockburn, Illinois, and at December 31, 1994, had $7.9 billion in
assets and $6.4 billion in deposits. Similar to all of the Registrant's banking
subsidiaries, these subsidiaries offer a broad range of lending, depository and
related financial services to individual, commercial, industrial, financial, and
governmental customers, including demand, savings and time deposits, secured and
unsecured loans, lease financing, letters of credit, money transfers, corporate
and personal trust services, cash management, and other financial services.
No material part of the business of the Registrant and its subsidiaries is
dependent upon a single customer, or a very few customers, where the loss of any
one would have a materially adverse effect on the Registrant.
NON-BANKING SUBSIDIARIES
First of America Mortgage Company is a wholly owned subsidiary of the
Registrant headquartered in Kalamazoo, Michigan. First of America Mortgage
Company engages in the servicing of both commercial and residential real estate
loans for institutional investors and certain affiliates of the Registrant and
secondary market sales and loan originations. FOA Mortgage Company is a wholly
owned subsidiary of First of America Mortgage Company and provides mortgage
origination services.
First of America Insurance Company is a wholly owned subsidiary of the
Registrant. The insurance company reinsures credit life and disability insurance
provided by an unaffiliated insurer for customers of the Registrant's
affiliates.
First of America Brokerage Service, Inc., is a wholly owned subsidiary of
First of America Bank -- Michigan, N.A. It is a registered broker-dealer and
provides retail securities brokerage services through a clearing broker to
customers of the Registrant's affiliate banks and others.
First of America Investment Corporation is a wholly owned subsidiary of
First of America Bank -- Michigan, N.A. First of America Investment Corporation
is a registered investment adviser which provides comprehensive investment
advisory services to the trust division of the Registrant and to individual and
institutional investors. It also serves as investment adviser for The Parkstone
Group of Funds, First of America's proprietary mutual funds.
First of America Securities, Inc. is a wholly owned subsidiary of the
Registrant. It is a registered broker-dealer and engages in limited securities
underwriting and dealing as well as other capital market activities.
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First of America Trust Company is a wholly owned subsidiary of the
Registrant. It provides trust services to customers of the Registrant's Illinois
affiliate.
First of America Community Development Corporation is a wholly owned
subsidiary of the Registrant. It invests in qualifying businesses or housing
projects, as allowed by federal law, to address the needs of low to moderate
income neighborhoods.
COMPETITION
Banking and related financial services are highly competitive businesses and
have become increasingly so during the past few years. The banking subsidiaries
of the Registrant compete primarily with other banks and savings and loan
associations for loans, deposits and trust accounts. They are also faced with
increasing competition from other financial intermediaries including consumer
finance companies, leasing companies, credit unions, retailers and investment
banking firms.
Technological changes have resulted in computer and communication
applications intended to meet the needs of First of America's business and
consumer customers in a convenient, efficient and reliable manner. Affiliate
banks of the Registrant have 647 automated teller machines (ATM's) located both
on bank premises to handle banking transactions 24 hours per day and off-premise
terminals located in high volume retail and service locations.
SUPERVISION AND REGULATION
The Registrant and its subsidiary banks are subject to supervision,
regulation and periodic examination by various federal and state banking
regulatory agencies, including the Board of Governors of the Federal Reserve
Board (the "FRB"), the Office of the Comptroller of the Currency (the "OCC"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Office of Thrift
Supervision (the "OTS"), the Florida Commissioner, the Illinois Commissioner of
Banks and Trust Companies (the "Illinois Commissioner"), the Michigan Financial
Institutions Bureau (the "Michigan FIB") and the Indiana Department of Financial
Institutions (the "Indiana DFI"). Since it is a bank holding company, the
Registrant's activities and those of its affiliates are limited to the business
of banking and activities closely related to banking.
The following is a summary of certain statutes and regulations affecting
First of America and its affiliate financial institutions. This summary is
qualified in its entirety by such statutes and regulations, which are subject to
change based on pending and future legislation and action by regulatory
agencies.
BANK HOLDING COMPANIES. As a bank holding company, First of America is
subject to regulation under the Bank Holding Company Act of 1956, as amended
(the "BHCA") and by the FRB. Among other things, the BHCA imposes requirements
for the maintenance of capital adequate to support a bank holding company's
operations. The BHCA also restricts the geographic and product range of bank
holding companies by circumscribing the types and locations of institutions bank
holding companies may own or acquire. The BHCA limits bank holding companies to
owning and managing banks or companies engaged in activities determined by the
FRB to be closely related to banking. The BHCA requires bank holding companies
to obtain the prior approval of the FRB before acquiring substantially all the
assets of any bank or bank holding company or direct or indirect ownership or
control of more than 5% of the voting shares of a bank or bank holding company.
Bank holding companies are also prohibited from acquiring shares of any bank
located outside the state in which the operations of the bank holding company's
banking subsidiaries are primarily conducted unless the acquisition is
specifically authorized by statute of the state of the bank whose shares are to
be acquired.
Under a Michigan statute applicable to First of America, a Michigan bank
holding company may acquire a bank located in any state in the United Sates if
the laws of the other state permit ownership of banks located in that state by a
Michigan bank holding company. Under the same Michigan statute, a Michigan bank
or bank holding company may be acquired by a bank holding company located in any
state in the United States, subject to approval of the Michigan FIB and the
existence of a reciprocal law in such other state.
SAVINGS AND LOAN HOLDING COMPANIES. Its acquisition of thrift institutions
subjects First of America to regulation as a savings and loan holding company by
the OTS. A savings and loan holding company that is also a bank holding company
may engage only in activities permissible for a bank holding company, and may,
in certain circumstances, be required to obtain approval from the OTS, as well
as the FRB, before acquiring new subsidiaries or commencing new business
activities. Further, a savings and loan holding company's acquisitions of
savings associations and other savings and loan holding companies are subject to
prior approval by the OTS comparable to the extent to which bank holding company
acquisitions of banks and other bank holding companies are subject to the prior
approval of the FRB.
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Under the Financial Institutions Reform, Recovery and Enforcement Act of
1989 ("FIRREA"), the OTS is granted broad power to impose restrictions on
savings and loan holding company activities, including the payment of dividends
to the holding company by and transactions with affiliated savings associations,
if the OTS determines that there is reasonable cause to believe that the
continuation by the holding company of any activity constitutes a serious risk
to the financial safety, soundness or stability of a subsidiary savings
association.
BANKS. First of America's affiliate banks are subject to regulation,
supervision and periodic examination by the bank regulatory agency of the state
under the laws of which the affiliate bank is chartered or, in the case of
national banks, the OCC. Additionally, certain of First of America affiliate
state banks and all of its affiliate national banks are members of the Federal
Reserve System, and as such are subject to applicable provisions of the Federal
Reserve Act and regulations thereunder. These regulations relate to reserves and
other aspects of banking operations. First of America's affiliate state bank
that is not a member of the Federal Reserve System is subject to federal
regulation, supervision and examination by the FDIC. Deposits held by all
affiliate banks of First of America are insured, to the extent permitted by law,
by the FDIC. Applicable federal and state law govern, among other things, the
scope of First of America's affiliate banks' businesses, maintenance of adequate
capital, investments and loans they may make, transactions with affiliates and
their activities with respect to mergers and establishing branches.
SAVINGS ASSOCIATIONS. First of America Bank -- Florida, FSB is a federally
chartered savings association subject to regulation, supervision and regular
examination by the OTS. Federal law governs, among other things, the scope of
the savings association's business, required reserves against deposits, the
investments and loans the savings association may make, and transactions with
the savings association's affiliates. Deposits held by such savings associations
are insured, to the extent permitted by law, by the FDIC.
NON-BANKING SUBSIDIARIES. First of America has non-banking subsidiaries that
are broker-dealers, a securities underwriter and an investment adviser, each
registered and subject to regulation by the Securities and Exchange Commission
under federal securities laws. These subsidiaries are also subject to regulation
under various state securities laws. Because they are affiliated with First of
America's subsidiary banks, these subsidiaries are subject to certain
limitations on their securities activities imposed by federal banking laws.
ECONOMIC CONDITIONS AND GOVERNMENTAL POLICY. First of America's earnings are
affected not only by the extensive regulation described above, but also by
general economic conditions. These economic conditions influence and are
influenced by the monetary and fiscal policies of the United States government
and its various agencies, particularly the FRB. The Registrant cannot predict
changes in monetary policies or their impact on its operations and earnings.
STATISTICAL DATA
The statistical data as required is presented with "Item 7. Management's
Discussion and Analysis" and in certain of the Notes to Consolidated Financial
Statements and Supplemental Data included with "Item 8. Financial Statements and
Supplementary Data" appearing later in this document.
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EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages and their positions for
the last five years are shown in the following table. There are no family
relationships between the executive officers or between the executive officers
and the Registrant's directors.
Name Age Position and Office
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Daniel R. Smith............... 60 Chairman and Chief Executive Officer of the Registrant.
Richard F. Chormann........... 57 President and Chief Operating Officer of the Registrant.
Donald J. Kenney.............. 47 Executive Vice President of the Registrant since October 1994; previously Senior
Vice President-Automation, Operations, Retail Credit and Mortgage since 1994;
President and Chief Executive Officer of First of America's former subsidiary,
Champion Federal Savings and Loan Association in Bloomington, Illinois during 1992
and 1993; Senior Vice President-Automation and Operations since 1988.
Thomas W. Lambert............. 53 Executive Vice President and Chief Financial Officer of the Registrant.
John B. Rapp.................. 58 Executive Vice President of the Registrant.
David B. Wirt................. 55 Executive Vice President of the Registrant.
Lee J. Cieslak................ 55 Chairman and Chief Executive Officer, First of America Bank-Florida, FSB since
April 1994; previously President and Chief Executive Officer of First of America
Bank-Metro Southwest, N.A. (formerly named First of America Bank-Kankakee) since
1989.
William R. Cole............... 56 Chairman and Chief Executive Officer, First of America Bank-Michigan, N.A. since
1990 and First of America Bank-West Michigan since 1991.
Robert K. Kinning............. 59 Chairman and Chief Executive Officer, First of America Bank-Illinois, N.A. since
October 1994; previously President and Chief Executive Officer of First of America
Bank-Central since 1986.
Malcolm C. Pownall............ 51 Chairman and Chief Executive Officer, First of America Bank-Indiana since October
1994; previously President of First of America Bank-Indiana since 1990.
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ITEM 2. PROPERTIES
The Registrant is headquartered in Kalamazoo, Michigan.
The Registrant's subsidiaries operate a total of 630 offices of which 441
are owned by the respective banks with the remaining offices under lease
agreements. Reference is made to Note 9 of the Notes to Consolidated Financial
Statements included under "Item 8. Financial Statements and Supplementary Data"
included later in this document for further information regarding the terms of
these leases. All of these offices are considered by management to be well
maintained and adequate for the purpose intended.
ITEM 3. LEGAL PROCEEDINGS
The subsidiaries of the Registrant are routinely engaged in litigation, both
as plaintiff and defendant, which is incident to their business, and in certain
proceedings, claims or counter-claims have been asserted against the
Registrant's subsidiaries. Management, after consultation with legal counsel,
does not currently anticipate that the ultimate liability, if any, arising out
of such litigation and threats of litigation will have a material effect on the
financial position, results of operations or liquidity of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
three months ended December 31, 1994.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Registrant's common stock is listed for trading on the New York Stock
Exchange (NYSE). The range of high and low sales prices appear under the caption
"Market Price of Common Stock" under Supplemental Information included with
"Item 8. Financial Statements and Supplementary Data" included later in this
document.
Common stock dividends, payable in cash, were declared on a quarterly basis
during 1994 and 1993. The dividends declared per common share totaled $1.64
during 1994 and $1.55 during 1993. Restrictions on the Registrant's ability to
pay dividends are described in Note 14 of the Registrant's "Notes to
Consolidated Financial Statements" included under "Item 8. Financial Statements
and Supplementary Data" included later in this document.
The number of record holders of the Registrant's common stock as of December
31, 1994 was 30,600.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the following information included in "Item 7.
Management's Discussion and Analysis -- Table II" under the caption "Selected
Financial Data": the line items "Interest income" through "Fully diluted"
earnings per share, "Cash dividends declared per common share," "Total assets"
and "Long-term debt" for the years 1990 through 1994.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following financial review discusses the performance of First of
America, on a consolidated basis, for the three years ended December 31, 1994,
and should be read in conjunction with the consolidated financial statements and
notes thereto.
MERGERS AND ACQUISITIONS
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
BUSINESS COMBINATIONS TABLE I
($ in thousands)
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1994 1993 1992
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Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
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Presidential Holding Kewanee Investing Company,
Corporation.............. $ 256,352 Inc........................ $ 29,776 Security Bancorp, Inc...... $2,716,029
Citizens Federal Bank First Petersburg
F & C Bancshares, Inc. .... 379,791 (14 Branches).............. 499,337 Bancshares, Inc.......... 50,100
----------
Pioneer Mortgage Co.
First Park Ridge Corp. .... 327,391 (five offices)............. --
--------
LGF Bancorp, Inc. ......... 412,336
Goldome Federal
Branches (36)............ 376,858
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$1,752,728 $529,113 $2,766,129
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During 1994, First of America added over $700 million in assets and nine
offices to its Illinois franchise and entered new markets in Florida. On May 1,
1994, First of America completed the acquisition of LGF Bancorp, Inc., an
Illinois thrift holding company, and on October 1, 1994, completed the
acquisition of First Park Ridge Corporation, a three bank holding company
located in suburban Chicago. The Florida expansion included three acquisitions:
on April 15, 1994, First of America acquired from the Resolution Trust
Corporation,
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Goldome Federal's Florida branches which included $376 million in deposits; and
at December 31, 1994, First of America completed the acquisitions of F&C
Bancshares, Inc. and its principal subsidiary, First Federal Savings Bank of
Charlotte County, along with Presidential Holding Corporation and its principal
subsidiary, Presidential Bank, FSB. First of America's Florida franchise ended
the year with $1.2 billion in total assets and $1.0 billion in total deposits.
1994 HIGHLIGHTS
Net income for 1994 was $220.5 million, down 10.9 percent compared with the
$247.4 million reported in 1993, and earnings per share were $3.69 versus $4.14
a year ago. The current year's results were impacted by 1994's rising interest
rate environment which contributed to the lower net interest margin, 4.58
percent compared with 4.86 percent in 1993, and lower non-interest income. Non-
interest expense growth, mainly due to costs related to the company's expansion
into Florida, also contributed to the lower level of earnings. Benefitting from
a low interest rate environment, 1993's results included record gains on the
sale of mortgages and securities. Reported net income for 1992 was $147.5
million, or $2.46 per fully diluted share, and was impacted by three
non-recurring charges -- adoption of Financial Accounting Statement No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ($22.0
million), one-time Security Bancorp merger and assimilation costs ($23.9
million), and an intangible asset writedown ($25.9 million).
Also lagging last year's results, return on average assets for 1994 was 0.98
percent versus 1.20 percent in 1993 and 0.75 percent in 1992. Return on average
total shareholders' equity for the same periods was 14.44 percent, 17.50 percent
and 11.38 percent, respectively.
One constant in First of America's results was its asset quality, which
remained strong and improved further throughout 1994. Non-performing assets as a
percent of total assets were 0.57 percent at year-end, an improvement over both
the year-end 1993 and 1992 ratios of 0.86 percent and 0.97 percent,
respectively. Net charge-offs as a percent of average loans was also lower than
the prior two years at 0.39 percent for 1994 versus 0.53 percent a year ago and
0.57 percent for 1992.
Total assets were $24.6 billion at December 31, 1994, a 15.7 percent
increase over the $21.2 billion reported at December 31, 1993, primarily as a
result of acquisitions. Total loans increased 17.0 percent to $16.8 billion.
Excluding acquisitions, total loans grew 10.5 percent over a year ago.
Total shareholders' equity increased 3.6 percent to $1.6 billion at year-end
1994. The increase resulted from earnings retention and equity added from
acquisitions. This increase was offset by the $121.9 million negative change in
the unrealized loss, net of tax, for the available for sale securities as
required by Financial Accounting Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and the reduction in equity resulting
from the common stock repurchase of 3.4 million shares. Book value per share was
$25.12 compared with $25.60 and $22.49 for year-ends 1993 and 1992.
The Board of Directors increased the cash dividend paid per common share in
October 1994 to $1.68, on an annualized basis, a five percent increase. This
increase represents the twelfth year in a row First of America has increased its
annual dividend and indicates the Board's continued confidence in the company's
profitability.
First of America announced in August 1994 its intent to consolidate its bank
affiliates into one bank in each state of operation, including consolidation of
certain backroom functions. This will provide a reduction in certain overhead
expenses and a more streamlined approach to managing the company's lines of
business.
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SELECTED FINANCIAL DATA TABLE II
($ in thousands, except per share data)
5 Year
Compounded Year Ended December 31,
Growth --------------------------------------------------------------------------------------
Rate 1994 1993 1992 1991 1990 1989
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SUMMARY OF OPERATIONS
Interest income........... 2.0% $ 1,600,877 1,510,966 1,596,127 1,537,861 1,519,841 1,447,239
Interest expense.......... (3.9) 662,142 608,949 721,300 786,910 841,142 806,619
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Net interest income....... 7.9 938,735 902,017 874,827 750,951 678,699 640,620
Provision for loan
losses................... 14.6 86,571 84,714 78,809 71,030 44,782 43,805
Total non-interest
income................... 11.3 284,373 292,184 261,316 209,900 181,558 166,604
Total non-interest
expense.................. 7.8 813,418 763,528 796,348 665,732 602,319 558,183
Applicable income tax
expense.................. 13.8 102,616 98,574 91,506 64,625 58,628 53,728
Extraordinary item, net of
tax...................... n/a -- -- (21,956) -- -- --
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Net income................ 7.8% $ 220,503 247,385 147,524 159,464 154,528 151,508
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Net income applicable to
common stock............. 10.7% $ 220,503 241,232 135,015 144,028 137,818 132,897
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EARNINGS PER SHARE OF COMMON STOCK
Primary.................. 7.9% $ 3.69 4.20 2.46 2.69 2.62 2.52
Fully diluted............ 7.9 3.69 4.14 2.46 2.69 2.62 2.52
Average common shares
outstanding ("000")...... 2.6 59,812 57,417 54,842 53,536 52,622 52,685
Cash dividends declared
per
common share............. 8.7 $ 1.64 1.55 1.34 1.24 1.15 1.08
Primary book value per
common share............. 7.5 25.12 25.60 22.12 20.58 18.97 17.52
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BALANCE SHEET SUMMARY
ASSETS:
Cash and due from banks... 1.5% $ 1,060,788 903,517 918,960 1,000,578 1,028,159 983,018
Federal funds sold, resale
agreements and time
deposits................. (34.5) 55,271 74,909 175,030 254,333 146,175 457,828
Securities:
Held to maturity....... 2.9 3,112,876 1,856,623 3,489,626 4,261,360 3,775,030 3,604,406
Available for sale..... n/a 2,587,626 3,261,481 -- -- -- --
Held for sale.......... n/a -- -- 1,137,420 -- -- --
Loans -- net of unearned
income................... 11.1 16,834,858 14,394,155 13,756,017 13,228,027 11,228,221 9,950,467
Allowance for loan
losses................... 12.6 (228,115) (188,664) (176,793) (174,882) (137,012) (126,175)
Other assets.............. 12.4 1,145,398 928,450 846,507 900,552 749,379 637,898
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Total assets.............. 9.6% $24,568,702 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442
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LIABILITIES AND EQUITY
Deposits.................. 7.9% $20,200,266 18,243,703 18,035,553 17,483,232 15,016,343 13,828,041
Short term borrowings..... 47.1 1,882,739 994,578 338,023 282,225 264,049 273,286
Long term debt............ 31.9 681,236 254,193 254,051 260,398 179,899 170,680
Other liabilities......... 13.9 225,573 214,560 183,649 176,745 153,658 117,477
Total shareholders'
equity................... 7.2 1,578,888 1,523,437 1,335,491 1,267,368 1,176,003 1,117,958
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Total liabilities and
equity................... 9.6% $24,568,702 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442
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FINANCIAL RATIOS
Return on average total
equity................... 14.44% 17.50 11.38 13.07 13.70 14.07
Return on average
assets................... 0.98 1.20 0.75 0.95 0.98 1.02
Net interest margin (a)... 4.58 4.86 4.98 5.07 4.92 4.95
Total shareholders' equity
to assets at
year-end................. 6.43 7.18 6.63 6.51 7.00 7.21
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(a) Fully taxable equivalent; based on a marginal federal income tax rate of 35%
for 1994 and 1993, and 34% for prior years.
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INCOME ANALYSIS
NET INTEREST INCOME -- Net interest income is the primary source of revenue
for First of America, accounting for 76.7 percent of total revenue. For 1994 net
interest income on a fully taxable equivalent basis (FTE) was $955.7 million, up
3.3 percent from $925.1 million in 1993. The 1994 increase was the result of 9.6
percent growth in average earning assets offsetting the lower net interest
margin of 4.58 percent versus 4.86 percent for 1993. For the 1993 comparison
with 1992, net interest income (FTE) increased 2.8 percent also due to a higher
level of average earning assets offsetting a lower net interest margin.
Total interest income on a fully taxable equivalent basis increased 5.9
percent over a year ago. The increase resulted from the growth of earning assets
having a greater impact than the decline in asset yields as detailed in Table
III. Interest expense was $53.2 million, or 8.7 percent over 1993, as the
increased volume of interest-bearing liabilities offset their lower cost.
Table III presents a summary of the changes in net interest income resulting
from changes in volumes and rates for 1994 and 1993. Net interest income,
average balance sheet amounts and the corresponding yields and costs for the
years 1990 through 1994 are shown in Table IV.
VOLUME/RATE ANALYSIS TABLE III
($ in thousands)
1994 Change From 1993 Due To 1993 Change From 1992 Due To
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Volume Rate Total Volume Rate Total
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INTEREST INCOME:
Loans (FTE)..................................... $ 111,385 (50,000) 61,385 41,276 (107,264) (65,988)
Taxable securities.............................. 44,597 (4,370) 40,227 41,148 (52,325) (11,177)
Tax exempt securities (FTE)..................... (18,389) 1,080 (17,309) 3,271 (7,035) (3,764)
Money market investments........................ (668) 163 (505) (4,582) (1,654) (6,236)
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Total interest income (FTE)..................... $ 136,925 (53,127) 83,798 81,113 (168,278) (87,165)
- ------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits....................... $ 25,696 (28,260) (2,564) 14,010 (135,114) (121,104)
Short term borrowings........................... 31,792 10,051 41,843 11,713 (1,271) 10,442
Long term debt.................................. 14,892... (978) 13,914 1,984 (3,673) (1,689)
- ------------------------------------------------------------------------------------------------------------------------------
Total interest expense.......................... $ 72,380 (19,187) 53,193 27,707 (140,058) (112,351)
- ------------------------------------------------------------------------------------------------------------------------------
Change in net interest income................... $ 64,545 (33,940) 30,605 53,406 (28,220) 25,186
- ------------------------------------------------------------------------------------------------------------------------------
* Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar
amount of the change in each. Non-taxable income has been adjusted to a fully
taxable equivalent basis.
9
10
- --------------------------------------------------------------------------------
AVERAGE BALANCE/NET INTEREST INCOME/AVERAGE RATES TABLE IV
($ in thousands)
Year Ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate Interest
Average Income/ Earned/ Average Income/ Earned/ Average Income/
Balance Expense Paid Balance Expense Paid Balance Expense
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Money market investments......... $ 72,736 2,349 3.23% $ 93,662 2,854 3.05% $ 233,757 9,090
Investment securities:
U.S. Treasury, federal agencies
and other....................... 5,319,354 303,098 5.70 4,537,814 262,871 5.79 3,898,195 274,048
State and municipal
securities(1)................... 306,946 25,296 8.24 530,407 42,605 8.03 493,785 46,369
Total loans(1)(2)................ 15,172,618 1,287,121 8.48 13,875,584 1,225,736 8.83 13,435,991 1,291,724
----------- --------- ----------- --------- ----------- ---------
Total earnings assets/total
interest income(1).............. 20,871,654 1,617,864 7.75 19,037,467 1,534,066 8.06 18,061,728 1,621,231
----------- --------- ----------- --------- ----------- ---------
Less allowance for loan losses... 206,703 182,594 176,595
Cash and due from banks.......... 892,959 839,506 818,279
Other assets..................... 992,857 850,783 870,879
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $22,550,767 $20,545,162 $19,574,291
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts......... $ 3,385,164 53,971 1.59% $ 3,137,831 66,088 2.11% $ 2,820,091 86,568
Money market savings and checking
accounts........................ 4,114,885 115,725 2.81 3,852,780 95,314 2.47 3,972,004 128,820
Time deposits.................... 8,849,576 398,239 4.50 8,638,044 409,097 4.74 8,520,485 476,215
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing
deposits........................ 16,349,625 567,935 3.47 15,628,655 570,499 3.65 15,312,580 691,603
Short term borrowings............ 1,325,584 60,389 4.56 575,074 18,546 3.22 216,352 8,104
Long term debt................... 485,494 33,818 6.97 272,297 19,904 7.31 248,032 21,593
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing
liabilities/ total interest
expense......................... 18,160,703 662,142 3.65 16,476,026 608,949 3.70 15,776,964 721,300
----------- --------- ----------- --------- ----------- ---------
Demand deposits.................. 2,665,183 2,463,534 2,301,768
Other liabilities................ 197,330 191,922 198,633
Non-redeemable
preferred/preference stock...... -- 74,586 140,952
Common shareholders' equity...... 1,527,551 1,339,094 1,155,974
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $22,550,767 $20,545,162 $19,574,291
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets... 7.75% 8.06%
Interest expense/earning
assets.......................... 3.17 3.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets.......................... 4.58% 4.86%
- ------------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31, 1991 1990
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average
Rate Interest Rate Interest Rate
Earned/ Average Income/ Earned/ Average Income/ Earned/
Paid Balance Expense Paid Balance Expense Paid
- ------------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Money market investments......... 3.89% $ 273,208 17,679 6.47% $ 462,816 38,941 8.41%
Investment securities:
U.S. Treasury, federal agencies
and other....................... 7.03 3,267,738 274,884 8.41 3,041,910 265,876 8.74
State and municipal
securities(1)................... 9.39 580,307 56,640 9.76 599,891 59,607 9.94
Total loans(1)(2)................ 9.61 11,276,061 1,217,808 10.80 10,359,695 1,188,213 11.47
----------- --------- ----------- ---------
Total earnings assets/total
interest income(1).............. 8.98 15,397,314 1,567,011 10.18 14,464,312 1,552,637 10.74
----------- --------- ----------- ---------
Less allowance for loan losses... 139,332 129,067
Cash and due from banks.......... 785,798 803,022
Other assets..................... 754,446 665,238
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts......... 3.07% $ 2,375,565 105,904 4.46% $ 2,334,355 111,322 4.77%
Money market savings and checking
accounts........................ 3.24 3,829,647 186,406 4.87 3,419,159 197,699 5.78
Time deposits.................... 5.59 6,804,895 469,094 6.89 6,260,473 493,857 7.89
----------- --------- ----------- ---------
Total interest-bearing
deposits........................ 4.52 13,010,107 761,404 5.85 12,013,987 802,878 6.68
Short term borrowings............ 3.75 177,834 9,424 5.30 257,243 18,836 7.32
Long term debt................... 8.71 176,780 16,082 9.10 199,592 19,428 9.73
----------- --------- ----------- ---------
Total interest-bearing
liabilities/ total interest
expense......................... 4.57 13,364,721 786,910 5.89 12,470,822 841,142 6.74
----------- --------- ----------- ---------
Demand deposits.................. 2,064,849 2,068,642
Other liabilities................ 148,626 136,245
Non-redeemable
preferred/preference stock...... 165,730 178,605
Common shareholders' equity...... 1,054,300 949,191
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets... 8.98% 10.18% 10.74%
Interest expense/earning
assets.......................... 4.00 5.11 5.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets.......................... 4.98% 5.07% 4.92%
- ------------------------------------------------------------------------------------------------------------------------------------
(1) Interest income on obligations of states and political subdivisions and on
tax exempt commercial loans has been adjusted to a taxable equivalent basis
using a marginal federal tax rate of 35% for 1994 and 1993, and 34% for
prior years.
(2) Non-accrual loans are included in average loan balances.
10
11
NET INTEREST MARGIN -- The net interest margin for 1994 was 4.58 percent
compared with 4.86 percent in 1993 and 4.98 percent in 1992. Increases in short
term rates by the Federal Reserve totalled 250 basis points during 1994. As
rates increased, interest sensitive deposit products grew rapidly and repriced
faster than interest sensitive assets, specifically loans, causing compression
in the net interest margin. For example, the FirstRate Fund, a deposit product
which carries a variable rate tied to the T-bill rate, increased to $2.1 billion
at December 31, 1994 from $526 million at December 31, 1993. The average rate
paid on this product increased 130 basis points over the year.
The acquisitions of Goldome Federal and LGF Bancorp, Inc., early in the
second quarter, added over $700 million in higher priced thrift deposits to the
balance sheet while adding only $370 million in earning assets. These two
acquisitions combined to lower the net interest margin for the year by 9 basis
points.
Also impacting the net interest margin on the asset side of the balance
sheet were competitive pricing issues regarding consumer loans. Indirect
installment loans were being priced below the loans maturing in the portfolio
and at spreads which reduced the profitability of the portfolio. In addition,
First of America competitively repriced a portion of its credit cards from
eighteen percent fixed rate cards to a lower variable rate product.
In order to moderate the future impact of interest rate changes on net
interest income, First of America sold $180 million in securities and terminated
$82.9 million in interest rate swaps during the fourth quarter. The immediate
impact of these moves is discussed later in this document under "Non-interest
Income." At December 31, 1994, the estimated impact of these changes resulted in
approximately two percent of net income being at risk from a one hundred basis
point change in interest rates. Interest rate risk is covered in more detail
later in this document under "Funding, Liquidity and Interest Rate Risk" and in
Tables XIV and XV.
PROVISION FOR LOAN LOSSES -- The provision for loan losses is based on the
current level of net charge-offs and management's assessment of the credit risk
inherent in the loan portfolio. For 1994, the provision for loan losses was
increased 2.2 percent to $86.6 million from $84.7 million in 1993 to keep pace
with growth in the total loan portfolio, as net charge-offs decreased $14.4
million year-over-year. The 1992 provision was $78.8 million. The decrease in
net charge-offs during 1994 contributed to the increased coverage of
non-performing loans, which was 224.4 percent at December 31, 1994 compared with
142.9 percent at December 31, 1993.
As a percent of average assets, the 1994 provision was 0.38 percent compared
with the 0.41 percent and 0.40 percent reported for 1993 and 1992, respectively.
Additional information on the provision for loan losses, net charge-offs and
non-performing assets is provided in Tables IX and XI and under the caption,
"Credit Risk Profile," presented later in this discussion.
NON-INTEREST INCOME -- Non-interest income was down 2.7 percent over 1993,
totalling $284.4 million versus $292.2 million, as net gains on the sales of
securities and residential mortgages combined to add only $17.0 million to
non-interest income in 1994 versus $46.2 million in 1993. The rising interest
rate environment during 1994 heavily impacted these income sources. Excluding
gains on the sale of securities and mortgage loans, non-interest income would
have increased 8.7 percent over 1993. Non-interest income totaled $261.3 million
for 1992. Table V presents trends in the major components of non-interest income
from 1990 to 1994.
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12
NON-INTEREST INCOME AND NON-INTEREST EXPENSE TABLE V
($ in thousands)
Change
1994/1993
- ------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 Amount Percent
- ------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposits......................... $ 89,164 84,648 79,522 70,318 64,388 4,516 5.3%
Trust and financial services income................. 81,717 77,290 68,850 60,904 51,038 4,427 5.7
Investment securities transaction................... 5,349 16,753 14,993 1,088 (6,380) (11,404) (68.1)
Other operating income.............................. 108,143 113,493 97,951 77,590 72,512 (5,350) (4.7)
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest income........................... $284,373 292,184 261,316 209,900 181,558 (7,811) (2.7)
- ------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Personnel........................................... $430,563 403,119 410,854 361,187 326,308 27,444 6.8%
Occupancy, net...................................... 60,471 55,093 57,286 50,413 48,985 5,378 9.8
Equipment........................................... 56,111 53,376 63,134 51,474 46,690 2,735 5.1
Data processing..................................... 17,524 14,963 10,380 11,448 13,005 2,561 17.1
Amortization of intangibles......................... 16,577 8,902 38,336 10,303 8,583 7,675 86.2
FDIC premiums....................................... 42,055 39,680 38,711 31,032 16,444 2,375 6.0
Other operating expense............................. 190,117 188,395 177,647 149,875 142,304 1,722 0.9
- ---------------------------------------------------------------------------------------------------------------------
Total non-interest expense.......................... $813,418 763,528 796,348 665,732 602,319 49,890 6.5
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest income as a percent of
average assets.................................... 1.26% 1.42 1.33 1.25 1.15
Non-interest expense as a percent of
average assets.................................... 3.61 3.72 4.07 3.96 3.81
Burden ratio........................................ 2.35 2.30 2.74 2.71 2.66
Efficiency ratio.................................... 65.59 62.72 68.58 67.25 67.44
Efficiency ratio, excluding FDIC premiums........... 62.20 59.46 65.24 64.11 65.60
- ------------------------------------------------------------------------------------------------------------------------------
Service charges on deposit accounts, the largest component of fee income for
First of America, increased 5.3 percent in 1994 to $89.2 million compared with
$84.6 million in 1993 and $79.5 million in 1992. Growth in these fees reflect
the growth in non-interest bearing transaction accounts, which were up 4.8
percent over last year.
Trust and financial services revenue increased 5.7 percent over a year ago
to $81.7 million. Both components of trust and financial services revenue,
traditional trust fees and brokerage and investment advisory services, felt the
impact of changes in the financial markets. Traditional trust fees, the largest
component, was $59.8 million compared with $56.7 million in 1993 and $51.1
million in 1992. These fees generally follow the growth of total assets under
management and are affected by changes in the securities market as many fees are
assessed based on the market value of managed funds. Total trust and financial
services assets under management at December 31, 1994, totalled $13.2 billion
versus $12.6 billion at December 31, 1993 and $11.9 billion at December 31,
1992. The Parkstone Group of Funds accounted for $4.7 billion of the 1994
year-end assets under management.
Other financial services fees, derived from brokerage services and
investment advisory services, increased 6.1 percent over last year despite the
lagging sales of mutual funds. Total revenue from the sale of Parkstone Mutual
Funds and other mutual funds was $4.5 million, down 42.6 percent from $7.8
million in 1993.
First of America plans to expand its trust and financial services revenue
through the acquisition of established investment management firms as well as
sales and marketing efforts. On January 1, 1995, First of America completed the
acquisition of New England Trust Company, an investment management company based
in Providence, Rhode Island, with over $600 million in assets under management.
On February 1, 1995, First of America also entered into a partnership with
another investment management firm, Gulfstream Global Investors, Ltd., based in
Dallas, Texas, with $160 million in assets under management. Gulfstream will
provide
12
13
international investment expertise and manage the Parkstone International
Discovery Fund which had approximately $290 million in net assets at December
31, 1994.
Investment securities gains were down $11.4 million in 1994 versus 1993,
representing a $0.12 reduction in 1994's earnings per share. The total net gain
from such sales in 1994 was $5.3 million compared with $16.8 million in 1993 and
$15.0 million in 1992. To mitigate the interest rate sensitive position of the
balance sheet, First of America sold $180 million in available for sale
securities during the fourth quarter, resulting in a loss of $3.5 million. First
of America also terminated $82.9 million of interest rate swaps during December,
1994, incurring an immediate loss of $804 thousand (included in net securities
gains on the income statement) and creating a $1.4 million deferred loss to be
amortized into earnings over the remaining life of the hedged liability. At
year-end 1994, net unrealized losses of $107.3 million and $170.1 million
remained in the Available for Sale and Held to Maturity securities portfolios,
respectively. The average maturities of these portfolios at year-end were 3.2
years and 2.8 years, respectively.
Total credit card fees for 1994 increased to $43.2 million compared with
$40.0 million and $36.2 million in 1993 and 1992, respectively. Growth in these
fees has averaged 9.9 percent, annually, over the last three years. A component
of total credit card fees, merchant discount income, which represents the charge
to First of America merchants for processing credit card receipts, increased
25.5 percent over 1993 totalling $28.9 million. The credit card portfolio
reached $1.3 billion at December 31, 1994, up 16.5 percent from a year ago.
First of America's mortgage banking business felt the impact of the rising
interest rate environment, as mortgage originations were down 27.4 percent to
$2.2 billion in 1994 versus $3.0 billion in 1993, contributing to the decline in
gains on the sale of residential mortgages which totalled $11.7 million for 1994
compared with $29.5 million a year ago and $15.2 million in 1992. First of
America's servicing portfolio, however, did continue to grow and build servicing
income. At December 31, 1994, the mortgage servicing portfolio for outside
investors was $3.2 billion, up 15.3 percent over the $2.8 billion at December
31, 1993 and $2.4 billion at December 31, 1992. Mortgage servicing revenues
totalled $9.5 million during 1994 compared with $7.0 million in 1993 and $3.6
million in 1992.
The remaining categories of other operating income increased 18.0 percent
over 1993. These revenues totaled $43.8 million in 1994, versus $37.1 million in
1993 and $42.9 million in 1992. Continued sales efforts, coupled with pricing
changes implemented during the year, contributed to the growth in miscellaneous
fees. The largest components of this group, non affiliate corporate services and
ATM network income, increased 51.7 percent and 17.3 percent, respectively, and
together, comprised $16.1 million of total non-interest income.
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NONBANK SERVICES TABLE VI
($ in thousands)
% Change
1994 1993 1992 1994/1993
- --------------------------------------------------------------------------------------------------------------------------
TRUST AND FINANCIAL SERVICES
Traditional trust assets........................................... $10,110,726 9,870,860 9,544,708 2.4%
Brokerage assets................................................... 1,480,100 1,260,720 1,143,491 17.4
Other assets....................................................... 1,628,056 1,446,407 1,244,339 12.6
- -------------------------------------------------------------------------------------------------------------
Total trust assets................................................. $13,218,882 12,577,987 11,932,538 5.1
- -------------------------------------------------------------------------------------------------------------
Parkstone funds retail sales....................................... $ 158,291 246,578 107,565 (35.8)
- -------------------------------------------------------------------------------------------------------------
Traditional trust income........................................... $ 59,844 56,677 51,142 5.6
Brokerage income................................................... 9,241 10,159 8,868 (9.0)
Investment management fees, cash management
fees and other................................................... 12,632 10,454 8,840 20.8
- -------------------------------------------------------------------------------------------------------------
Total trust income................................................. $ 81,717 77,290 68,850 5.7
- --------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING
Gains on sale of loans............................................. $ 11,697 29,456 15,230 (60.3)%
Servicing income................................................... 9,476 6,990 3,616 35.6
Loans sold servicing retained...................................... 836,384 1,386,000 594,144 (39.7)
Number of loans serviced at year-end............................... 138,602 130,837 130,829 5.9
- --------------------------------------------------------------------------------------------------------------------------
RETAIL CREDIT SERVICES
Visa/M.C. Gold outstanding......................................... $ 746,716 607,827 248,586 22.9
Other revolving outstanding........................................ 774,991 753,777 938,344 2.8
- -------------------------------------------------------------------------------------------------------------
Total revolving portfolio.......................................... $ 1,521,707 1,361,604 1,186,930 11.8
- -------------------------------------------------------------------------------------------------------------
Visa/M.C. Gold accounts............................................ 890,810 821,845 389,656 8.4
Other revolving accounts........................................... 1,182,613 1,282,421 1,287,216 (7.8)
- -------------------------------------------------------------------------------------------------------------
Total revolving cardholders........................................ 2,073,423 2,104,266 1,676,872 (1.5)
- -------------------------------------------------------------------------------------------------------------
Total revolving credit fees........................................ $ 43,216 39,964 36,216 8.1
- --------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE -- As detailed in Table V, non-interest expense was
$813.4 million in 1994, an increase of 6.5 percent over 1993's $763.5 million.
Excluding acquisitions, non-interest expense would have increased only 2.9
percent over a year ago. As a percent of average assets, non-interest expense
improved to 3.61 percent versus 3.72 percent in 1993 and 4.07 percent in 1992.
The largest component of First of America's non-interest expense is
personnel costs which were $430.6 million in 1994 versus $403.1 million in 1993
and $410.9 million in 1992. First of America added 721 employees through
acquisitions during the year, but partially offset this increase by reductions
due to internal initiatives. Included in the 1994 personnel expense was $3.9
million in one-time severance costs related to the company's internal
reorganization. The number of full time equivalent employees per one million
dollars in average assets, a measure of the internal efficiencies First of
America has been able to create through its continuing program of functional
consolidations, has declined each of the last five years. For 1994, this measure
was 0.56 full time equivalent employees per million dollars of average assets
compared with 0.63 in 1993 and 0.65 in 1992.
Net occupancy and equipment costs increased 7.5 percent in 1994 to $116.6
million compared with $108.5 million in 1993 and $120.4 million in 1992. The
1994 growth in this expense is largely the result of acquisitions. The 1992
total included $6.2 million in one-time costs for the write-off of duplicative
fixed assets from the Security Bancorp acquisition.
Other operating expenses, which included all other costs of doing business
such as outside data processing, advertising, supplies, travel, telephone,
professional fees and outside services purchased, were $207.6 million in 1994,
up 2.1 percent from 1993's total of
14
15
$203.4 million. This increase was primarily due to acquisitions offsetting
internal initiatives begun in August. As a percent of average assets, these
expenses were only 0.92 percent compared with 0.99 percent in 1993 and 0.96
percent in 1992.
With the ongoing consolidation of First of America's affiliate banks into
one bank in each state of operation, $15-$18 million in one-time restructuring
costs, principally severance, will be incurred during 1995. As a result of this
reorganization and internal cost cutting initiatives, the run-rate of operating
expenses, excluding 1994-1995 acquisitions, should be approximately five percent
lower than the 1994 levels by year-end 1995.
EFFICIENCY RATIO -- The efficiency ratio measures non-interest expense as a
percent of the sum of net interest income (FTE) and non-interest income. The
lower the ratio, the more efficiently a company's resources produce revenues.
Table V presents the efficiency ratio over the last five years. This ratio
increased to 65.59 percent versus 62.72 percent in 1993 as expenses grew faster
than revenue, which was slowed by the lower net interest margin. The efficiency
ratio was 68.58 percent in 1992. The burden ratio, another measure of
efficiency, compares an institution's non-interest expense, less non-interest
income, divided by average total assets. First of America's burden ratio was
2.35 percent, 2.30 percent and 2.74 percent for 1994, 1993 and 1992,
respectively. Both of these ratios for 1992 included one-time charges from the
Security Bancorp acquisition and the intangible asset write-down.
INCOME TAX EXPENSE -- Income tax expense was $102.6 million in 1994 compared
with $98.6 million in 1993 and $91.5 million in 1992. The primary reason for the
increased expense was the lower level of tax credits taken throughout the year,
which totalled $3.4 million in 1994 versus $7.9 million in 1993. A summary of
significant tax components is provided in Note 18 of the Notes to Consolidated
Financial Statements included later in this document.
CREDIT RISK PROFILE
First of America's community banking structure helps minimize its credit
risk exposure. Community banking means that loans are made in local markets to
consumers and small to mid-sized businesses from deposits gathered in the same
market. A centralized, independent loan review staff evaluates each affiliate's
loan portfolio on a regular basis and shares its evaluation with bank management
as well as corporate senior management.
First of America's loan portfolio includes a large percentage of smaller
loans to consumers which reduces total portfolio risk. This included at year-end
a distribution among consumer installment and revolving loans (35 percent),
one-to-four family residential mortgages and home equity loans (31 percent),
commercial loans (14 percent) and commercial mortgages (20 percent). First of
America does not have any concentrations of credit to any specific borrower or
within any geographic area. The total loan portfolio, as presented in Table VII,
was $16.8 billion at year-end 1994, up 17.0 percent from $14.4 billion a year
ago due to both acquisitions and internally generated growth.
COMPONENTS OF THE LOAN PORTFOLIO TABLE VII
($ in thousands)
December 31, 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
Consumer, net......................................... $ 5,799,025 5,062,173 4,288,431 4,060,126 3,566,844
Commercial, financial and agricultural................ 2,344,969 2,148,663 2,170,715 2,223,202 2,640,351
Real estate -- construction........................... 438,067 252,839 300,954 342,944 320,476
Real estate -- mortgage............................... 8,252,797 6,930,480 6,995,917 6,601,755 4,700,550
- ----------------------------------------------------------------------------------------------------------------------------
Total loans........................................... $16,834,858 14,394,155 13,756,017 13,228,027 11,228,221
- ----------------------------------------------------------------------------------------------------------------------------
CONSUMER LOANS -- First of America's consumer loan portfolio which includes
indirect and direct installment loans, credit cards and other revolving loans,
increased 14.6 percent over a year ago totalling $5.8 billion. Excluding
acquisitions, total consumer loans increased 13.4 percent over a year ago.
Credit cards increased 16.5 percent, indirect installment loans were up 15.9
percent and direct installment loans were up 14.6 percent.
Even with the double digit growth in consumer loans, gross charge-offs and
net charge-offs were down 5.5 percent and 15.1 percent, respectively, over 1993.
As a percent of average total consumer loans, net charge-offs were 0.87 percent
in 1994 versus 1.18 percent and 1.29 percent in 1993 and 1992, respectively.
During 1994, First of America repriced $161 million of its credit card
portfolio from 18 percent fixed rate cards to a lower variable rate product.
This repricing allowed First of America to reduce its attrition rate on credit
cards to 4.4 percent for 1994 from 5.8 percent in
15
16
1993. In addition, First of America's credit card portfolio has maintained
strong asset quality. In 1994, net charge-offs as a percent of average loans
were 2.14 percent compared with 2.40 percent the previous year; both measures
compare favorably with credit card industry experience.
RESIDENTIAL MORTGAGE LOANS -- Residential mortgage loans were $5.3 billion
at year-end 1994, up 27.2 percent over year-end 1993. First of America added
over $700 million to this category from the acquisitions during the year.
Excluding acquisitions, residential mortgages maintained solid growth and
increased 8.3 percent over last year. The residential mortgage portfolio
continued to have the strongest credit quality measurements when compared with
First of America's other portfolios. Net charge-offs as a percent of average
residential mortgage loans were 0.02 percent and 0.03 percent in 1994 and 1993,
respectively. This compares with 0.53 percent and 0.75 percent for the remaining
portfolios combined for 1994 and 1993.
At December 31, 1994, residential mortgage loans held for sale, originated
at prevailing market rates, totalled $30.2 million with a market value of $30.3
million. These residential mortgages are closed and therefore included in
outstandings on the balance sheet.
In addition, First of America has entered into commitments to originate
residential mortgage loans, at prevailing market rates, totalling $21.2 million
all of which are intended for sale. Mandatory commitments to deliver mortgage
loans or mortgage backed securities to investors, at prevailing market rates,
totalled $30.6 million as of December 31, 1994.
COMMERCIAL AND COMMERCIAL MORTGAGE LOANS -- First of America's commercial
and commercial mortgage loans are made in local markets to small to mid-sized
businesses. Investor/developer loans, made to serve local markets, totaled $1.7
billion at year-end 1994 versus $1.4 billion last year and were spread among
such diverse property types as retail, residential rental, office rental and
industrial. First of America has no foreign loans, no highly leveraged
transactions and no syndicated purchase participations. Maturity and rate
sensitivity of selected loan categories is presented in Table VIII.
First of America's non-performing commercial and commercial mortgages
totalled $82.8 million at year-end versus $114.1 million a year ago. One area of
strong improvement came from the southeastern Michigan region which lowered its
non-performing commercial and commercial mortgages by 26.9 percent or $16.6
million.
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS TABLE VIII
($ in thousands)
One year One year to After
December 31, 1994 or less five years five years Total
- -----------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural................................ $1,268,122 655,004 131,891 2,055,017
Commercial tax-exempt................................................. 40,515 89,916 159,521 289,952
Real estate construction.............................................. 291,244 108,227 38,596 438,067
- -----------------------------------------------------------------------------------------------------------------------------
Total................................................................. $1,599,881 853,147 330,008 2,783,036
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate...................................... $ 409,525 181,657 591,182
With floating or adjustable interest rates............................ 443,622 148,351 591,973
- -----------------------------------------------------------------------------------------------------------------------------
Total................................................................. $ 853,147 330,008 1,183,155
- -----------------------------------------------------------------------------------------------------------------------------
ASSET QUALITY -- Total non-performing loans, other real estate owned and
other loans of concern for the past five years are detailed in Table IX. Total
non-performing assets, which include nonaccrual loans, renegotiated loans and
other real estate owned, totaled $140.3 million at year-end 1994, compared with
$182.7 million at year-end 1993 and $196.0 million at year-end 1992. The current
improvement occurred across all of First of America's geographic regions, but
specifically in its southeast Michigan area. Non-performing assets in this
region were down 28.3 percent from a year ago. For the corporation,
non-performing loans as a percent of total loans at 0.60 percent reached its
lowest figure since the 0.79 percent reported at December 31, 1990. Similarly,
net charge-offs as a percent of average loans reached its lowest point since
1990 at 0.39 percent versus 0.53 percent for 1993 and 0.57 percent for 1992.
16
17
RISK ELEMENTS IN THE LOAN PORTFOLIO TABLE IX
($ in thousands)
December 31, 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
Non-accrual loans.............................................. $ 96,814 121,186 126,619 116,995 76,533
Restructured loans............................................. 4,852 10,879 20,669 16,837 12,234
Other real estate owned........................................ 38,662 50,595 48,699 34,601 17,620
-------- -------- -------- -------- --------
Non-performing assets........................................ 140,328 182,660 195,987 168,433 106,387
Past due loans 90 days or more (excluding the above two
categories).................................................. 18,208 23,462 20,887 32,499 31,380
Other loans of concern......................................... 31,653 53,206 37,663 37,189 23,361
- --------------------------------------------------------------------------------------------------------------------------
Total.......................................................... $190,189 259,328 254,537 238,121 161,128
- --------------------------------------------------------------------------------------------------------------------------
Other loans of concern which represent loans where known information about
possible credit problems of borrowers causes management concern about the
ability of such borrowers to comply with the present loan terms totaled $31.7
million at year-end 1994, a decrease of 40.5 percent from 1993's year-end total
of $53.2 million. While management has identified these loans as requiring
additional monitoring, they do not necessarily represent future non-performing
loans.
The allowance for loan losses is determined by management taking into
consideration past charge-off experience, estimated loss exposure on specific
loans and the current and projected economic climate. Quarterly each affiliate
evaluates the adequacy of its allowance for loan loss and their recommendations
are reviewed by corporate loan review management. Management's allocation of the
allowance for loan losses over the last five years is presented in Table X. The
amounts indicated for each loan type include amounts allocated for specific
loans as well as a general allocation.
The allowance coverage of non-performing loans at year-end 1994 was 224.38
percent compared with 142.86 percent at year-end 1993 and 120.03 percent at
year-end 1992. It was management's determination that the level of the allowance
was adequate to absorb potential loan losses. Other ratios measuring asset
quality and the adequacy of the allowance for loan losses are presented in Table
XI.
On January 1, 1995, First of America identified $82.8 million of impaired
loans under the guidelines of Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by Statement No. 118, "Accounting by Creditors
for Impairment of a Loan -- Income Recognition and Disclosures." This resulted
in a specifically identified allowance for impaired loan losses of $17.4
million, which was transferred from the general allowance.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES TABLE X
($ in thousands)
1994 1993 1992 1991 1990
------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
December 31, Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans*
------------------------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural............. $ 33,543 1.43% $ 39,231 1.83% $ 43,466 2.00% $ 49,129 2.21% $ 43,498 1.65%
Real estate................ 55,721 0.68 55,661 0.81 54,873 0.76 49,639 1.14 40,334 0.80
Consumer................... 76,235 1.31 69,633 1.38 52,847 1.23 54,333 1.34 44,000 1.23
Unallocated................ 62,616 0.37 24,139 0.17 25,607 0.19 21,781 0.16 9,180 0.08
- ------------------------------------------------------------------------------------------------------------------------------
Total...................... $228,115 $188,664 $176,793 $174,882 $137,012
- ------------------------------------------------------------------------------------------------------------------------------
Allowance to total loans... 1.36% 1.31 1.29 1.32 1.22
- ------------------------------------------------------------------------------------------------------------------------------
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
17
18
SUMMARY OF LOAN LOSS EXPERIENCE TABLE XI
($ in thousands)
December 31, 1994 1993 1992 1991 1990
- ----------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period........................ $ 188,664 176,793 174,882 137,012 126,175
Provision charged against income...................... 86,571 84,714 78,809 71,030 44,782
Allowance for loan losses of acquired/(sold) banks.... 11,420 50 (372) 27,094 11,185
RECOVERIES:
Commercial, financial and agricultural................ 7,277 8,692 7,215 8,616 11,010
Real estate -- construction........................... 51 -- -- -- --
Real estate -- mortgage............................... 2,404 2,615 2,112 1,487 1,741
Consumer loans........................................ 28,402 24,556 24,313 20,177 15,719
----------- ---------- ---------- ---------- ----------
Total recoveries...................................... 38,134 35,863 33,640 30,280 28,470
----------- ---------- ---------- ---------- ----------
CHARGE-OFFS:
Commercial, financial and agricultural................ 13,621 19,764 22,558 13,475 16,403
Real estate -- construction........................... 80 -- -- -- --
Real estate -- mortgage............................... 8,825 10,539 10,588 5,669 3,810
Consumer loans........................................ 74,148 78,453 77,020 71,390 53,387
----------- ---------- ---------- ---------- ----------
Total charge-offs..................................... 96,674 108,756 110,166 90,534 73,600
----------- ---------- ---------- ---------- ----------
Net charge-offs....................................... 58,540 72,893 76,526 60,254 45,130
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of period.............................. $ 228,115 188,664 176,793 174,882 137,012
- ----------------------------------------------------------------------------------------------------------------------------
Average loans (net of unearned income)................ $15,172,618 13,875,584 13,435,991 11,276,061 10,359,695
- ----------------------------------------------------------------------------------------------------------------------------
Earnings coverage of net losses....................... 7.00x 5.91 4.44 4.90 5.72
Allowance to total end of period loans................ 1.36% 1.31 1.29 1.32 1.22
Net losses to end of period allowances................ 25.66 38.64 43.29 34.45 32.94
Recoveries to total charge-offs....................... 39.45 32.98 30.54 33.45 38.68
Provision to average loans............................ 0.57 0.61 0.59 0.63 0.43
Net charge-offs to average loans...................... 0.39 0.53 0.57 0.53 0.44
- ----------------------------------------------------------------------------------------------------------------------------
FUNDING, LIQUIDITY AND INTEREST RATE RISK
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital or the sale of assets. Funding is
achieved through growth in core deposits and accessibility to the money and
capital markets.
DEPOSITS -- First of America's primary source of funding is its core
deposits which include all deposits except negotiated certificates of deposit.
As a percent of total deposits, core deposits were 94.8 percent at year-end 1994
and 95.6 percent at year-end 1993. First of America does not issue negotiated
CD's in the national money markets, and the level of purchased funds is strictly
limited by corporate policy to less than 10 percent of assets. The majority of
negotiated CD's and purchased funds originate from the core deposit customer
base, including downstream correspondents.
The loans to deposits ratio measures how well a company is using its lowest
cost source of funding which is typically its deposit base. As a percent of
total deposits, total loans were 83.3 percent compared with 78.9 percent and
76.3 percent for 1993 and 1992, respectively. Since loans are generally a higher
yielding asset than securities, this is a positive trend and represents a more
efficient use of funds.
The average deposit balances outstanding and the rates paid on those
deposits for the three years ended December 31, 1994, are presented in Table
XII. The maturity distribution of time deposits of $100,000 or more at year-end
1994 is detailed in Table XIII.
In addition to deposits, First of America's sources of funding include money
market borrowings, capital funds and long term debt. First of America entered
into a Three-Year Competitive Advance and Revolving Credit Facility Agreement
dated as of March 25, 1994 and amended by its First Amendment dated December 9,
1994 (collectively, the Credit Agreement). The Credit Agreement allows First
18
19
of America to borrow on a standby revolving credit basis and an uncommitted
competitive advance basis up to $350,000,000. The proceeds of all borrowings
made pursuant to the Credit Agreement will be used to provide working capital
and for other general corporate purposes. At December 31, 1994, the outstanding
balance under the Credit Agreement was $30.0 million.
On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which are not subject to redemption prior
to maturity and which qualify as tier II capital under the Federal Reserve
Board's capital guidelines. The proceeds received from the Notes were used to
discharge indebtedness incurred to fund the acquisition of the Goldome Federal
branches, to fund the repurchase of common stock and for other general corporate
purposes.
During August 1994, certain First of America bank subsidiaries began issuing
Bank Notes due from 30 days to 10 years from date of issue. The proceeds from
the sale of the notes were used for general corporate purposes by the issuing
banks. Total outstanding for all bank notes at December 31, 1994 was $515.4
million, of which $259.9 million was included in long term debt.
DEPOSITS TABLE XII
($ in thousands)
1994 1993 1992
Average Average Average
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------------------
Non-interest bearing...................................... $ 2,665,183 -- $ 2,463,534 -- $ 2,301,768 --
Savings and NOW accounts.................................. 3,385,164 1.59% 3,137,831 2.11% 2,820,091 3.07%
Money market savings and checking accounts................ 4,114,885 2.81 3,852,780 2.47 3,972,004 3.24
Time...................................................... 8,849,576 4.50 8,638,044 4.74 8,520,485 5.59
- ----------------------------------------------------------------------------------------------------------------------------------
Total..................................................... $ 19,014,808 $ 18,092,189 $ 17,614,348
- ----------------------------------------------------------------------------------------------------------------------------------
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE TABLE XIII
($ in thousands)
Three Three Six
months months to months to After
or less six months one year one year Total
- -----------------------------------------------------------------------------------------------------------------------------
Certificates of deposit..................................... $ 955,315 299,119 145,211 228,576 1,628,221
Other time deposits......................................... 61,803 38,494 22,514 54,116 176,927
- -----------------------------------------------------------------------------------------------------------------------------
Total....................................................... $1,017,118 337,613 167,725 282,692 1,805,148
- -----------------------------------------------------------------------------------------------------------------------------
INTEREST RATE RISK -- First of America's interest rate risk policy is to
attempt to minimize the effect on net income resulting from a change in interest
rates through asset/liability management at all levels in the company. Each
banking affiliate completes an interest rate analysis every month using an
asset/liability model, and a consolidated analysis is then completed using the
affiliates' data. The Asset and Liability Committees, which exist at each
banking affiliate and at the consolidated level, review the analysis and as
necessary, appropriate action is taken to maintain the net interest spread, even
in periods of rapid interest rate movement.
Interest rate swap transactions generally involve the exchange of fixed and
floating rate interest payment obligations without the exchange of the
underlying financial instrument. The company becomes a principal in the exchange
of interest payments with other parties and, therefore, is exposed to the loss
of future interest payments should the counterparty default. The company
minimizes this risk by performing normal credit reviews of its counterparties
and collateralizing its exposure when it exceeds a predetermined limit.
First of America had outstanding interest rate swap agreements at December
31, 1994, totalling $707.9 million in notional amounts versus $291.6 million at
December 31, 1993. This total included notional amounts of $125 million as a
hedge against the parent company's 8.50% Subordinated Notes Due February 1,
2004, $30 million against various fixed rate bank notes, $10 million against a
short term FHLB advance, $12 million against certain FirstRate Fund deposits and
the remainder, $530.9 million, as a hedge against certain Rising Rate and Market
Rate certificates of deposit. First of America had swaps of variable rate
instruments for fixed rate
19
20
instruments with notional amounts totalling $52.0 million, $633.8 million of
fixed rate instruments for variable rate instruments and $22.1 million
representing basis swaps.
The aggregate market value of interest rate swaps at year-end was a negative
$17.2 million. The full year 1994 impact from swap activity on net interest
income was a negative $260 thousand versus a positive $646 thousand impact for
1993. If interest rates increased one hundred basis points, First of America
would lose approximately $11.4 million in net interest income over the next
twelve months from its current interest rate swap agreements. Note 20 of the
Notes to Consolidated Financial Statements included later in this document
provides further detail on First of America's interest rate swap agreements
outstanding.
First of America also entered into interest rate cap agreements during the
fourth quarter as a means of managing interest rate risk relating to certain
FirstRate Fund deposits. These caps are agreements to receive payments for
interest rate differentials between an index rate and a specified maximum rate,
computed on notional amounts. As of December 31, 1994, First of America had
outstanding interest rate caps with notional amounts totaling $125 million, with
a market value of a positive $1.6 million.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities
and includes the impact of off-balance sheet interest rate swap and cap
agreements. Table XIV presents First of America's Gap position at December 31,
1994, for one year and shorter periods, and Table XV details the company's five
year Gap position. The Gap reports' reliability in measuring the risk to income
from a change in interest rates is tested through the use of simulation models.
Management has determined that these simulations provide a more meaningful
measurement of the company's interest rate risk positions than the following Gap
tables. At year-end 1994 simulation models showed that less than two percent of
First of America's annual net income was at risk if interest rates were to move
up or down an immediate one percent. First of America views the management of
its interest rate sensitive position as an ongoing process due to the effects of
changing economic conditions.
INTEREST RATE SENSITIVITY -- SHORT TERM TABLE XIV
($ in millions)
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1994 Days Days Days Days Days
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Other earnings assets.................................................. $ 55 55 55 55 55
Investment securities(1)............................................... 233 331 439 751 1,254
Loans, net of unearned discount(2)..................................... 5,004 5,548 5,934 6,981 8,874
- ------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)...................................... $5,292 5,934 6,428 7,787 10,183
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits............................................. $2,799 3,059 3,162 3,168 3,174
Other core savings and time deposits................................... 1,037 2,084 2,631 3,794 5,240
Negotiated deposits.................................................... 486 655 781 929 981
Borrowings............................................................. 1,899 1,982 2,002 2,100 2,133
Interest rate swap agreements(3)....................................... (506 ) (476 ) (468 ) (452) (180)
Interest rate cap agreements(3)........................................ 125 125 125 125 --
- ------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)................................. $5,840 7,429 8,233 9,664 11,348
- ------------------------------------------------------------------------------------------------------------------------------
GAP (RSA -- RSL)....................................................... $ (548 ) (1,495 ) (1,805 ) (1,877) (1,165)
- ------------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL..................................................... 80.58% 89.73
GAP divided by total assets............................................ (7.64) (4.74)
- ------------------------------------------------------------------------------------------------------------------------------
(1) Maturities of rate sensitive securities are based on contractual maturities
and estimated prepayments.
(2) Maturities of rate sensitive loans are based on contractual maturities,
estimated prepayments and estimated repricing.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest
rate caps are based on contractual maturities and estimated repricing.
20
21
INTEREST RATE SENSITIVITY -- LONG TERM TABLE XV
($ in millions)
13 to 25 to 37 to 0 to
December 31, 1994 24 Months 36 Months 60 Months 60 Months
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Other earnings assets.................................................. $ -- -- -- 55
Investment securities(1)............................................... 1,133 1,229 1,538 5,154
Loans, net of unearned discount(2)..................................... 2,324 1,534 1,655 14,387
- --------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)...................................... $ 3,457 2,763 3,193 19,596
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits............................................. $ 123 56 79 3,432
Other core savings and time deposits................................... 3,801 899 1,090 11,030
Negotiated deposits.................................................... 39 4 6 1,030
Borrowings............................................................. 1 -- -- 2,134
Interest rate swap agreements(3)....................................... 130 25 25 --
Interest rate cap agreements(3)........................................ -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)................................. $ 4,094 984 1,200 17,626
- --------------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)........................................................ $ (637) 1,779 1,993 1,970
- --------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL..................................................... 111.18%
GAP divided by total assets............................................ 8.02
- --------------------------------------------------------------------------------------------------------------------------
(1) Maturities of rate sensitive securities are based on contractual maturities
and estimated prepayments.
(2) Maturities of rate sensitive loans are based on contractual maturities,
estimated prepayments and estimated repricing.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest
rate caps are based on contractual maturities and estimated repricing.
CAPITAL STRENGTH
REGULATORY REQUIREMENTS -- First of America's capital policy is to maintain
its capital levels above minimum regulatory guidelines. At December 31, 1992,
the Federal Reserve required a tier I risk based capital ratio of 4.00 percent
and a total risk based capital ratio of 8.00 percent. In 1991, the Federal
Reserve also adopted a new leverage capital adequacy standard. This ratio
compares tier I capital to reported total assets and requires a minimum ratio of
4.00 percent in order to be categorized as adequately capitalized. As shown in
Table XVI, at December 31, 1994, First of America's capital ratios exceeded
required regulatory minimums with a tier I risk based ratio of 8.44 percent, a
total risk based ratio of 11.85 percent and a tier I leverage ratio of 5.81
percent. On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which qualifies as Tier II capital. The
issuance of this debt, earnings retention and additional equity issued in
acquisitions combined to more than offset the prepayment of the $21.4 million
9.25% Senior Notes, the $122.9 million reduction in capital from the stock
repurchase and the goodwill added from acquisitions in increasing the total
capital ratio over a year ago. Capital ratios exclude the mark-to-market
adjustment for Available for Sale securities in accordance with the Federal
Reserve's regulations.
The long term debt which qualified as tier II capital at December 31, 1994,
consisted of $150 million in 8.5% Subordinated Notes Due February 1, 2004, a
$10.0 million 6.35% Subordinated Note which matures ratably over a five year
period beginning December 31, 2003, $6.2 million in 10.675% Subordinated Notes
due in equal installments through 1998 and the above mentioned $200 million in
7.75% Subordinated Notes Due July 15, 2004. This debt is included in tier II
capital on a weighted maturity basis. Additional information relating to First
of America's various long term debt agreements is provided in Note 11 of the
Notes to Consolidated Financial Statements included later in this document.
21
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RISK-BASED CAPITAL TABLE XVI
($ in thousands)
December 31, 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
TIER I CAPITAL:
Common shareholders' equity........................................................ $1,671,159 1,491,906 1,260,905
Less: Intangibles.................................................................. 252,979 138,423 124,179
Qualifying preferred stock......................................................... -- -- 74,586
- --------------------------------------------------------------------------------------------------------------------------
Tier I Capital..................................................................... $1,418,180 1,353,483 1,211,312
- --------------------------------------------------------------------------------------------------------------------------
TIER II CAPITAL:
Allowance for loan losses*......................................................... 210,164 179,094 168,539
Qualifying long term debt.......................................................... 361,867 167,396 173,238
- --------------------------------------------------------------------------------------------------------------------------
Tier II Capital.................................................................... $ 572,031 346,490 341,777
- --------------------------------------------------------------------------------------------------------------------------
Total Capital...................................................................... $1,990,211 1,699,973 1,553,089
- --------------------------------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS:
Tier I............................................................................. 8.44% 9.45 8.99
Total.............................................................................. 11.85 11.87 11.53
Tier I leverage ratio.............................................................. 5.81 6.43 6.10
- --------------------------------------------------------------------------------------------------------------------------
* Limited to 1.25% of total risk-weighted assets.
TOTAL SHAREHOLDERS' EQUITY -- First of America's total shareholders' equity
increased 3.6 percent to $1.6 billion at year-end 1994, primarily as a result of
net earnings retention and the additional capital from acquisitions offsetting
the negative $121.9 million change in the FAS 115 adjustment from a year ago and
the $123.4 million reduction in capital from the stock repurchase program.
In the acquisitions of LGF Bancorp, Inc., First Park Ridge Corporation, F&C
Bancshares, Inc. and Presidential Holding Corporation, First of America issued
1,645,245 shares, 2,199,733 shares, 2,132,105 shares and 704,515 shares of First
of America Common Stock, respectively. The shares issued for the LGF Bancorp,
Inc. and First Park Ridge Corporation acquisitions included shares that were
repurchased through the stock repurchase program. During 1994, First of America
repurchased 3,369,400 shares out of a potential four million shares approved by
the Board of Directors for repurchase.
IN CONCLUSION
Results for 1994 were below both investment analysts' forecasts and
management's expectations for the company. Management, however, remains
committed to the long term performance goals previously set for the company of a
return on assets of 1.25 percent or higher, an efficiency ratio of 60 percent or
lower and a return on equity between 17 percent and 18 percent. Although 1994
results were disappointing, the acquisitions completed during 1994 and the
internal initiatives to further streamline operations and delivery of services
should strengthen the company for the long term in the increasingly competitive
financial services market.
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23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The following consolidated financial statements and accompanying notes to
the consolidated financial statements of First of America have been prepared by
management, which has the responsibility for their integrity and objectivity.
The statements have been prepared in accordance with generally accepted
accounting principles to reflect, in all material respects, the substance of
financial events and transactions occurring during the respective periods.
In meeting its responsibility, management relies on First of America's
accounting systems and related internal controls. These systems are designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. Augmenting these systems are written policies and procedures and
audits performed by First of America's internal audit staff.
The consolidated financial statements and notes to the consolidated
financial statements of First of America, have been audited by the independent
certified public accounting firm, KPMG Peat Marwick LLP, which was engaged to
express an opinion as to the fairness of presentation of such financial
statements.
Daniel R. Smith Thomas W. Lambert
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
LETTER OF AUDIT COMMITTEE CHAIRMAN
The audit committee of the Board of Directors is composed of seven
independent directors with Robert L. Hetzler as chairman. The committee held
five meetings during fiscal year 1994.
The audit committee oversees First of America's financial reporting process
on behalf of the Board of Directors. In fulfilling its responsibility, the
committee recommended to the Board of Directors, subject to shareholder
approval, the selection of First of America's independent auditor. The audit
committee discussed with the internal auditor and the independent auditor the
overall scope and specific plans for their respective audits. The committee
additionally discussed First of America's consolidated financial statements and
the adequacy of First of America's internal controls. The committee also met
with First of America's internal auditor and independent auditor, without
management present, to discuss the results of their audits, their evaluations of
First of America's internal controls and the overall quality of First of
America's financial reporting. This meeting was designed to facilitate private
communications between the committee, the internal auditor and the independent
auditor.
The audit committee believes that, for the period ended December 31, 1994,
its duties, as indicated, were satisfactorily discharged and that First of
America's system of internal controls is adequate.
Robert L. Hetzler
Chairman
Audit Committee
23
24
REPORT OF INDEPENDENT AUDITORS
To the Shareholders and Board of Directors,
First of America Bank Corporation:
We have audited the accompanying consolidated balance sheets of First of
America Bank Corporation and its subsidiaries as of December 31, 1994 and 1993
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1994. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of First of
America Bank Corporation and its subsidiaries as of December 31, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/s/ KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 18, 1995
24
25
CONSOLIDATED BALANCE SHEETS
($ in thousands)
December 31, 1994 1993
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks....................................................... $ 1,060,788 903,517
Bank time deposits............................................................ 34,883 2,000
Federal funds sold and resale agreements...................................... 20,388 72,909
Securities:
Securities held to maturity, market value of $2,942,793 at December 31, 1994
and $1,872,326 at December 31, 1993....................................... 3,112,876 1,856,623
Securities available for sale, amortized cost of $2,694,929 at December 31,
1994 and $3,212,687 at December 31, 1993.................................. 2,587,626 3,261,481
Loans, net of unearned income:
Consumer.................................................................... 5,799,025 5,062,173
Commercial, financial and agricultural...................................... 2,344,969 2,148,663
Commercial real estate...................................................... 3,423,268 2,902,549
Residential real estate..................................................... 5,237,400 3,914,914
Loans held for sale, market value of $30,310 for 1994 and $368,846 for
1993...................................................................... 30,196 365,856
----------- ----------
Total loans............................................................... 16,834,858 14,394,155
Less: Allowance for loan losses........................................... 228,115 188,664
----------- ----------
Net loans................................................................. 16,606,743 14,205,491
Premises and equipment, net................................................... 476,165 432,256
Other assets.................................................................. 669,233 496,194
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................................................. $24,568,702 21,230,471
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................................ $ 2,810,203 2,682,621
Interest bearing............................................................ 17,390,063 15,561,082
----------- ----------
Total deposits............................................................ 20,200,266 18,243,703
Securities sold under repurchase agreements................................... 583,184 664,531
Other short term borrowings................................................... 1,299,555 330,047
Long term debt................................................................ 681,236 254,193
Other liabilities............................................................. 225,573 214,560
----------- ----------
Total liabilities....................................................... 22,989,814 19,707,034
----------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value:
Authorized Outstanding
1994 100,000,000 62,849,209
1993 100,000,000 59,520,710......................................... 628,492 595,207
Capital surplus............................................................... 284,877 265,596
Net unrealized gain/(loss) on securities available for sale, net of tax
benefit of $15,032 for 1994 and net of tax expense of $17,263 for 1993...... (92,271) 31,531
Retained earnings............................................................. 757,790 631,103
----------- ----------
Total shareholders' equity................................................ 1,578,888 1,523,437
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $24,568,702 21,230,471
- -------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
25
26
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
Year ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans............................................................ $ 1,277,950 1,217,139 1,282,434
Securities:
Taxable income................................................................... 303,098 262,871 274,048
Tax exempt income................................................................ 17,480 28,102 30,555
Federal funds sold and resale agreements........................................... 2,229 2,744 6,685
Bank time deposits................................................................. 120 110 2,405
----------- --------- ---------
Total interest income.............................................................. 1,600,877 1,510,966 1,596,127
----------- --------- ---------
INTEREST EXPENSE
Deposits........................................................................... 567,935 570,499 691,603
Short term borrowings.............................................................. 60,389 18,546 8,104
Long term debt..................................................................... 33,818 19,904 21,593
----------- --------- ---------
Total interest expense............................................................. 662,142 608,949 721,300
----------- --------- ---------
NET INTEREST INCOME................................................................ 938,735 902,017 874,827
Provision for loan losses.......................................................... 86,571 84,714 78,809
----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................................ 852,164 817,303 796,018
----------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts................................................ 89,164 84,648 79,522
Trust and financial services income................................................ 81,717 77,290 68,850
Investment securities transactions, net............................................ 5,349 16,753 14,993
Other operating income............................................................. 108,143 113,493 97,951
----------- --------- ---------
Total non-interest income.......................................................... 284,373 292,184 261,316
----------- --------- ---------
NON-INTEREST EXPENSE
Personnel.......................................................................... 430,563 403,119 410,854
Occupancy, net..................................................................... 60,471 55,093 57,286
Equipment.......................................................................... 56,111 53,376 63,134
Outside data processing............................................................ 17,524 14,963 10,380
Amortization of intangibles........................................................ 16,577 8,902 38,336
Other operating expenses........................................................... 232,172 228,075 216,358
----------- --------- ---------
Total non-interest expense......................................................... 813,418 763,528 796,348
----------- --------- ---------
Income before income taxes, and cumulative effect of prior years' change in
accounting principle............................................................. 323,119 345,959 260,986
Income taxes....................................................................... 102,616 98,574 91,506
----------- --------- ---------
Income before cumulative effect of prior years' change in accounting principle..... 220,503 247,385 169,480
Cumulative effect of prior years' change in accounting for postretirement benefits
other than pensions, net of income tax benefit of $11,446........................ -- -- 21,956
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME......................................................................... $ 220,503 247,385 147,524
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK.............................................. $ 220,503 241,232 135,015
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON AND COMMON EQUIVALENT SHARE
PRIMARY:
Income before cumulative effect of prior years' change in accounting principle..... $ 3.69 4.20 2.86
Cumulative effect of prior years' change in accounting principle................... -- -- 0.40
Net income......................................................................... 3.69 4.20 2.46
FULLY DILUTED:
Income before cumulative effect of prior years' change in accounting principle..... 3.69 4.14 2.85
Cumulative effect of prior years' change in accounting principle................... -- -- 0.37
Net income......................................................................... 3.69 4.14 2.46
- ---------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
26
27
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands, except per share data)
Net Unrealized Gain
Preferred Common Capital (Loss) on Securities Retained
Stock Stock Surplus Available for Sale Earnings Total
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1992.................... $ 165,551 535,374 150,417 -- 416,026 1,267,368
Net Income.................................. 147,524 147,524
Issuance of stock:
Acquisition of subsidiaries................ 2,672 3,149 5,821
Other...................................... 2,068 353 515 2,936
Repurchase and conversions.................. (90,965) 30,027 57,371 (3,567)
Cash dividends declared:
Preferred.................................. (12,509 ) (12,509)
Common:
First of America -- $1.34 per share...... (68,598 ) (68,598)
Security Bancorp -- $.25 per share....... (3,484 ) (3,484)
--------- -------- -------- -------- -------- ---------
BALANCE, DECEMBER 31, 1992.................. 74,586 570,141 211,290 -- 479,474 1,335,491
Net Income.................................. 247,385 247,385
Issuance of stock:
Acquisition of subsidiaries................ 957 3,026 3,983
Stock Options Exercised.................... 526 606 1,132
Other...................................... 29 (358) (329)
Repurchase and conversions.................. (74,586) 23,554 51,032 --
Implementation of change in accounting for
securities
available for sale, net of tax of
$17,263.................................... 31,531 31,531
Cash dividends declared:
Preferred.................................. (6,153 ) (6,153)
Common -- $1.50 per share.................. (89,603 ) (89,603)
--------- -------- -------- -------- -------- ---------
BALANCE, DECEMBER 31, 1993.................. -- 595,207 265,596 31,531 631,103 1,523,437
Net Income.................................. 220,503 220,503
Issuance of stock:
Acquisition of subsidiaries................ 66,747 109,000 (1,929) 5,618 179,436
Stock Options Exercised.................... 232 228 460
Other...................................... (268) (268)
Repurchase and conversions.................. (33,694) (89,679) (123,373)
Change in market value adjustment of
securities
available for sale, net of tax benefit of
$15,032.................................... (121,873) (121,873)
Cash dividends declared:
Common -- $1.64 per share.................. (99,434 ) (99,434)
- ------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994.................. $ -- 628,492 284,877 (92,271) 757,790 1,578,888
- ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
27
28
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 220,503 247,385 147,524
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 46,295 39,838 45,711
Provision for loan losses.................................................... 86,571 84,714 78,809
Provision for deferred taxes................................................. (4,974) (7,514) (9,782)
Amortization of intangibles.................................................. 16,577 8,902 38,336
(Gain) loss on sale of investment securities................................. -- -- (14,993)
(Gain) loss on sale of loans................................................. -- -- (15,230)
(Gain) loss on sale of securities available/held for sale.................... (5,349) (16,753) --
(Gain) loss on sale of mortgage loans held for sale.......................... (11,697) (29,456) --
(Gain) loss on sale of other assets.......................................... 625 (638) (4,264)
Proceeds from the sales of mortgage loans held for sale...................... 953,310 1,618,695 902,482
Net other (increase) decrease in mortgage loans held for sale................ (605,953) (1,891,928) --
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable.................. (4,031) (35,868) (2,812)
(Increase) decrease in other assets.......................................... 42,044 136,955 126,752
Increase (decrease) in accrued expenses and other liabilities................ 1,510 32,947 15,116
----------- ---------- ----------
Net cash from operating activities....................................... 735,431 187,279 1,307,649
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sales of investment securities (held to maturity)............ -- -- 723,591
Proceeds from the maturities of investment securities (held to maturity)....... 448,395 921,031 1,709,475
Purchases of investment securities (held to maturity).......................... (1,718,714) (2,820,565) (2,943,348)
Proceeds from the sale of securities available/held for sale................... 1,776,724 1,269,875 150,820
Proceeds from the maturities of securities available/held for sale............. 843,109 433,191 --
Purchases of securities available/held for sale................................ (1,649,902) (262,301) --
Net other (increase) decrease in loans and leases.............................. (2,039,577) (398,592) (1,464,607)
Premises and equipment purchased............................................... (68,993) (93,203) (37,090)
Proceeds from the sale of premises and equipment............................... 3,500 2,337 6,852
(Acquisition) sale of affiliates, net of cash acquired......................... 352,131 475,263 11,052
----------- ---------- ----------
Net cash flows provided by investing activities.......................... (2,053,327) (472,964) (1,843,255)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits................................. 504,409 50,203 486,056
Net increase (decrease) in time deposits....................................... (97,744) (364,628) 23,095
Net increase (decrease) in short term borrowings............................... 861,310 656,055 55,797
Proceeds from issuance of long term debt....................................... 738,701 222,475 151,438
Repayments of long term debt................................................... (311,658) (202,333) (177,785)
Payments for redemption of preferred stock..................................... -- -- (3,567)
Proceeds from issuance of common stock......................................... 460 1,132 2,883
Dividends paid................................................................. (96,670) (92,333) (83,824)
Payments for purchase and retirement of common stock........................... (123,373) -- --
Other, net..................................................................... (268) (329) (105)
----------- ---------- ----------
Net cash provided by financing activities................................ 1,475,167 270,242 453,988
----------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 157,271 (15,443) (81,618)
Cash and Cash Equivalents at Beginning of Year................................. 903,517 918,960 1,000,578
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END.......................................... $ 1,060,788 903,517 918,960
- -------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
28
29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry. The significant accounting and reporting policies of First
of America Bank Corporation and its subsidiaries follow.
CONSOLIDATION:
The consolidated financial statements include the accounts of First of
America and its subsidiaries, after elimination of significant intercompany
transactions and accounts. Goodwill, the cost over the fair value of assets
acquired, is amortized on a basis which matches the periods estimated to be
benefitted ranging from five to forty years. First of America's current policy
is to amortize goodwill generated from acquisitions over a fifteen year period
and core deposit intangibles over their estimated lives, not to exceed ten
years.
BASIS OF PRESENTATION:
Certain amounts in the prior years' financial statements have been
reclassified to conform with the current financial statement presentation. First
of America uses the accrual basis of accounting for financial reporting
purposes, except for immaterial sources of income and expenses which are
recorded when received or paid.
SECURITIES:
In 1993, the Financial Accounting Standards Board issued Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
for fiscal years beginning after December 15, 1993 with earlier adoption
allowed. First of America adopted Statement No. 115 at December 31, 1993.
In accordance with Statement No. 115, Securities Held to Maturity include
only those securities which First of America has the positive intent and ability
to hold until maturity. Such securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed in a manner which
approximates the interest method. Using the specific identification method, the
adjusted cost of each security sold is used to compute realized gains or losses
on the sales of these securities.
In accordance with Statement No. 115, Securities Available for Sale include
those securities which would be available to be sold prior to final maturity in
response to asset-liability management needs. Using the specific identification
method such securities are carried at market value with a corresponding market
value adjustment carried as a separate component of the equity section of the
balance sheet on a net of tax basis. The adjusted cost of each security sold is
used to compute realized gains or losses on the sales of these securities.
Securities held for sale are recorded at the lower of aggregate cost or
estimated fair value and are primarily U.S. Treasury and Agency securities.
LOANS HELD FOR SALE:
Loans held for sale consist of fixed rate and variable rate residential
mortgage loans with maturities of fifteen to thirty years. Such loans are
recorded at the lower of aggregate cost or estimated fair value.
ALLOWANCE FOR LOAN LOSSES:
Losses on loans are charged to the allowance for loan losses. The allowance
is increased by recoveries of principal and interest previously charged to the
allowance and by a provision charged against income. Management determines the
adequacy of the allowance based on reviews of individual loans, recent loss
experience, current economic conditions, risk characteristics of various
categories of loans and such other factors which, in management's judgement,
deserve recognition in estimating possible loan losses.
On January 1, 1995, First of America adopted Financial Accounting Standards
Board Statement No. 114, "Accounting by Creditors for Impairment of a Loan," as
amended by Statement No. 118, "Accounting by Creditors for Impairment of a Loan
- -- Income Recognition and Disclosures." Under the provisions of Statement No.
114, a separate allowance for loan losses will be identified for impaired loans
as defined by the statement. On January 1, 1995, First of America identified
$82.8 million of impaired loans under the guidelines of
29
30
Statement No. 114. This resulted in an allowance for impaired loan losses of
$17.4 million which was transferred from the general allowance.
PREMISES AND EQUIPMENT:
Premises and equipment are stated at cost, less accumulated depreciation,
and include capital leases, expenditures for new facilities and additions which
materially extend the useful lives of existing premises and equipment.
Expenditures for normal repairs and maintenance are charged to operations as
incurred. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal, and the resulting gains or losses are reflected in operations.
Depreciation is computed principally by the straight-line method and is
charged to operations over the estimated useful lives of the assets. Capital
leases and leasehold improvements are being amortized over the lesser of the
remaining term of the respective lease or the estimated useful life of the
asset.
NON-PERFORMING LOANS:
Loans are considered non-performing when placed in non-accrual status or
when terms are renegotiated meeting the definition of troubled debt
restructuring of Financial Accounting Standards Board Statement No. 15,
"Accounting by Debtors and Creditors for Troubled Debt Restructuring."
Loans are placed in non-accrual status when, in the opinion of management,
there is doubt as to collectibility of interest or principal, or when principal
or interest is past due 90 days or more, and the loan is either not well secured
or not in the process of collection. Consumer and revolving loans are generally
charged off when payments are 120 days past due.
Loans are considered to be renegotiated when concessions have been granted,
such as reduction of interest rates or deferral of interest or principal
payments, as a result of the borrower's financial condition.
OTHER REAL ESTATE OWNED:
Other real estate owned includes, primarily, properties acquired through
foreclosure or deed in lieu of foreclosure and in-substance foreclosure. Other
real estate is recorded in other assets at the lower of the amount of the loan
balance plus unpaid accrued interest or the current fair value. Any write-down
of the loan balance to fair value when the property is acquired is charged to
the allowance for loan losses. Subsequent market write-downs, operating
expenses, and gains or losses on the sale of other real estate are charged or
credited to other operating expense.
INTEREST INCOME ON LOANS:
Interest income on loans is recognized over the terms of the loans based on
the unpaid principal balance. Interest accrual on loans is discontinued when, in
the opinion of management, the ultimate full collection of both principal and
interest is in doubt. Interest previously accrued on charged off loans is
reversed, by charging interest income, to the extent of the amount included in
current year income. The excess, if any, is charged to the allowance for loan
losses.
ACCOUNTING FOR LOAN FEES:
Non-refundable loan origination fees and direct loan origination costs are
deferred and amortized as an adjustment of yield by a method that approximates
the interest method. The deferred fees and costs are netted against outstanding
loan balances. When a loan is placed into non-accrual status, amortization of
the loan fees and costs is stopped until the loan returns to accruing status.
Deferred fees and costs related to credit card loans are included in other
assets and other liabilities and are amortized to non-interest income over the
life of the loans.
INCOME TAX:
Income taxes are accounted for under the asset and liability method in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". Deferred tax assets and liabilities are
recognized for the future tax consequences attributable to differences between
the financial statement carrying amounts of existing assets and liabilities and
their respective tax
30
31
bases. Deferred tax assets and liabilities are measured using enacted tax rates
expected to apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. Under Statement No. 109,
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
POST-EMPLOYMENT BENEFITS:
In 1993, the Financial Accounting Standards Board issued Statement No. 112,
"Employers' Accounting for Post-employment Benefits," effective for fiscal years
beginning after December 15, 1993. Statement No. 112 requires employers to
recognize the obligation to provide post-employment benefits, such as salary
continuation, supplemental unemployment benefits and severance benefits, if the
obligation is attributable to employees' services already rendered. Management
determined that First of America was in compliance with Statement No. 112 prior
to its issuance and accordingly there was no financial statement impact.
INTEREST RATE SWAPS:
At December 31, 1994, First of America adopted the provisions of Financial
Accounting Standards Board Statement No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," effective
December 31, 1994.
In accordance with Statement No. 119, for all derivative financial
instruments, an entity is required to disclose the following for each category:
The face or contract amount and the nature and terms, including, the credit and
market risk, cash requirements and related accounting policies. The corporation
and its subsidiaries have entered into interest rate swaps as a hedge against
certain deposit and debt liabilities in an attempt to manage interest rate
sensitivity. The contracts represent an exchange of interest payments and the
underlying principal balances of the assets or liabilities are not affected. Net
settlement amounts are reported as adjustments to interest income or interest
expense. Gains and losses from the termination of interest rate swaps are
deferred and amortized over the remaining lives of the designated balance sheet
liability. When the swap becomes uncovered during the swap agreement period, the
swap is immediately marked-to-market with a corresponding charge to current
earnings.
NOTE 2: BUSINESS COMBINATIONS
Information relating to mergers and acquisitions for the three year period
ended December 31, 1994 follows.
Intangible
Financial Number of Assets
Date of Reporting Common Cash Paid/ Acquired at
Acquisition Value* Shares Issued Debt Issued Acquisition
- ------------------------------------------------------------------------------------------------------------------------------
Presidential Holding Corp. (Florida).............. Dec. 31, 1994 $ 6,714,000 704,515 -- **
F&C Bancshares, Inc. (Florida).................... Dec. 31, 1994 35,064,000 2,132,105 -- **
First Park Ridge Corp. (Illinois)................. Oct. 1, 1994 75,890,000 2,199,733 -- $40,461,000
LGF Bancorp, Inc. (Illinois)...................... May 1, 1994 61,902,000 1,645,245 -- 25,664,000
Goldome Federal Branches (Florida)................ Apr. 15, 1994 60,015,000 -- $58,380,000 60,015,000
Citizens Federal Branches (Illinois).............. Aug. 26, 1993 20,224,000 -- 20,098,000 20,244,000
Kewanee Investing Co., Inc. (Illinois)............ April 1, 1993 3,983,000 95,668 1,025,000
First Petersburg Bancshares, Inc. (Illinois)...... July 1, 1992 5,934,000 267,184 -- **
Security Bancorp, Inc. (Michigan)................. May 1, 1992 207,493,000 17,744,000 -- ***
- ------------------------------------------------------------------------------------------------------------------------------
* Includes direct acquisition costs on all purchased affiliates.
** Accounted for as a pooling of interests with no restatement of prior periods
as the amounts involved were not material to First of America.
*** Accounted for as a pooling of interests with restatement of prior periods.
Goodwill, the cost over the fair value of assets acquired, is amortized on a
basis which matches the periods estimated to be benefitted ranging from five to
forty years. Core deposit premiums are amortized over ten years approximating
the benefitted periods. All intangible assets are reviewed annually for
permanent impairment using a discounted cash flow analysis. Total intangibles,
which is
31
32
included in other assets in the Consolidated Balance Sheets, amounted to
$252,979,000 at December 31, 1994 and $138,423,000 at December 31, 1993.
NOTE 3: RESTRICTIONS ON CASH AND DUE FROM BANKS
Federal regulations require First of America to maintain as reserves,
minimum cash balances based on deposit levels at subsidiary banks. Cash balances
restricted from usage due to these requirements were $296,840,000 and
$297,497,000 at December 31, 1994 and 1993, respectively.
NOTE 4: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1994 and 1993. There were no noncash investing
activities related to acquisitions during 1992.
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
- ------------------------------------------------------------------------------------------------------------------------------
PURCHASE OF AFFILIATES
1994
Goldome Federal Branches...................................... $ 59,204 378,064 -- (318,860)
LGF Bancorp, Inc.............................................. 425,819 365,695 61,902 (1,778)
First Park Ridge Corporation.................................. 352,077 291,563 75,890 (15,376)
1993
Citizens Federal Branches..................................... 25,113 499,337 -- (474,224)
Kewanee Investing Company..................................... 28,737 25,793 3,983 (1,039)
- ------------------------------------------------------------------------------------------------------------------------------
The following schedule details supplemental disclosures for the cash flow
statements:
Assets Assets
Transferred Transferred to
Loans to Securities Securities Held Total Interest Total Income
($ in thousands) Securitized Available for Sale for Sale Paid Taxes Paid
- ------------------------------------------------------------------------------------------------------------------------------
1994.................................... $ 38,838 -- -- 641,886 115,193
1993.................................... 113,380 3,212,687 465,697 576,945 108,399
1992.................................... -- -- 740,151 769,865 104,385
- ------------------------------------------------------------------------------------------------------------------------------
NOTE 5: SECURITIES
The amortized cost and estimated market value of Securities Held to Maturity
at December 31, 1994 and 1993 follow.
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $2,296,929 2,169,536 1,452,922 1,455,434
State and municipal securities......................................... 244,298 245,559 361,612 374,803
Other securities....................................................... 571,649 527,698 42,089 42,089
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $3,112,876 2,942,793 1,856,623 1,872,326
- ---------------------------------------------------------------------------------------------------------------------------
32
33
The following table details the gross unrealized gains and losses for
Securities Held to Maturity at December 31, 1994 and 1993.
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $ 910 128,303 11,489 8,977
State and municipal securities......................................... 4,091 2,830 13,593 402
Other securities....................................................... -- 43,951 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $5,001 175,084 25,082 9,379
- ------------------------------------------------------------------------------------------------------------------------------
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1994 and 1993 follow.
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $2,512,227 2,408,432 2,849,863 2,898,961
State and municipal securities......................................... 1,521 1,523 340,322 339,760
Collateralized mortgage obligations.................................... 99,451 96,040 22,502 22,760
Other securities....................................................... 81,730 81,631 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $2,694,929 2,587,626 3,212,687 3,261,481
- ---------------------------------------------------------------------------------------------------------------------------
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1994 and 1993.
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $436 104,231 52,371 3,273
State and municipal securities......................................... 2 -- 491 1,053
Collateralized mortgage obligations.................................... 22 3,433 303 45
Other securities....................................................... -- 99 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $460 107,763 53,165 4,371
- ------------------------------------------------------------------------------------------------------------------------------
First of America's December 31, 1993 adoption of Statement No. 115 resulted
in a positive $31,531,000 mark-to-market adjustment to equity, net of
$17,263,000 in taxes, from net unrealized gains on the Securities Available for
Sale portfolio. At December 31, 1994, the mark-to-market adjustment to equity
was a negative $92,271,000, net of a tax benefit of $15,032,000.
Except as indicated below, total securities of no individual state,
political subdivision or other issuer exceeded 10% of shareholders' equity at
December 31, 1994. At December 31, 1994 and 1993, the book value of securities
issued by the State of Michigan and all of its political subdivisions totaled
approximately $150,978,000 and $189,536,000, respectively, with a market value
of approximately $151,074,000 and $194,238,000, respectively. The securities at
December 31, 1994, represent a wide range of ratings, all of "investment grade"
with a substantial portion rated A-1 or higher. First of America has no
concentration of credit risk in its investment portfolio.
Assets, principally securities, carried at approximately $1,467,908,000 at
December 31, 1994, and $1,394,103,000 at December 31, 1993, were pledged to
secure public deposits, exercise trust powers and for other purposes required or
permitted by law.
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34
SECURITIES HELD TO MATURITY
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in thousands)
Five years to ten
December 31, 1994 One year or less One year to five years years
- ------------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities......... $ -- -- --% $ 107 107 5.80 % $ -- -- -- %
U.S. agency securities............. 69,082 68,755 6.39 2,104,988 2,138,680 5.69 85,359 89,387 7.21
State and municipal securities*.... 95,523 95,274 5.64 117,713 116,690 6.29 24,889 24,702 6.74
Collateralized mortgage
obligations....................... -- -- -- 483,344 523,317 6.02 41,050 44,989 6.58
Other securities................... 76 76 10.00 2,720 2,759 6.80 508 507 6.37
- ------------------------------------------------------------------------------------------------------------------------------------
Total.............................. $164,681 164,105 5.96% $2,618,872 2,781,553 5.78 % $151,806 159,585 6.96%
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of------
amortized cost.................... 100.35% 94.15% 95.13%
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 After ten years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized
Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities......... $ -- -- -- % $ 107 107 5.80 %
U.S. agency securities............. -- -- -- 2,169,429 2,296,822 5.77
State and municipal securities*.... 7,434 7,632 6.54 245,559 244,298 6.09
Collateralized mortgage
obligations....................... -- -- -- 524,394 568,307 6.07
Other securities................... -- -- -- 3,304 3,342 6.81
- ------------------------------------------------------------------------------------------------------------------------------------
Total.............................. $7,434 7,632 6.54 % $2,942,793 3,112,876 5.85 %
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.................... 97.41% 94.54%
- ------------------------------------------------------------------------------------------------------------------------------------
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in thousands)
Five years to ten
December 31, 1994 One year or less One year to five years years
- ------------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities...... $110,383 110,996 5.25% $ 896,391 941,641 5.81 % $ 60,589 63,549 6.78 %
U.S. agency securities.......... 278,280 282,581 5.17 695,728 722,786 5.35 196,424 209,153 6.79
State and municipal
securities*.................... -- -- -- 944 942 3.90 -- -- --
Collateralized mortgage
obligations.................... 1,588 1,570 8.36 94,452 97,881 6.57 -- -- --
Other securities................ -- -- -- 2,049 2,162 5.84 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total........................... $390,251 395,147 5.21% $1,689,564 1,765,412 5.66 % $257,013 272,702 6.79%
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................. 98.76% 95.70% 94.25%
- ------------------------------------------------------------------------------------------------------------------------------------
December 31, 1994 After ten years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized
Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities...... $ -- -- -- % $1,067,363 1,116,186 5.80 %
U.S. agency securities.......... 170,637 181,521 5.52 1,341,069 1,396,041 5.55
State and municipal
securities*.................... 579 579 7.96 1,523 1,521 5.43
Collateralized mortgage
obligations.................... -- -- -- 96,040 99,451 6.60
Other securities................ 79,582 79,569 6.21 81,631 81,730 6.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total........................... $250,798 261,669 5.73 % $2,587,626 2,694,929 5.72 %
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................. 95.85% 96.02%
- ------------------------------------------------------------------------------------------------------------------------------------
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
34
35
SECURITIES HELD TO MATURITY
($ in thousands)
December 31, 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------
Average Amortized Average Amortized Average
Amortized Maturity Cost Maturity Cost Maturity
Cost
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities..... $2,296,929 2.7yrs. $1,452,922 2.6yrs. $2,992,443 2.8yrs.
State and municipal securities............ 244,298 2.5 361,612 2.2 458,207 2.4
Marketable equity securities*............. -- -- -- -- 23,082 --
Other securities.......................... 571,649 3.2 42,089 9.7 15,894 9.2
- ------------------------------------------------------------------------------------------------------------------------------
Total..................................... $3,112,876 $1,856,623 $3,489,626
- ------------------------------------------------------------------------------------------------------------------------------
* Includes Federal Reserve Stock of $23,082 in 1992.
SECURITIES AVAILABLE FOR SALE
($ in thousands)
December 31, 1994 1993
------------------------------------------------------------------------------------------------------------------------------
Average Amortized Average
Amortized Maturity Cost Maturity
Cost
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities................................ $2,512,227 3.3yrs. $2,849,863 1.8yrs.
State and municipal securities....................................... 1,521 7.5 340,322 3.1
Collateralized mortgage obligations.................................. 99,451 2.5 22,502 0.7
Other securities..................................................... 81,730 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total................................................................ $2,694,929 $3,212,687
- ------------------------------------------------------------------------------------------------------------------------------
NOTE 6: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal interest rates include (1) non-accrual
loans, (2) restructured loans (loans for which the interest rate or principal
balance has been reduced because of a borrower's financial difficulty) and (3)
other real estate which has been acquired in lieu of loan balances due.
Information concerning these assets, loans past due 90 days or more and other
loans of concern (loans where known information about possible credit problems
of borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1994 and 1993 follows:
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
BALANCES OUTSTANDING:
Non-accrual loans................................................................................. $ 96,814 121,186
Restructured loans................................................................................ 4,852 10,879
Past due 90 days or more.......................................................................... 18,208 23,462
Other loans of concern............................................................................ 31,653 53,206
Other real estate owned (included in other assets)................................................ 38,662 50,595
- ------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $190,189 259,328
- ------------------------------------------------------------------------------------------------------------------------
Interest income of $3,801,000 and $3,149,000 during 1994 and 1993,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$8,520,000 and $6,928,000 of interest would have been reflected in interest
income during 1994 and 1993, respectively.
First of America has no significant concentrations of credit risk. Its loan
portfolio is well balanced both by type and by geographical area.
35
36
NOTE 7: LOANS TO RELATED PARTIES
First of America's subsidiary banks have extended loans to directors and
executive officers of the corporation and their associates and to the directors
and executive officers of the corporation's significant subsidiaries and their
associates (other than members of their immediate families). In conformance with
First of America's written corporate policy and applicable laws and regulations,
these loans to related parties were made in accordance with sound business and
banking practices on non-preferential terms and rates available to non-insiders
of comparable credit worthiness under similar circumstances. The loans do not
involve more than the normal risk of collectibility or present other unfavorable
features. All such extensions of credit must be properly documented as complying
with this corporate policy. The aggregate loans outstanding as reported by the
directors and executive officers of the corporation and its significant
subsidiaries which exceeded $60,000 during 1994 totaled $56,965,000 at December
31, 1994, which represented 3.6 percent of total shareholders' equity, and
$42,405,000 at December 31, 1993. During 1994, $39,201,000 of new loans were
made with repayments and other reductions totaling $24,641,000. First of America
relies on its directors and executive officers for identification of loans to
their associates.
First of America maintains a line of credit for First of America Mortgage
Company and First of America Community Development Corporation; at December 31,
1994, the amounts of the borrowings were $68,800,000 and $356,587, respectively.
In conformance with First of America's corporate policy and applicable law, such
extensions of credit to subsidiaries are made in accordance with sound banking
practices and on non-preferential terms and rates.
In the opinion of management, the amount and nature of these loans to
related parties and subsidiaries do not materially affect the financial
condition of First of America.
NOTE 8: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1994,
1993 and 1992 follows.
($ in thousands) 1994 1993 1992
- ----------------------------------------------------------------------------------------------------
Balance, beginning of year.......................................... $188,664 176,793 174,882
Additions: Provision charged against income......................... 86,571 84,714 78,809
Allowance of acquired (sold) banks, net................... 11,420 50 (372)
Recoveries................................................ 38,134 35,863 33,640
------- ------- -------
324,789 297,420 286,959
Less: Loans charged off............................................. (96,674) (108,756) (110,166)
- ----------------------------------------------------------------------------------------------------
Balance, end of year................................................ $228,115 188,664 176,793
- ----------------------------------------------------------------------------------------------------
Management has evaluated the loan portfolio and determined that the balance
in the allowance for loan losses is adequate in light of the composition of the
loan portfolio, economic conditions and other pertinent factors.
On January 1, 1995, First of America identified $82.8 million of impaired
loans under the guidelines of Statement No. 114. This resulted in an allowance
for impaired loan losses of $17.4 million, which was transferred from the
general allowance.
36
37
NOTE 9: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1994 and 1993 follows.
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
Land.............................................................................................. $ 77,458 65,937
Buildings and leasehold improvements.............................................................. 428,877 393,133
Equipment......................................................................................... 365,554 327,103
Capital leases.................................................................................... 25,082 22,043
-------- -------
896,971 808,216
Less:
Accumulated depreciation and amortization......................................................... 420,806 375,960
- ------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $476,165 432,256
- ------------------------------------------------------------------------------------------------------------------------
First of America and certain of its subsidiaries have capital and operating
leases for premises and equipment under agreements expiring at various dates
through 2034. These leases, in general, provide for renewal options and options
to purchase certain premises at fair values, and require the payment of property
taxes, insurance premiums and maintenance costs. Total rental expense for all
operating leases was $16,100,000 in 1994, $10,936,000 in 1993, and $16,329,000
in 1992.
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1994.
($ in thousands) Capital Leases Operating Leases
- --------------------------------------------------------------------------------------------------------------------------
1995................................................................................. $ 339 15,457
1996................................................................................. 370 12,931
1997................................................................................. 405 10,682
1998................................................................................. 433 7,885
1999................................................................................. 414 5,676
Thereafter........................................................................... 19,572 42,577
-------------- -------
Total minimum lease payments......................................................... 21,533 95,208
Amounts representing interest........................................................ 26,415 --
- --------------------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments.......................................... $ 47,948 95,208
- --------------------------------------------------------------------------------------------------------------------------
NOTE 10: SHORT TERM BORROWINGS
Information relating to securities sold under agreements to repurchase
follows:
($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
At December 31:
Outstanding........................................................................... $ 583,184 664,531 108,873
Average interest rate................................................................. 5.75% 3.31 3.70
Daily average for the year:
Outstanding........................................................................... $ 709,205 326,383 62,978
Average interest rate................................................................. 4.43% 3.26 3.97
Maximum outstanding at any month end.................................................. $1,229,099 664,531 108,873
- -------------------------------------------------------------------------------------------------------------------------
Securities sold under agreements to repurchase are secured transactions with
customers, generally maturing within thirty days. As of December 31, 1994, First
of America did not have repurchase agreements which exceeded 10 percent of total
assets.
37
38
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1994 and 1993
follows.
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
PARENT COMPANY:
9.25% senior notes, payable $7,143 annually in 1990 through 1995, balance due 1996, interest
payable
semi-annually................................................................................... $ -- 21,429
7.75% subordinated notes due July 15, 2004........................................................ 200,000 --
10.625% subordinated notes payable in equal annual installments in 1990 through 1998, interest
payable semi-annually........................................................................... 6,222 7,778
8.50% subordinated notes due February 1, 2004..................................................... 150,000 150,000
Revolving credit agreement........................................................................ 30,000 30,000
6.35% subordinated debenture due December 31, 2007................................................ 10,000 10,000
Capital lease obligations (Note 9)................................................................ 20,198 20,408
-------- -------
416,420 239,615
SUBSIDIARIES:
Bank notes, with interest rates ranging from 4.875% to 5.05%, due Sept. 18, 1995 through
August 26, 1996................................................................................. 259,903 --
Notes payable through 2001........................................................................ 2,455 1,913
FHLB borrowings with interest rates ranging from 3.42% to 8.30%, payable from 1994 to 1996........ 820 10,820
Mortgages and land contracts, payable in installments through 1999 with interest rates ranging
from 4.75% to 10.25%............................................................................ 303 410
Capital lease obligations (Note 9)................................................................ 1,335 1,435
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM DEBT.............................................................................. $681,236 254,193
- ------------------------------------------------------------------------------------------------------------------------
First of America entered into a Three-Year Competitive Advance and Revolving
Credit Facility Agreement dated as of March 25, 1994 and amended by the First
Amendment dated December 9, 1994 (collectively, the Credit Agreement). The
Credit Agreement allows First of America to borrow on a standby revolving credit
basis and an uncommitted competitive advance basis up to $350,000,000. The
proceeds of all borrowings made pursuant to the Credit Agreement will be used to
provide working capital and for other general corporate purposes.
On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which are not subject to redemption prior
to maturity and which qualify as tier II capital under the Federal Reserve
Board's capital guidelines. The proceeds received from the Notes were used to
discharge indebtedness incurred to fund the acquisition of the Goldome Federal
branches, the repurchase of common stock and for other general corporate
purposes.
During August 1994, certain First of America bank subsidiaries began issuing
Bank Notes Due from 30 Days to 10 Years from Date of Issue. The Bank Notes which
are long term are included in the preceding table. The proceeds from the sale of
the notes were used for general corporate purposes by the issuing banks.
The various loan agreements include restrictions on consolidated capital.
First of America's net worth, under the most restrictive loan covenant, may not
be less than $1,295,000,000. The indebtedness of subsidiary banks is
subordinated to the claims of its depositors and certain other creditors.
Management has determined that First of America is in compliance with all of its
loan covenants.
38
39
Maturities of outstanding indebtedness at December 31, 1994 follow.
Total Principal
($ in thousands) Amount Due
- --------------------------------------------------------------------------------------------------------------------------
Year ending December 31,
1995.................................................................................................... $ 214,095
1996.................................................................................................... 83,289
1997.................................................................................................... 2,490
1998.................................................................................................... 798
1999.................................................................................................... 779
Thereafter.............................................................................................. 379,785
- --------------------------------------------------------------------------------------------------------------------------
Total................................................................................................... $ 681,236
- --------------------------------------------------------------------------------------------------------------------------
NOTE 12: PREFERRED STOCK
First of America has reserved 500,000 shares of preferred stock for issuance
as Series A Junior Participating Preferred Stock ("Series A Preferred") upon the
exercise of certain preferred stock purchase rights (each a "Right") issued to
holders of and in tandem with shares of First of America Common Stock. The
description and terms of the Rights are set forth in a Rights Agreement ("Rights
Agreement"), dated July 18, 1990, between First of America and First of America
Bank -- Michigan, N.A., as Rights Agent.
If issued, each share of Series A Preferred shall be entitled to 100 votes
on all matters submitted to a vote of the shareholders of First of America.
Additionally, in the event First of America fails to pay dividends on the Series
A Preferred for four full quarters, holders of the Series A Preferred have
certain rights to elect additional directors of the company. Except as described
in the Rights Agreement, holders of the Series A Preferred have no preemptive
rights to subscribe for additional securities which the company may issue. The
Series A Preferred will not be redeemable. Each share of Series A Preferred
will, subject to the rights of any other preferred stock the company may issue
ranking senior to the Series A Preferred, if any, be entitled to preferential
quarterly dividends equal to the greater of $10.00, or subject to certain
adjustments, 100 times the dividend declared per share of First of America
Common Stock. Upon liquidation of the company, holders of Series A Preferred
will, subject to the rights of senior securities, be entitled to a preferential
liquidation payment equal to $190.00 per share, plus accrued and unpaid
dividends. In the event of any merger, consolidation, or other transaction in
which shares of First of America Common Stock are exchanged, each share of
Series A Preferred will, subject to the rights of senior securities, be entitled
to receive 100 times the amount received per share common stock. The rights of
the Series A Preferred are protected by customary antidilution provisions.
NOTE 13: STOCK OPTION PLAN
The First of America Bank Corporation Restated 1987 Stock Option Plan is
administered by the Nominating and Compensation Committee of the Board of
Directors, none of whom is eligible to participate therein. Under the Plan
options to purchase up to 1,700,000 authorized but unissued shares of First of
America Common Stock may be issued through December 9, 1997.
The stock options are exercisable during a 10 year period, beginning on the
date of grant and may be granted at prices not less than the fair market value
on the date of grant.
39
40
The following is a summary of transactions which occurred during 1992, 1993
and 1994:
Shares Under Option Price
Option Per Share
- -------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1991.......................................................... 705,000 $16.00-27.50
Granted................................................................................... 193,450 32.50
Exercised................................................................................. (37,367)
Canceled.................................................................................. (17,383)
- -------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1992.......................................................... 843,700 $16.00-32.50
Granted................................................................................... 176,000 40.00
Exercised................................................................................. (53,700)
Canceled.................................................................................. (11,367)
- -------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1993.......................................................... 954,633 $16.00-40.00
Converted options from acquisitions....................................................... 24,933 11.30
Granted................................................................................... 295,900 33.00
Exercised................................................................................. (23,050)
Canceled.................................................................................. (5,366)
- -------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994.......................................................... 1,247,050 $11.30-40.00
- -------------------------------------------------------------------------------------------------------------------------
NOTE 14: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$173,350,000 in 1994, $200,700,000 in 1993 and $137,369,000 in 1992. Unless
prior regulatory approval is obtained, banking regulations limit the amount of
dividends that First of America's banking subsidiaries can declare during 1995,
to the 1995 net profits, as defined in the Federal Reserve Act, plus retained
net profits for 1994 and 1993, which amounted to $176,317,000. Under the FDIC
Improvement Act of 1992, there is incentive to maintain banks' capital at the
"well-capitalized" level. This may further restrict dividends in the future.
NOTE 15: EMPLOYEE PENSION PLAN
First of America and its subsidiaries have a defined benefit pension plan
that covers substantially all of its full-time employees. Benefits are based on
years of service and the employee's compensation.
Pension costs for the years 1994 and 1993 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1994, 1993, and 1992
equaled $9,192,000, $6,508,000 and $11,821,000, respectively.
40
41
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1994 and 1993.
December 31,
-------------------
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits of $284,034 for 1994 and $239,204 for
1993............................................................................................ $294,336 244,717
- ------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date......................................... 345,465 303,728
Plan assets at fair value, primarily listed stocks and U.S. Bonds................................. 358,392 359,500
-------- -------
Projected benefit obligation less than plan assets................................................ 12,927 55,772
Unrecognized net gain............................................................................. 8,228 (48,325)
Unrecognized prior service cost................................................................... 25,905 28,694
Unrecognized net assets being recognized over 15 years............................................ (15,902) (17,846)
-------- -------
Prepaid pension included in other assets.......................................................... $ 31,158 18,295
- ------------------------------------------------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE FOLLOWING COMPONENTS:
Service cost.................................................................................... $ 12,114 9,196
Interest cost on projected benefit obligation................................................... 22,661 21,822
Actual return on plan assets.................................................................... 6,948 (46,209)
Net amortization and deferral................................................................... (33,650) 21,111
- ------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost......................................................................... $ 8,073 5,920
- ------------------------------------------------------------------------------------------------------------------------
First of America's weighted-average discount rate was 8.00 percent at
December 31, 1994 and 7.25 percent at December 31, 1993. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 6.00 percent at year-end 1994 and 5.00
percent at year-end 1993. The expected long term rate of return on assets was
9.00 percent and 8.75 percent at December 31, 1994 and 1993, respectively. The
assumed rates in place at each year-end are used to determine the net periodic
pension cost for the following year.
NOTE 16: OTHER POSTRETIREMENT BENEFITS
First of America and its subsidiaries have a Retiree Medical Plan which
provides a portion of retiree medical care premiums. First of America's level of
contribution is based on an age and service formula.
During 1993, First of America implemented several managed care initiatives
and redesigned its Preferred Provider Organization. This change was measured as
of December 31, 1993 and reduced the accumulated postretirement benefit
obligation as of that date by $4,807,000.
41
42
The following table presents the plan's funded status reconciled with
amounts recognized in First of America's Consolidated Balance Sheet at December
31, 1994 and 1993:
December 31,
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.......................................................................................... $(20,626) (19,685)
Fully eligible active plan participants........................................................... (7,470) (6,801)
Other active plan participants.................................................................... (9,299) (9,807)
-------- -------
(37,395) (36,293)
Plan assets at fair value......................................................................... -- --
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets............................ (37,395) (36,293)
Unrecognized prior service cost................................................................... (5,498) (4,807)
Unrecognized net loss............................................................................. 4,002 3,444
- ------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities................................. $(38,891) (37,656)
- ------------------------------------------------------------------------------------------------------------------------
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1994 AND 1993 INCLUDE THE FOLLOWING COMPONENTS:
Service cost...................................................................................... $ 1,253 1,116
Interest cost..................................................................................... 2,641 2,986
Net amortization and deferral..................................................................... (405) (91)
- ------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost.......................................................... $ 3,489 4,011
- ------------------------------------------------------------------------------------------------------------------------
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 10.36 percent and 10.95 percent annual rates of increase
in the per capita cost of covered benefits (i.e., health care cost trend rate)
were assumed at December 31, 1994 and 1993, respectively; the 1994 rate was
further assumed to decline evenly to 6.0 percent in 2004. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 8.0 percent at December 31, 1994 and 7.25 percent at December 31,
1993. To determine First of America's net periodic postretirement benefit cost
for 1994 and 1993, a weighted average discount rate of 7.25 percent and 8.5
percent, respectively, and the health care trend rate of 10.95 percent and 11.54
percent, respectively, were used. The health care cost trend rate assumption has
a significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1994 by 8.7 percent and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1994 by 2.2 percent.
42
43
NOTE 17: SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other than the items listed below, other operating income and other
operating expenses did not include any accounts that exceeded one percent of
total revenue, which is the sum of total interest income and total non-interest
income.
($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Revolving loan fees -- interchange income............................................... $ 31,538 30,104 27,555
Revolving loan fees -- merchant discount................................................ 28,863 22,994 18,995
Gains on sale of loans.................................................................. 11,697 29,456 15,230
Other................................................................................... 36,045 30,939 36,171
- -------------------------------------------------------------------------------------------------------------------------
Total other operating income............................................................ $108,143 113,493 97,951
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Services purchased...................................................................... $ 17,814 14,638 20,409
Office supplies......................................................................... 20,924 22,541 21,672
FDIC insurance.......................................................................... 42,055 39,680 38,711
Advertising, business development and public relations.................................. 20,884 22,573 14,427
Postage................................................................................. 16,458 16,291 16,585
Telephone............................................................................... 19,293 17,300 15,899
Other................................................................................... 94,744 95,052 88,655
- -------------------------------------------------------------------------------------------------------------------------
Total other operating expenses.......................................................... $232,172 228,075 216,358
- -------------------------------------------------------------------------------------------------------------------------
NOTE 18: INCOME TAXES
Total comprehensive tax expense (benefit) for the years ended December 31,
1994, 1993 and 1992, respectively, was allocated as follows:
($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations........................................................ $102,616 98,574 91,506
Shareholders equity, for market value adjustments on investment securities available for
sale................................................................................... (32,296) 17,263 --
- -------------------------------------------------------------------------------------------------------------------------
Total comprehensive tax expense.......................................................... $ 70,320 115,837 91,506
- -------------------------------------------------------------------------------------------------------------------------
Income tax expense (benefit) attributable to income from continuing
operations consists of:
($ in thousands) Current Deferred Total
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
U.S. Federal...................................................................... $103,124 95 103,219
State and local................................................................... 5,186 (5,789) (603)
- --------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $108,310 (5,694) 102,616
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
U.S. Federal...................................................................... $ 99,184 (3,117) 96,067
State and local................................................................... 787 1,720 2,507
- --------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $ 99,971 (1,397) 98,574
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1992:
U.S. Federal...................................................................... $101,288 (9,782) 91,506
State and local................................................................... -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $101,288 (9,782) 91,506
- --------------------------------------------------------------------------------------------------------------------------
43
44
Income tax expense attributable to income from continuing operations was
$102,616,000, $98,574,000 and $91,506,000 for the years ended December 31, 1994,
1993 and 1992 respectively, and differed from the amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income from operations
for 1994 and 1993 and 34 percent for 1992 as a result of the following:
($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense................................................... $113,092 121,086 88,774
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income......................................... (9,904) (12,738) (13,017)
Change in the beginning-of-the-year balance of the valuation allowance for
deferred tax assets allocated to income tax expense........................... (883) (9,686) (2,507)
Alternative minimum tax credits utilized........................................ -- (5,675) --
State and local tax expense (benefit), net of federal tax....................... (392) 1,630 --
Amortization of goodwill........................................................ 3,844 3,116 13,034
Other, net...................................................................... (3,141) 841 5,222
- -------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $102,616 98,574 91,506
- -------------------------------------------------------------------------------------------------------------------------
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the year ended December
31, 1994, 1993 and 1992 were as follows:
December 31,
- --------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of the effects of other components below)............. $(4,811) 8,289 (7,275)
Decrease in beginning-of-the-year balance of the valuation allowance for deferred tax
assets.............................................................................. (883) (9,686) (2,507)
- --------------------------------------------------------------------------------------------------------------------------
Total................................................................................. $(5,694) (1,397) (9,782)
- --------------------------------------------------------------------------------------------------------------------------
The tax effect of securities transactions for 1994, 1993 and 1992 was
$2,249,000, $6,524,000 and $5,574,000, respectively.
44
45
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1993 are presented below:
December 31,
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Book loan loss deduction in excess of tax...................................................... $ 76,073 66,505
Deferred compensation.......................................................................... 6,149 5,091
Deferred loan fees............................................................................. 10,279 8,541
Employee benefits.............................................................................. 1,916 4,815
Other real estate expenses not allowed for tax purposes........................................ 3,229 2,849
Non-accrual loan income........................................................................ 3,292 3,621
Market value adjustment on investment securities available for sale............................ 37,556 --
Net capital loss carry forwards................................................................ -- 883
Expenses not currently deductible for tax purposes............................................. 3,408 5,072
Other.......................................................................................... 10,474 6,279
-------- -------
Total gross deferred tax assets................................................................ $152,376 103,656
Less valuation allowance....................................................................... (22,524) (883)
-------- -------
Net deferred tax assets........................................................................ $129,852 102,773
-------- -------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation...................................... $(10,200) (7,017)
Discount accretion on investment securities.................................................... (1,276) (1,670)
Market value adjustment on investment securities available for sale............................ -- (17,263)
Tax loan loss reserve to be recaptured......................................................... (7,094) (10,095)
Other.......................................................................................... (10,327) (3,763)
-------- -------
Total gross deferred liabilities............................................................... $(28,897) (39,808)
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset......................................................................... $100,955 62,965
- ------------------------------------------------------------------------------------------------------------------------
The valuation allowance for deferred tax assets as of January 1, 1994 was
$883,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was an increase of $21,641,000.
The valuation allowance for deferred tax assets at December 31, 1994 is
related entirely to market value adjustments on securities available for sale
which would result in capital losses, that can be recognized only when offset
against capital gains.
Subsequently recognized tax benefits of $22,524,000 relating to the
valuation allowance for deferred tax assets as of December 31, 1994 will be
allocated to shareholders' equity.
NOTE 19: EARNINGS PER SHARE CALCULATION
The weighted average number of shares used in the determination of earnings
per share were:
1994 1993 1992
- --------------------------------------------------------------------------------------------------------------------------
Common and common equivalents.............................................. 59,811,568 57,416,771 54,841,762
Fully diluted.............................................................. 59,811,568 59,772,113 59,559,956
- --------------------------------------------------------------------------------------------------------------------------
Common and common equivalents per share amounts were calculated by dividing
net income applicable to common shares by the weighted average number of common
shares outstanding during the respective periods adjusted for the portion of
stock options which were considered common equivalents, 281,498 in 1994, 305,240
in 1993 and 212,463 in 1992. Fully diluted earnings per share calculations were
based on the assumption that all outstanding preferred stock was converted into
common stock and the preferred dividends on these shares eliminated. In
addition, the average fully diluted earnings per share included the portion of
stock options which were considered common equivalents, 281,498 in 1994, 305,240
in 1993 and 303,947 in 1992.
45
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On December 31, 1994 and 1993, there were 62,849,209 and 59,520,710 common
shares outstanding, respectively. At the same dates there were 100,000,000
authorized shares of $10 par value common stock.
NOTE 20: COMMITMENTS AND CONTINGENT LIABILITIES
First of America and its subsidiaries are parties to routine litigation
arising in the normal course of their respective businesses. In the opinion of
management after consultation with counsel, liabilities arising from these
proceedings, if any, are not expected to be material to First of America's
financial position.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notional amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
($ in thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
Commitments on unused credit card lines................................................... $ 8,418,466 7,876,161
Other commitments to extend credit........................................................ 2,699,651 2,061,959
Mortgages sold with recourse.............................................................. 101,565 90,302
Standby letters of credit................................................................. 305,460 220,451
Commercial letters of credit.............................................................. 7,199 12,383
Foreign exchange contracts................................................................ 13,192 25,650
Interest rate swaps....................................................................... 707,864 291,605
Interest rate caps........................................................................ 125,000 --
- -------------------------------------------------------------------------------------------------------------------------
Total..................................................................................... $12,378,397 10,578,511
- -------------------------------------------------------------------------------------------------------------------------
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 and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the
commitment amounts included in the preceding table does not necessarily
represent future cash requirements. At December 31, 1994, other commitments to
extend credit included $1,667,324,000 in unused commercial loan commitments,
$509,999,000 in commitments to fund commercial real estate, construction and
land development of which $508,157,000 was secured by real estate, and
$425,794,000 in home equity lines of credit. Collateral held on these
instruments varies but may include accounts receivable, inventory, property,
plant and equipment and income-producing commercial properties.
First of America has sold mortgage loans to the Federal National Mortgage
Association (FNMA), Government National Mortgage Association (GNMA), Federal
Home Loan Mortgage Corporation (FHLMC), and other savings institutions with full
recourse. The total unpaid principal balances of these loans were $101.6 million
at December 31, 1994 and are not included in the accompanying consolidated
balance sheets.
Standby letters of credit and commercial letters of credit are conditional
commitments issued to secure performance of a customer to a third party and are
subject to the same credit review and approval process as loans. Losses to date
have not been material.
Foreign exchange contracts are entered into for trading activities which
enable customers to transfer or reduce their foreign exchange risk. Foreign
exchange forward contracts represent First of America's largest activity in this
specialized area. Forward contracts are commitments to buy or sell at a future
date a currency at a contracted price and are settled in cash or through
delivery. The risk in foreign exchange trading arises from the potential
inability of the counterparties to deliver under the terms of the contract and
the
46
47
possibility that the value of a foreign currency might change in relation to the
U.S. dollar. In the event of a default by a counterparty, the cost to First of
America would be the replacement of the contract at the current market rate.
Such credit losses to date have not been material. The risk of loss from changes
in market rate is substantially lessened because First of America limits its
risk by entering into offsetting contracts.
During the second quarter of 1993, First of America instituted rate swaps to
hedge its interest rate risk. At December 31, 1993, the interest rate swaps had
a total notional value of $291.6 million of which $125 million was a hedge
against long term debt with the remainder as a hedge against certain
certificates of deposits. Although the notional amounts are often used to
express the volume of these transactions, the amounts potentially subject to
credit risk are much smaller. The company minimizes this risk by performing
normal credit reviews of its counterparties and collateralizing its exposure
when it exceeds a predetermined limit. The following table outlines First of
America's interest rate swaps at December 31, 1994.
INTEREST RATE SWAPS
($ in thousands)
Net Interest
Weighted Average Average Income Impact
Notional Fair Market Average Rate Received Rate Paid ----------------
Hedged Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Rising Rate CDs................... $508,798 (11,264) 9.9 4.66%/fixed 6.19/variable $ 82 89
Market Rate CDs*.................. 22,066 (1,202) 12.0 -- -- -- --
FHLB advance...................... 10,000 34 5.0 6.06/variable 5.35/fixed (46) --
FirstRate Fund deposits........... 12,000 268 20.0 6.19/variable 6.03/fixed (35) --
Bank notes........................ 30,000 445 17.2 6.06/variable 5.88/fixed (72) --
Long term debt.................... 125,000 (5,449) 19.8 4.84/fixed 6.31/variable (93) 557
- ------------------------------------------------------------------------------------------------------------------------------
Total............................. $707,864 (17,168) 12.0 $(164) 646
- ------------------------------------------------------------------------------------------------------------------------------
* This represents a basis swap.
At December 31, 1994, deferred losses of $1.4 million were included in other
assets from the termination of interest rate swaps with a notional value of
$82.9 million. This deferred loss is being amortized into earnings over the
remaining life of the originally designated liability. During 1994, a loss of
$804 thousand was recognized in earnings related to interest rate swaps which
were marked-to-market.
Interest rate caps are agreements to make payments for interest rate
differentials between an index rate and a specified maximum rate, computed on
notional amounts. First of America utilizes interest rate caps in an attempt to
manage its interest rate risk. As of December 31, 1994, First of America had
outstanding interest rate caps with notional amounts totaling $125 million.
These interest rate caps are designated to certain FirstRate Fund deposits.
First of America had no outstanding interest rate caps at December 31, 1993.
NOTE 21: FAIR VALUE DISCLOSURE
SFAS No. 107, "Disclosure about Fair Value of Financial Instruments,"
requires disclosure of fair value information for financial instruments, whether
or not recognized in the balance sheet, for which it is practicable to estimate
that value. In cases where quoted market prices were not available, fair values
were based on estimates using present value or other valuation techniques. Those
techniques are significantly affected by the assumptions used. Accordingly, the
aggregate fair value amounts presented do not represent the underlying value of
First of America.
For purposes of this disclosure, estimated fair value of financial
instruments with short-term maturities is assumed to equal the recorded book
value. These financial instruments include cash and short term investments,
accrued interest receivable and payable and short term borrowings. Estimated
fair value for other financial instruments were determined as follows:
SECURITIES:
Fair values for Held to Maturity and Available for Sale securities were
based on quoted market prices. If a quoted market price was not available, fair
value was estimated using quoted market prices for similar securities.
47
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LOANS RECEIVABLE:
For variable rate loans that reprice frequently and for which there has been
no significant change in credit risk, fair values equal carrying values. The
fair values for fixed rate loans were based on estimates using discounted cash
flow analyses and current interest rates being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
LOANS HELD FOR SALE:
Fair value for loans held for sale were based on quoted market prices. If a
quoted market price was not available, fair value was estimated using market
prices for similar assets.
DEPOSIT LIABILITIES:
The fair values disclosed for demand deposits with no stated maturity (e.g.,
interest and non-interest checking, passbook savings and certain types of money
market accounts) were, by definition, equal to the amount payable on demand at
the reporting date. The carrying amounts for variable rate, fixed-term money
market accounts and certificates of deposits with less than twelve months
maturities approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit with maturities greater than twelve months
are estimated using a discounted cash flow calculation that applied interest
rates being offered on the same or similar certificates at the reporting date to
a schedule of aggregated expected maturities on the certificates of deposits.
LONG TERM BORROWINGS:
Fair values for First of America's long term debt (other than deposits) was
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the company for debt of the same remaining
maturities.
OFF BALANCE SHEET INSTRUMENTS:
Fair values for unused commitments were estimated using the fees charged to
enter into similar agreements at the reporting date, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparties. Fair values for guarantees and letters of credit were based on
fees charged for similar agreements.
The fair value of forward delivery commitments, foreign exchange contracts,
interest rate swaps and interest rate caps is estimated, using dealer quotes, as
the amount that the corporation would receive or pay to execute a new agreement
with terms identical to those remaining on the current agreement, considering
current interest rates.
The estimated fair values of First of America's financial instruments for
which the fair value differs from the recorded book value for December 31, 1994
and 1993 were as follows:
December 31, 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------
Recorded Estimated Recorded Estimated
($ in millions) Book Value Fair Value Book Value Fair Value
- ------------------------------------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Securities:
Held to maturity................................................ $ 3,113 2,943 1,857 1,872
Available for sale.............................................. 2,588 2,588 3,261 3,261
Loans, net........................................................ 16,577 16,374 13,840 14,062
Loans held for sale............................................... 30 30 366 369
FINANCIAL LIABILITIES:
Deposits*......................................................... (20,200) (20,097) (18,244) (18,307)
Long term borrowings.............................................. (681) (657) (254) (264)
Off-balance sheet commitments....................................... -- 29 -- 11
Interest rate swap agreements....................................... -- (17) -- 2
Interest rate cap agreements........................................ -- 2 -- --
- ------------------------------------------------------------------------------------------------------------------------------
* SFAS No. 107 defines the fair value of demand deposits as the amount payable
on demand, and prohibits adjusting fair value for any value derived from
retaining those deposits for an expected future period of time.
48
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NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1994 and 1993, and the statements of
income and statements of cash flows for the three years ended December 31, 1994
follow.
December 31,
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary banks................................. $ 54,758 23,745
Investment in subsidiaries.................................................................. 1,831,786 1,583,234
Other assets................................................................................ 207,683 226,209
- -------------------------------------------------------------------------------------------------------------------------
Total assets................................................................................ $2,094,227 1,833,188
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable and other liabilities...................................................... $ 98,919 70,136
Long term debt.............................................................................. 416,420 239,615
---------- ---------
Total liabilities........................................................................... 515,339 309,751
---------- ---------
SHAREHOLDERS' EQUITY
Common stock................................................................................ 628,492 595,207
Surplus..................................................................................... 284,877 265,596
Net unrealized gain/(loss) on securities available for sale, net of tax expense/(benefit) of
$(15,032) for 1994 and $17,263 for 1993................................................... (92,271) 31,531
Retained earnings........................................................................... 757,790 631,103
---------- ---------
Total shareholders' equity.................................................................. 1,578,888 1,523,437
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity.................................................. $2,094,227 1,833,188
- -------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries....................................................... $175,350 205,891 128,275
Interest and other income......................................................... 262,615 291,798 217,649
-------- ------- -------
Total operating income............................................................ 437,965 497,689 345,924
-------- ------- -------
EXPENSES
Interest on borrowed money........................................................ 27,793 19,597 18,434
Salaries and employee benefits.................................................... 151,766 134,734 101,873
Amortization of intangibles....................................................... 5,974 5,095 5,475
Other operating expenses.......................................................... 139,853 171,937 143,031
-------- ------- -------
Total operating expenses.......................................................... 325,386 331,363 268,813
-------- ------- -------
Income before income taxes, undistributed earnings of subsidiaries and cumulative
effect of change in accounting principle........................................ 112,579 166,326 77,111
Applicable income tax benefit..................................................... 22,609 14,084 13,614
-------- ------- -------
135,188 180,410 90,725
Equity in undistributed earnings of subsidiaries.................................. 85,315 66,975 61,062
-------- ------- -------
Income before cumulative effect of change in accounting principle................. 220,503 247,385 151,787
Cumulative effect of change in accounting principle, net of tax of $2,196......... -- -- (4,263)
- -------------------------------------------------------------------------------------------------------------------------
Net income........................................................................ $220,503 247,385 147,524
- -------------------------------------------------------------------------------------------------------------------------
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($ in thousands) 1994 1993 1992
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 220,503 247,385 147,524
Adjustment to reconcile net income to net cash provided by operating
activities................................................................... (13,723) (125,584) (41,629)
--------- -------- --------
Net cash from operating activities............................................. 206,780 121,801 105,895
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased............................................... (24,845) (46,724) (22,085)
Proceeds from sale of premises & equipment..................................... 4,974 600 3,270
(Acquisition)/sale of affiliates............................................... -- -- 12,000
Capital infusions, net of redemptions.......................................... (112,850) (6,535) (35,165)
--------- -------- --------
Net cash from investing activities............................................. (132,721) (52,659) (41,980)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt....................................... 438,000 222,000 150,000
Repayment of long term debt.................................................... (261,195) (190,891) (123,878)
Proceeds from issuance of common stock......................................... 460 1,132 2,883
Repurchase of common stock..................................................... (123,373) -- --
Redemption of preferred stock.................................................. -- -- (3,567)
Dividends paid................................................................. (96,670) (93,333) (83,824)
Other, net..................................................................... (268) (329) (105)
--------- -------- --------
Net cash from financing activities............................................. (43,046) (61,421) (58,491)
--------- -------- --------
Net increase (decrease) in cash................................................ 31,013 7,721 5,424
Cash at beginning of year...................................................... 23,745 16,024 10,600
- -------------------------------------------------------------------------------------------------------------------------
Cash at year-end............................................................... $ 54,758 23,745 16,024
- -------------------------------------------------------------------------------------------------------------------------
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SUPPLEMENTAL INFORMATION (Unaudited)
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share:
Primary.......................................... $ 25.12 25.60 22.12 20.58 18.97
Fully Diluted.................................... 25.12 25.60 22.49 21.47 20.02
Common shares outstanding:
Weighted average................................. 59,811,568 57,416,771 54,841,762 53,536,154 52,621,736
Year end......................................... 62,849,209 59,520,710 57,014,117 53,537,438 53,263,184
Market price of Common Stock:
High............................................. $ 40.125 43.250 37.875 31.750 26.000
Low.............................................. 29.750 36.500 29.000 18.250 15.375
Year end......................................... 30.000 39.250 37.875 29.375 21.250
Number of shares traded (in thousands)........... 18,313 13,708 14,284 13,612 15,768
Price earnings ratio*............................ 8.1x 9.3 15.4 9.1 8.1
Dividend yield (at year end)..................... 5.60% 4.08 3.70 4.36 5.65
Dividend payout ratio............................ 43.90 35.71 53.25 45.35 43.13
NON-FINANCIAL DATA
Number of common shareholders*................... 30,600 28,400 23,800 17,815 16,700
Number of banking subsidiaries*.................. 8 20 23 26 33
Number of banking offices*....................... 630 572 551 487 450
Number of employees (FTE)*....................... 13,490 13,330 12,940 13,404 10,387
Number of automated teller machines*............. 647 531 498 400 319
RETURN ON EQUITY AND ASSETS
Return on average total assets................... 0.98% 1.20 0.75 0.95 0.98
Return on average common shareholders' equity.... 14.44 18.01 11.67 13.66 14.52
Return on average total shareholders' equity..... 14.44 17.50 11.38 13.07 13.70
Average common shareholders' equity as a percent
of total average assets........................ 6.77 6.52 5.91 6.28 6.01
Average shareholders' total equity as a percent
of total average assets........................ 6.77 6.88 6.63 7.26 7.14
- ---------------------------------------------------------------------------------------------------------------------------
* Prior years numbers not restated.
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QUARTERLY INFORMATION (Unaudited)
($ in millions, except per share data)
1994 Quarters 1993 Quarters
------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- ------------------------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS
Total interest income............................. $ 433.6 417.1 387.7 362.4 374.7 376.9 382.2 377.1
Total interest expense............................ 196.5 177.3 152.9 135.4 147.1 150.6 154.5 156.6
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income............................... 237.1 239.8 234.8 227.0 227.6 226.3 227.7 220.5
Provision for loan losses......................... 22.2 21.2 22.5 20.6 20.4 20.5 20.0 23.8
- ------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision............... 214.9 218.6 212.3 206.4 207.2 205.8 207.7 196.7
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts............... 23.6 23.0 22.3 20.3 21.5 21.3 21.7 20.1
Trust income...................................... 20.4 20.4 20.7 20.3 19.9 19.2 19.6 18.6
Investment securities transactions................ (4.3) 1.0 1.2 7.5 4.4 2.7 2.5 7.2
Other operating income............................ 27.2 26.7 25.6 28.5 31.7 30.3 25.6 25.9
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest income......................... 66.9 71.1 69.8 76.6 77.5 73.5 69.4 71.8
- ------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages................................ 91.7 88.9 88.4 84.7 85.9 84.6 83.0 80.2
Employee benefits................................. 17.0 19.4 20.5 19.9 15.8 16.2 18.9 18.5
- ------------------------------------------------------------------------------------------------------------------------------
Total personnel costs............................. 108.7 108.3 108.9 104.6 101.7 100.8 101.9 98.7
Occupancy, net.................................... 14.7 15.9 14.5 15.3 14.1 13.7 13.0 14.2
Equipment......................................... 15.1 14.2 13.8 13.0 14.0 12.7 13.1 13.5
Data processing................................... 3.9 4.6 4.7 4.3 3.5 4.1 3.8 3.6
Amortization of intangibles....................... 5.4 4.5 4.0 2.6 2.6 2.2 2.1 2.0
Other operating expenses.......................... 56.5 59.3 58.5 58.1 58.2 59.5 57.2 53.5
- ------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense........................ 204.3 206.8 204.4 197.9 194.1 193.0 191.1 185.5
- ------------------------------------------------------------------------------------------------------------------------------
Income before income tax.......................... 77.5 82.9 77.7 85.1 90.6 86.3 86.0 83.0
Applicable income tax expense..................... 24.9 26.5 24.5 26.8 24.8 22.9 26.4 24.4
- -----------------------------------------------------------------------------------------------------------------------
Net income........................................ $ 52.6 56.4 53.2 58.3 65.8 63.4 59.6 58.6
- ------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock............. $ 52.6 56.4 53.2 58.3 64.7 61.7 57.9 56.9
- ------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Earnings per common share:
Primary........................................... $ 0.87 0.96 0.88 0.98 1.13 1.07 1.01 0.99
Fully diluted..................................... 0.87 0.96 0.88 0.98 1.10 1.06 1.00 0.98
Common stock cash dividend paid................... 0.42 0.40 0.40 0.40 0.40 0.40 0.35 0.35
Market price of Common Stock:
High.............................................. 34.875 37.500 40.125 39.000 42.875 42.500 43.250 42.875
Low............................................... 29.750 34.500 35.500 35.375 36.500 36.875 36.875 37.250
Period-end........................................ 30.000 35.250 35.625 37.875 39.250 42.375 39.875 42.375
- ------------------------------------------------------------------------------------------------------------------------------
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ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information under the headings "Election of
Directors" on pages 1 through 4 and "Other Matters" on page 18 of the
Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held in 1995. Such information is incorporated herein by reference. The
information concerning executive officers of the Registrant appears on page 5 of
this document.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information under the headings "Meetings and
Committees of the Board of Directors" and those portions of the information
under the heading "Executive Compensation," other than the "Compensation
Committee Report on Executive Compensation" and the "Performance Graph," on
pages 4 through 17 of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held in 1995. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information in the Registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held in 1995 under the
headings "Principal Shareholders" on page 1 and "Election of Directors" on pages
1 through 4 regarding ownership of the Registrant's securities. Such information
in incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information under the heading "Interest of
Management in Certain Transactions" on page 17 of the Registrant's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held in 1995. Such
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets -- December 31, 1994 and 1993
Consolidated Statements of Income -- three years ended December 31, 1994
Consolidated Statements of Changes in Shareholders' Equity -- three
years ended December 31, 1994
Consolidated Statements of Cash Flows -- three years ended December 31,
1994
Notes to Consolidated Financial Statements
The above listed auditor's report, consolidated financial statements and
notes to consolidated financial statements are included under "Item 8.
Financial Statements and Supplementary Data" of this document.
2. Financial statement schedules required by Article 9 of Regulation S-X are
inapplicable.
3. Exhibits required by Item 601 of Regulation S-K.
(3) Articles of Incorporation and Bylaws
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A. A copy of the Restated Articles of Incorporation of the Registrant
was filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992, and is incorporated herein by
reference.
B. A copy of the Bylaws of the Registrant as currently in effect was
filed as an Exhibit to the Registrant's Registration Statement on Form
S-4 (Registration No. 33-53983) filed June 6, 1994 and is incorporated
herein by reference.
(4) Instruments defining the rights of security holders, including
indentures
A. Instruments defining the rights of security holders are included in
the Registrant's Articles of Incorporation and Bylaws. See (3) A and B
above.
B. A copy of the Rights Agreement between the Registrant and First of
America Bank -- Michigan, N.A., as Rights Agent, dated as of July 18,
1990, was filed as an Exhibit to the Registrant's Current Report on Form
8-K, dated July 18, 1990, and is incorporated herein by reference.
C. A copy of the Subordinated Indenture between the Registrant, as
Issuer, and Continental Bank, National Association, as Trustee, dated as
of November 1, 1991, was filed as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991, and is
incorporated herein by reference.
D. The Registrant is a party to various other instruments defining the
rights of holders of long term debt, none of which authorizes securities
in excess of 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis. None of such instruments (except
such as may be filed under (10) Material Contracts) are filed with this
Report. The Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
(9) Voting trust agreement.
Not applicable.
(10) Material contracts
* Denotes management contracts and compensatory arrangements required to
be filed as Exhibits and in which the Registrant's executive officers
participate.
A. A copy of the Three-Year Competitive Advance and Revolving Credit
Facility Agreement dated March 25, 1994, among the Registrant and the
several lenders named therein was filed as an Exhibit to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 and is
incorporated herein by reference. That Agreement was amended by the First
Amendment dated December 9, 1994, a copy of which is filed herewith as an
Exhibit.
B.* A copy of the First of America Bank Corporation Annual Incentive
Compensation Plan for Key Corporate and Affiliate Executives, in which
the Registrant's executive officers participate, was filed as Exhibit
(10)A to the Registrant's Annual Report to the Commission on Form 10-K
for the year ended December 31, 1988 and is incorporated herein by
reference, and a copy of the Amendment to this document was filed as
Exhibit (10) to the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1990, and is incorporated herein by reference.
C.* A copy of the Registrant's Unfunded Deferred Excess Benefit Plan as
adopted during 1990, in which the Registrant's executive officers
participate, was filed as Exhibit (10) to the Registrant's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1990, and is
incorporated herein by reference.
D.* A copy of the Registrant's Supplemental Retirement Plan to
Compensate for Nonqualified Savings Deferrals, in which the Registrant's
executive officers participate, was filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31,
1993 and is incorporated herein by reference.
E.* A copy of the Registrant's Supplemental Savings Plan and the
Amendment to this document, in which the Registrant's executive officers
participate, were filed as Exhibit (10) to the Registrant's Annual Report
to the Commission on Form 10-K for the year ended December 31, 1992 and
is incorporated herein by reference.
F.* A copy of the Restated First of America Bank Corporation 1987 Stock
Option Plan, as amended and in which the Registrant's executive officers
participate, was filed, as an Exhibit to the Registrants' Annual Report
on Form 10-K for the year ended December 31, 1993 and is incorporated
herein by reference.
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G.* A copy of First of America's Long-Term Incentive Plan as amended and
restated for performance periods commencing July 1, 1988, and thereafter,
in which the Registrant's executive officers participate, was filed as
Exhibit (10)F to the Registrant's Registration Statement on Form S-4
filed July 28, 1988 (Reg. No. 33-23365) and is incorporated herein by
reference, and a copy of the Amendment to this document was filed as
Exhibit (10) to the Registrant's Quarterly Report on Form 10-Q dated
September 30, 1990, and is incorporated herein by reference.
H.* A copy of the composite form of the Management Continuity Agreement
dated February 15, 1995, entered into by the Registrant and its executive
officers is filed herewith as an Exhibit.
I.* A copy of First of America's Executive Management Trust Agreement,
intended to fund benefits under the Management Continuity Agreements (see
Exhibit (10)H above) was filed as Exhibit (10)H to the Registrant's
Annual Report on Form 10-K dated December 31, 1989, and is incorporated
herein by reference.
(11) Statement re computation of per share earnings
The computation of common and common equivalents and fully diluted
earnings per share is described in Note 19 of the Registrant's Notes to
Consolidated Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" of this document.
(12) Statement re computation of ratios
Not applicable.
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders.
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(21) Subsidiaries of the Registrant
The subsidiaries of the Registrant as of the date of this document are as
follows:
Name Place of Incorporation
--------------------------------------------------------------------- ----------------------
First of America Bank -- Indiana Indiana
First of America Bank -- Northwest Indiana United States
First of America Bank -- Illinois, N.A. United States
First of America Bank -- Michigan, N.A. United States
First of America Bank -- West Michigan Michigan
First of America Bank -- Florida, FSB Florida
Presidential Bank, FSB United States
First Federal Savings Bank of Charlotte County United States
First of America Acquisition Company Florida
First of America Brokerage Services, Inc. Michigan
First of America Community Development Corporation Michigan
First of America Insurance Company Arizona
First of America Mortgage Company Michigan
First of America Investment Corporation Michigan
First of America Securities, Inc. Michigan
First of America Trust Company Illinois
FOA Investco -- Ann Arbor, Inc. Michigan
FOA Investco -- Central, Inc. Michigan
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Name Place of Incorporation
--------------------------------------------------------------------- ----------------------
FOA Investco -- Champaign, Inc. Michigan
FOA Investco -- Illinois, Inc. Michigan
FOA Investco -- Indiana, Inc. Michigan
FOA Investco -- Mid Michigan, Inc. Michigan
FOA Investco -- Michigan, Inc. Michigan
FOA Investco -- Northern Michigan, Inc. Michigan
FOA Investco -- Northwest Indiana, Inc. Michigan
FOA Investco -- Southeast Michigan, Inc. Michigan
FOA Investco -- Upper Peninsula, Inc. Michigan
FOA Investco -- West Michigan, Inc. Michigan
CNB Investment Company Michigan
First Charlotte Corporation Florida
First Presidential Mortgage Company Florida
First Presidential Service Corporation Florida
First Presidential Service Corporation II Florida
FOA Mortgage Company Arizona
(22) Published report regarding matters submitted to a vote of security
holders.
Not applicable.
(23) Consents of experts
Consent of KPMG Peat Marwick LLP
(24) Power of Attorney
Power of Attorney signed by various directors of the Registrant
authorizing Daniel R. Smith or Richard F. Chormann or Thomas W. Lambert to
sign this Report on their behalf.
(27) Financial Data Schedule
Financial Data Schedule is filed herewith as an Exhibit.
(28) Information from reports furnished to state insurance regulatory
authorities.
Not applicable.
(99) Additional exhibits
Not applicable.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Registrant during the three months
ended December 31, 1994.
(c) Exhibits
An Exhibit Index and Exhibits are attached to this Report.
(d) Financial Statement Schedules
Financial Statement Schedules are inapplicable. See Item 14 (a) 2 above.
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
FIRST OF AMERICA BANK CORPORATION
By: /s/ DANIEL R. SMITH
---------------------------------------
Daniel R. Smith,
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
- ------------------------------------------------------- ----------------------------------- --------------
/s/ DANIEL R. SMITH Director, Chairman and Chief March 2, 1995
- ------------------------------------------------------- Executive Officer
Daniel R. Smith
/s/ THOMAS W. LAMBERT Executive Vice President March 2, 1995
- ------------------------------------------------------- and Chief Financial Officer
Thomas W. Lambert (Principal Financial Officer and
Principal Accounting Officer)
*DIRECTORS
Jon E. Barfield
Richard F. Chormann
Joseph J. Fitzsimmons
Joel N. Goldberg
Clifford L. Greenwalt
Robert L. Hetzler
Dorothy A. Johnson
F. Karl Neumann
James S. Ware
James W. Wogsland
Walter J. Wolpin
John L. Zabriskie
*By: /s/ THOMAS W. LAMBERT
- ------------------------------------
Attorney in Fact
57
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EXHIBIT INDEX
NUMBER
- ----------------------
(10)A First Amendment dated December 9, 1994, of the Three-Year Competitive Advance and
Revolving Credit Facility Agreement dated March 25, 1994.
(10)H Copy of composite form of the Management Continuity Agreement dated February 15,
1995.
(23) Consent of KPMG Peat Marwick LLP.
(24) Power of Attorney signed by various directors.
(27) Financial Data Schedule