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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, 1995 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 (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
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
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(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
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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, $2,618,205,067 on February 29, 1996.
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 29, 1996
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Common Stock, $10 Par Value 63,379,310
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 13, 1996 for the
Annual Meeting of Shareholders to be
held on April 17, 1996 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 four
affiliate financial institutions which operate general, commercial banking
businesses from 613 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, 1995, the Registrant had assets of $23.6 billion, deposits of $19.3
billion and shareholders' equity of $1.8 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 also 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 12,690
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, 1995, 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, 1995, had $13.1 billion in assets and $11.2 billion in
deposits. First of America Bank-Illinois, N.A., is a general commercial bank
based in Bannockburn, Illinois, and at December 31, 1995, had $7.2 billion in
assets and $5.9 billion in deposits. Similar to all of the Registrant's banking
and thrift 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 Loan Services, Inc. is a wholly owned subsidiary of First
of America Bank -- Michigan, N.A. First of America Loan Services, Inc. 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.
First of America Mortgage Company is a wholly owned subsidiary of First of
America Bank -- Michigan, N.A. and provides mortgage loan 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.
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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.
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.
New England Trust Company, based in Providence, Rhode Island, is a wholly
owned subsidiary of the Registrant and provides investment advisory services to
individual and institutional investors.
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.
Underwriting Consultants, Inc. is a wholly owned subsidiary of First of
America Bank -- Michigan, N.A. and First of America Insurance Group -- Illinois,
Inc. is a wholly owned subsidiary of First of America Bank -- Illinois, N.A.
These affiliates provide personal and commercial insurance products.
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 675 automated teller machines (ATM's) located on
bank premises to handle banking transactions 24 hours per day and on off-premise
sites 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.
Under the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act"), commencing on September 29, 1995, bank holding companies
are permitted to acquire banks located in any state regardless of the state law
in effect at the time. The Interstate Act also provides for the nationwide
interstate branching of banks. Under the Interstate Act, both national and
state-chartered banks will be permitted to merge across state lines (and thereby
create interstate branches) commencing June 1, 1997. States are
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permitted to "opt out" of the interstate branching authority by taking action
prior to the commencement date. States may also "opt-in" early (i.e., prior to
June 1, 1997) to the interstate branching provisions.
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.
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, its two 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 one affiliate state bank is not a member of the Federal Reserve System
and 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 investment advisers, 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............. 61 Chairman and Chief Executive Officer of the Registrant.
Richard F. Chormann......... 58 President and Chief Operating Officer of the Registrant.
Donald J. Kenney............ 48 Executive Vice President of the Registrant since January 1994;
previously Senior Vice President -- Automation, Operations, Retail
Credit and Mortgage; 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........... 54 Executive Vice President and Chief Financial Officer of the Registrant.
John B. Rapp................ 59 Executive Vice President of the Registrant.
David B. Wirt............... 56 Executive Vice President of the Registrant.
Lee J. Cieslak.............. 56 Chairman and Chief Executive Officer, First of America Bank -- Florida,
FSB since April 1994; previously President and Chief Executive Officer
of the former First of America Bank -- Metro Southwest, N.A. since 1989.
William R. Cole............. 57 Chairman and Chief Executive Officer, First of America Bank -- Michigan,
N.A. since 1990 and the former First of America Bank -- West Michigan
since 1991.
Robert K. Kinning........... 60 Chairman and Chief Executive Officer, First of America Bank -- Illinois,
N.A. since October 1994; previously President and Chief Executive
Officer of the former First of America Bank -- Central since 1986.
Malcolm C. Pownall.......... 52 Chairman and Chief Executive Officer, First of America -- 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 613 offices, a majority of
which 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, 1995.
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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 1995 and 1994. The dividends declared per common share totaled $1.72
during 1995 and $1.64 during 1994. Restrictions on the Registrant's ability to
pay dividends are described in Note 11 in the paragraph beginning "The various
loan agreements" and in Note 14 of the Registrant's "Notes to Consolidated
Financial Statements" included under "Item 8. Financial Statements and
Supplementary Data" included later in this document.
The number of record holders of the Registrant's common stock as of December
31, 1995 was 31,300.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the following information included in "Item 7.
Management's Discussion and Analysis -- Table II" under the caption "Selected
Financial Data": the line items "Interest income" through "Fully diluted"
earnings per share, "Cash dividends declared per common share," "Total assets"
and "Long-term debt" for the years 1991 through 1995.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following financial review discusses the performance of First of
America, on a consolidated basis, for the three years ended December 31, 1995,
and should be read in conjunction with the consolidated financial statements and
notes thereto.
MERGERS AND ACQUISITIONS
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
BUSINESS COMBINATIONS TABLE I
($ in thousands)
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1995 1994 1993
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Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
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New England Trust Presidential Holding Kewanee Investing
Company................ $1,576 Corporation.............. $ 256,352 Company, Inc. ........... $ 29,776
Underwriting Consultants, Citizens Federal Bank (14
Inc. .................. 1,255 F & C Bancshares, Inc.... 379,791 Branches)................ 499,337
West Suburban Financial Pioneer Mortgage Co.
Corporation............ 12 First Park Ridge (five offices)........... --
Corp. ................... 327,391
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LGF Bancorp, Inc. ....... 412,336
Goldome Federal
Branches............... 376,858
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$2,843 $1,752,728 $529,113
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On January 1, 1995, First of America acquired New England Trust Company, an
investment management firm based in Providence, Rhode Island, with $600 million
in assets under management. Also during 1995, First of
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America acquired Underwriting Consultants, Inc. and West Suburban Financial
Corporation (renamed First of America Insurance Group - Illinois, Inc.),
insurance companies which specialize in personal and commercial life and
casualty insurance. These acquisitions provide opportunities for further
diversification of revenue sources.
1995 HIGHLIGHTS
Net income for 1995 was $236.7 million, up 7.3 percent compared with the
$220.5 million earned in 1994, and earnings per share were $3.73 versus $3.69.
The current year's results reflected the impact of increased non-interest
income, $16.3 million in branch sale gains, and controlled expense levels.
Non-interest expense was virtually level with a year ago, as benefits achieved
from the internal restructuring and reduced FDIC premiums offset additional
expense from acquisitions completed on December 31, 1994, and $13.2 million in
restructuring charges. In 1993 record gains on the sale of mortgages and
securities contributed to that year's net income of $247.4 million, or $4.14 per
fully diluted share.
Return on average assets was 1.00 percent for full year 1995 and improved as
the year progressed, beginning at 0.79 percent for the first quarter and ending
the year at 1.13 percent for the fourth quarter. Return on average assets for
1994 was 0.98 percent and 1.20 percent for 1993. Return on average equity was
down for the year-over-year comparison, 13.89 percent compared with 14.44
percent, as growth in equity offset the higher earnings. Return on average
equity was 17.50 percent in 1993.
Asset quality remained strong, showing only slight deterioration from 1994's
record measures. Nonperforming assets were 0.63 percent of total assets, up
slightly from 0.57 percent at December 31, 1994, but lower than the 0.86 percent
reported at year-end 1993. Net charge-offs as a percent of average loans
followed the same trend and was 0.47 percent, 0.39 percent and 0.53 percent,
respectively, for 1995, 1994 and 1993. The allowance for loan losses as a
percent of total loans did increase, however, to 1.50 percent at year-end 1995
compared with 1.36 percent at year-end 1994, as the provision for loan loss
expense covered net charge-offs by 117 percent and total loans decreased 4.5
percent. The allowance as a percent of total loans was 1.31 percent at December
31, 1993.
Total assets were $23.6 billion at December 31, 1995, a 3.9 percent decrease
compared with the $24.6 billion reported at December 31, 1994. The decrease can
be attributed to strategies aimed at trimming the balance sheet and to the
securitization of $500 million in credit card receivables during June 1995.
Total assets were $21.2 billion at December 31, 1993. Excluding the credit card
securitization, total loans decreased 1.5 percent due to pricing strategies
implemented to improve the profitability of the installment and residential
mortgage portfolios. The commercial and commercial mortgage portfolios, however,
experienced steady growth during 1995, up 11.0 percent from the previous year.
Total shareholders' equity increased 15.8 percent to $1.8 billion at
December 31, 1995. The increase resulted from earnings retention of $128.0
million and the $118.2 million positive change in the adjustment to equity for
Available for Sale securities. The higher equity level resulted in an increase
in the book value per share, which was $28.89 at December 31, 1995 compared with
$25.12 and $25.60 for year-ends 1994 and 1993. The risk-based capital ratio of
12.89 percent at year-end 1995 was the highest reported by First of America
since it began computing risk-based ratios in 1989. The regulatory requirement
for this ratio is 8 percent.
In August 1995, the Board of Directors increased the annual cash dividend
paid per common share by 5 percent to $1.76. This increase indicated the Board's
continued confidence in First of America's profitability and represents the
thirteenth year in a row that the dividend was increased.
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SELECTED FINANCIAL DATA TABLE II
($ in thousands, except per share data)
5 Year
Compounded Year Ended December 31,
Growth ----------------------------------------------------------------------------
Rate 1995 1994 1993 1992 1991 1990
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SUMMARY OF OPERATIONS
Interest income................. 3.4% $ 1,796,524 1,600,877 1,510,966 1,596,127 1,537,861 1,519,841
Interest expense................ 0.7 872,528 662,142 608,949 721,300 786,910 841,142
----------- ----------- ----------- ----------- ----------- -----------
Net interest income............. 6.4 923,996 938,735 902,017 874,827 750,951 678,699
Provision for loan losses....... 15.4 91,488 86,571 84,714 78,809 71,030 44,782
Total non-interest income....... 13.8 346,100 284,373 292,184 261,316 209,900 181,558
Total non-interest expense...... 6.2 815,271 813,418 763,528 796,348 665,732 602,319
Applicable income tax expense... 16.7 126,629 102,616 98,574 91,506 64,625 58,628
Extraordinary item, net of
tax........................... n/a -- -- -- (21,956) -- --
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Net income...................... 8.9% $ 236,708 220,503 247,385 147,524 159,464 154,528
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Net income applicable to common
stock......................... 11.4% $ 236,708 220,503 241,232 135,015 144,028 137,818
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EARNINGS PER SHARE OF
COMMON STOCK
Primary....................... 7.3% $ 3.73 3.69 4.20 2.46 2.69 2.62
Fully diluted................. 7.3 3.73 3.69 4.14 2.46 2.69 2.62
Average common shares
outstanding ("000")........... 3.8 63,501 59,812 57,417 54,842 53,536 52,622
Cash dividends declared per
common share.................. 8.4 $ 1.72 1.64 1.55 1.34 1.24 1.15
Primary book value per common
share......................... 8.8 28.89 25.12 25.60 22.12 20.58 18.97
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BALANCE SHEET SUMMARY
ASSETS:
Cash and due from banks......... 3.3% $ 1,207,062 1,060,788 903,517 918,960 1,000,578 1,028,159
Federal funds sold, resale
agreements and time
deposits...................... 13.0 269,737 55,271 74,909 175,030 254,333 146,175
Securities:
Held to maturity.............. n/a -- 3,112,876 1,856,623 3,489,626 4,261,360 3,775,030
Available for sale............ n/a 5,060,746 2,587,626 3,261,481 -- -- --
Held for sale................. n/a -- -- -- 1,137,420 -- --
Loans -- net of unearned
income........................ 7.4 16,076,942 16,834,858 14,394,155 13,756,017 13,228,027 11,228,221
Allowance for loan losses....... 12.0 (241,182) (228,115) (188,664) (176,793) (174,882) (137,012)
Other assets.................... 10.4 1,226,790 1,145,398 928,450 846,507 900,552 749,379
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Total assets.................... 7.0% $23,600,095 24,568,702 21,230,471 20,146,767 19,469,968 16,789,952
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LIABILITIES AND EQUITY
Deposits........................ 5.2% $19,342,467 20,200,266 18,243,703 18,035,553 17,483,232 15,016,343
Short term borrowings........... 44.3 1,649,965 1,882,739 994,578 338,023 282,225 264,049
Long term debt.................. 22.2 490,315 681,236 254,193 254,051 260,398 179,899
Other liabilities............... 13.5 289,367 225,573 214,560 183,649 176,745 153,658
Total shareholders' equity...... 9.2 1,827,981 1,578,888 1,523,437 1,335,491 1,267,368 1,176,003
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Total liabilities and equity.... 7.0% $23,600,095 24,568,702 21,230,471 20,146,767 19,469,968 16,789,952
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FINANCIAL RATIOS
Return on average total
equity........................ 13.89% 14.44 17.50 11.38 13.07 13.70
Return on average assets........ 1.00 0.98 1.20 0.75 0.95 0.98
Net interest margin (a)......... 4.28 4.58 4.86 4.98 5.07 4.92
Total shareholders' equity to
assets at year-end............ 7.75 6.43 7.18 6.63 6.51 7.00
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(a) Fully taxable equivalent based on a marginal federal income tax rate of 35%
for 1995, 1994 and 1993, and 34% for prior years.
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INCOME ANALYSIS
NET INTEREST INCOME. Net interest income on a fully taxable equivalent (FTE)
basis was $940.0 million, down 2.0 percent from $955.7 million in 1994. The
lower net interest margin for 1995, 4.28 percent versus 4.58 percent, offset the
5.2 percent increase in average earning assets which was primarily the result of
the acquisitions completed at year-end 1994. Net interest income for 1995 was
also reduced by the securitization of $500 million in credit card receivables
during June 1995, which shifted revenue from interest income to non-interest fee
revenue. For 1994 compared with 1993, net interest income FTE increased 3.3
percent due to a higher level of average earning assets offsetting the impact of
a lower net interest margin.
Total interest income FTE grew 12.0 percent in 1995. As illustrated in Table
III, the increase resulted from both a higher volume of earning assets and
higher asset yields. On the other hand, interest expense was up 31.8 percent
mainly as a result of increased rates on interest-bearing liabilities. The
combination of the changes in interest income FTE and interest expense resulted
in the 2.0 percent decrease in net interest income FTE.
Table III presents a summary of the changes in net interest income resulting
from changes in volumes and rates for 1995 and 1994. Net interest income,
average balance sheet amounts, and the corresponding yields and costs for the
years 1990 through 1995 are shown in Table IV.
VOLUME/RATE TABLE III
($ in thousands)
1995 Change From 1994 Due To 1994 Change From 1993 Due To
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Volume Rate Total Volume Rate Total
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INTEREST INCOME:
Loans (FTE).......................... $119,442 77,146 196,588 111,385 (50,000) 61,385
Taxable securities................... (12,571) 13,618 1,047 44,597 (4,370) 40,227
Tax exempt securities (FTE).......... (7,188) 750 (6,438) (18,389) 1,080 (17,309)
Money market investments............. 1,482 2,021 3,503 (668) 163 (505)
- ----------------------------------------------------------------------------------------------------------------
Total interest income (FTE).......... $101,165 93,535 194,700 136,925 (53,127) 83,798
- ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits............ $ 16,197 141,030 157,227 25,696 (28,260) (2,564)
Short term borrowings................ 16,754 23,541 40,295 31,792 10,051 41,843
Long term debt....................... 9,717 3,148 12,865 14,892 (978) 13,914
- ----------------------------------------------------------------------------------------------------------------
Total interest expense............... $ 42,668 167,719 210,387 72,380 (19,187) 53,193
- ----------------------------------------------------------------------------------------------------------------
Change in net interest income........ $ 58,497 (74,184) (15,687) 64,545 (33,940) 30,605
- ----------------------------------------------------------------------------------------------------------------
* 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 BALANCES/NET INTEREST INCOME/AVERAGE RATES TABLE IV
($ in thousands)
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average
Balance Expense Paid Balance Expense Paid Balance
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Money market investments.................. $ 108,480 5,852 5.39% $ 72,736 2,349 3.23% $ 93,662
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 5,103,380 301,145 5.90 5,319,354 303,098 5.70 4,537,814
State and municipal securities(1)......... 222,055 21,858 9.84 306,946 25,296 8.24 530,407
Total loans(1)(2)......................... 16,532,752 1,483,709 8.97 15,172,618 1,287,121 8.48 13,875,584
----------- --------- ----------- --------- -----------
Total earnings assets/total interest
income(1)................................ 21,966,667 1,812,564 8.25 20,871,654 1,617,864 7.75 19,037,467
----------- --------- ----------- --------- -----------
Less allowance for loan losses............ 234,933 206,703 182,594
Cash and due from banks................... 919,598 892,959 839,506
Other assets.............................. 1,100,940 992,857 850,783
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $23,752,272 $22,550,767 $20,545,162
===============================================================================================================================
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... $ 3,444,077 59,342 1.72% $ 3,948,604 59,476 1.51% $ 3,980,815
Money market savings accounts(3).......... 4,254,533 166,906 3.92 3,551,445 110,220 3.10 3,009,796
Time deposits............................. 9,105,938 498,913 5.48 8,849,576 398,239 4.50 8,638,044
----------- --------- ----------- --------- -----------
Total interest-bearing deposits........... 16,804,548 725,161 4.32 16,349,625 567,935 3.47 15,628,655
Short term borrowings..................... 1,647,634 100,684 6.11 1,325,584 60,389 4.56 575,074
Long term debt............................ 616,357 46,683 7.57 485,494 33,818 6.97 272,297
----------- --------- ----------- --------- -----------
Total interest-bearing liabilities/total
interest expense......................... 19,068,539 872,528 4.58 18,160,703 662,142 3.65 16,476,026
----------- --------- ----------- --------- -----------
Demand deposits........................... 2,710,566 2,665,183 2,463,534
Other liabilities......................... 269,073 197,330 191,922
Non-redeemable preferred/preference
stock.................................... -- -- 74,586
Common shareholders' equity............... 1,704,094 1,527,551 1,339,094
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $23,752,272 $22,550,767 $20,545,162
===============================================================================================================================
Interest income/earning assets............ 8.25% 7.75%
Interest expense/earning assets........... 3.97 3.17
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 4.28% 4.58%
===============================================================================================================================
Year Ended December 31, 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate Interest
Income/ Earned/ Average Income/ Earned/ Average Income/
Expense Paid Balance Expense Paid Balance Expense
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Money market investments.................. 2,854 3.05% $ 233,757 9,090 3.89% $ 273,208 17,679
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 262,871 5.79 3,898,195 274,048 7.03 3,267,738 274,884
State and municipal securities(1)......... 42,605 8.03 493,785 46,369 9.39 580,307 56,640
Total loans(1)(2)......................... 1,225,736 8.83 13,435,991 1,291,724 9.61 11,276,061 1,217,808
--------- ----------- --------- ----------- ---------
Total earnings assets/total interest
income(1)................................ 1,534,066 8.06 18,061,728 1,621,231 8.98 15,397,314 1,567,011
--------- ----------- --------- ----------- ---------
Less allowance for loan losses............ 176,595 139,332
Cash and due from banks................... 818,279 785,798
Other assets.............................. 870,879 754,446
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $19,574,291 $16,798,226
===============================================================================================================================
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... 82,664 2.08% $ 2,820,091 86,568 3.07% $ 2,375,565 105,904
Money market savings accounts(3).......... 78,738 2.62 3,972,004 128,820 3.24 3,829,647 186,406
Time deposits............................. 409,097 4.74 8,520,485 476,215 5.59 6,804,895 469,094
--------- ----------- --------- ----------- ---------
Total interest-bearing deposits........... 570,499 3.65 15,312,580 691,603 4.52 13,010,107 761,404
Short term borrowings..................... 18,546 3.22 216,352 8,104 3.75 177,834 9,424
Long term debt............................ 19,904 7.31 248,032 21,593 8.71 176,780 16,082
--------- ----------- --------- ----------- ---------
Total interest-bearing liabilities/total
interest expense......................... 608,949 3.70 15,776,964 721,300 4.57 13,364,721 786,910
--------- ----------- --------- ----------- ---------
Demand deposits........................... 2,301,768 2,064,849
Other liabilities......................... 198,633 148,626
Non-redeemable preferred/preference
stock.................................... 140,952 165,730
Common shareholders' equity............... 1,155,974 1,054,300
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $19,574,291 $16,798,226
===============================================================================================================================
Interest income/earning assets............ 8.06% 8.98%
Interest expense/earning assets........... 3.20 4.00
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 4.86% 4.98%
- -------------------------------------------------------------------------------------------------------------------------------
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------------
Average
Rate
Earned/
Paid
- -------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Money market investments.................. 6.47%
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 8.41
State and municipal securities(1)......... 9.76
Total loans(1)(2)......................... 10.80
Total earnings assets/total interest
income(1)................................ 10.18
Less allowance for loan losses............
Cash and due from banks...................
Other assets..............................
- -------------------------------------------------------------------------------------------------------------------------------
Total.....................................
===============================================================================================================================
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... 4.46%
Money market savings accounts(3).......... 4.87
Time deposits............................. 6.89
Total interest-bearing deposits........... 5.85
Short term borrowings..................... 5.30
Long term debt............................ 9.10
Total interest-bearing liabilities/total
interest expense......................... 5.89
Demand deposits...........................
Other liabilities.........................
Non-redeemable preferred/preference
stock....................................
Common shareholders' equity...............
- -------------------------------------------------------------------------------------------------------------------------------
Total.....................................
===============================================================================================================================
Interest income/earning assets............ 10.18%
Interest expense/earning assets........... 5.11
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 5.07%
- -------------------------------------------------------------------------------------------------------------------------------
(1) Interest income on obligations of states and political subdivisions and on
tax exempt commercial loans has been adjusted to a fully taxable equivalent
basis using a marginal federal tax rate of 35% for 1995, 1994 and 1993, and 34%
for prior years.
(2) Non-accrual loans are included in average loan balances.
(3) In 1995, 1994 and 1993, money market checking accounts are included in
"Savings and NOW accounts"; in prior years, they are included in "Money market
savings accounts."
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11
NET INTEREST MARGIN. The net interest margin was 4.28 percent in 1995 lower
than the 4.58 percent reported in 1994, due in part to the acquisition of higher
priced thrift deposits at December 31, 1994. The margin was also reduced by
approximately 6 basis points as a result of the securitization of $500 million
in credit card receivables completed in June 1995. During 1995 management
implemented specific strategies to improve the core margin, such as steps to
increase the interest spread on newly originated installment and residential
mortgage loans, changes to deposit product pricing and mix and decreased
reliance on short-term borrowings. As a result of these strategies, the core
margin showed improvement during the last six months of 1995. If the first and
second quarter margins are normalized for the impact of the credit card
securitization, the margins would have been as follows: first quarter, 4.17
percent; second quarter, 4.16 percent; third quarter, 4.23 percent; fourth
quarter, 4.32 percent.
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 1995, the provision for loan losses was
increased 5.7 percent to $91.5 million from $86.6 million in 1994 to adequately
cover net charge-offs and the higher risk of loss beginning to be experienced in
the credit card and installment loan portfolios. The 1993 provision was $84.7
million. The 117 percent coverage of net charge-offs by the provision for loan
losses and the securitization of the $500 million in credit card receivables
contributed to the higher allowance as a percent of total loans ratio which was
1.50 percent, up from 1.36 percent at December 31, 1994 and 1.31 percent at
December 31, 1993.
As a percent of average assets, the 1995 provision was 0.39 percent compared
with the 0.38 percent and 0.41 percent reported for 1994 and 1993, respectively.
Additional information on the provision for loan losses, net charge-offs and
nonperforming assets is provided in Tables IX and XI and under the
caption,"Credit Risk Profile," presented later in this discussion.
NON-INTEREST REVENUE. Non-interest revenue of $346.1 million was up 21.7
percent over 1994. Included in this total were $16.3 million in branch sale
gains related to internal restructuring and $17.6 million in net servicing fees
from the credit card securitization. Excluding these two components, total
non-interest revenue would have increased 9.8 percent over 1994. Non-interest
revenue totaled $284.4 million in 1994 and $292.2 million in 1993. Record gains
on the sale of securities and mortgages during 1993 were the primary reasons for
the higher level of non-interest revenue in 1993 compared with 1994. Table V
presents the trends in the major components of non-interest revenue from 1991 to
1995.
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12
NON-INTEREST INCOME AND NON-INTEREST EXPENSE TABLE V
($ in thousands)
Change
1995/1994
- -----------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 Amount Percent
- -----------------------------------------------------------------------------------------------------------------------------
NON-INTEREST REVENUE
Service charges on deposits..................... $100,281 89,164 84,648 79,522 70,318 11,117 12.5%
Trust and financial services revenue............ 94,179 81,717 77,290 68,850 60,904 12,462 15.3
Investment securities transactions.............. 62 5,349 16,753 14,993 1,088 (5,287) (98.8)
Other operating revenue......................... 151,578 108,143 113,493 97,951 77,590 43,435 40.2
- ------------------------------------------------------------------------------------------------------------------
Total non-interest revenue...................... $346,100 284,373 292,184 261,316 209,900 61,727 21.7
============================================================================================================================
NON-INTEREST EXPENSE
Personnel....................................... $430,977 430,563 403,119 410,854 361,187 414 0.1%
Occupancy, net.................................. 64,108 60,471 55,093 57,286 50,413 3,637 6.0
Equipment....................................... 59,322 56,111 53,376 63,134 51,474 3,211 5.7
Data processing................................. 18,825 17,524 14,963 10,380 11,448 1,301 7.4
Amortization of intangibles..................... 21,146 16,577 8,902 38,336 10,303 4,569 27.6
FDIC premiums................................... 28,373 42,055 39,680 38,711 31,032 (13,682) (32.5)
Other operating expense......................... 192,520 190,117 188,395 177,647 149,875 2,403 1.3
- ------------------------------------------------------------------------------------------------------------------
Total non-interest expense...................... $815,271 813,418 763,528 796,348 665,732 1,853 0.2
============================================================================================================================
Non-interest revenue as a percent of
average assets................................ 1.46% 1.26 1.42 1.33 1.25
Non-interest expense as a percent of
average assets................................ 3.43 3.61 3.72 4.07 3.96
Burden ratio.................................... 1.97 2.35 2.30 2.74 2.71
Efficiency ratio................................ 63.39 65.59 62.72 68.58 67.25
Efficiency ratio, excluding FDIC premiums....... 61.18 62.20 59.46 65.24 64.11
============================================================================================================================
Service charges on deposit accounts remained the largest component of
non-interest revenue in 1995. New fee structures initiated during the year and a
slightly higher volume of non-interest transaction deposits, accounted for the
12.5 percent increase over a year ago.
In total, trust and financial services revenue increased 15.3 percent over a
year ago. Traditional trust fees increased 12.6 percent as a result of the
additional $600 million in managed assets acquired with the New England Trust
Company and the higher market value of managed assets upon which fees are
assessed. Other financial services fees, derived from brokerage services and
investment advisory services, increased 22.4 percent as investment activity
rebounded from 1994. Total revenue from the sale of Parkstone and other mutual
funds and annuities was $9.6 million compared with $8.7 million in 1994.
Net gains on the sales of investment securities totaled $0.1 million
compared with $5.3 million in 1994 and $16.8 million in 1993. During December
1995, First of America transferred all of its Held to Maturity securities into
the Available for Sale classification. More detail on that reclassification is
provided in Note 4 of the Notes to Consolidated Financial Statements included
later in this document. At December 31, 1995, the amortized cost of Available
for Sale securities totaled $5.0 billion and had a corresponding market value of
$5.1 billion which resulted in a $25.9 million positive adjustment to
shareholders' equity.
Bank card revenue totaled $60.4 million, up 39.9 percent over the $43.2
million earned in 1994. The 1995 total included $17.6 million in net fees from
the credit card securitization. Excluding these fees, bank card revenue would
have been level with a year ago. The securitization, completed during June,
shifted revenue from interest income to fee revenue but had minimal impact on
net income; its benefit was that the funds it provided allowed the company to
reduce short-term borrowings. Bank card revenue totaled $40.0 million in 1993.
The managed credit card portfolio,
12
13
which includes the $835 million in receivables remaining on the balance sheet
and the securitized receivables, was $1.3 billion at December 31, 1995, level
with a year ago as fewer promotional initiatives were implemented in 1995.
Mortgage banking revenue of $31.5 million increased 30.5 percent over 1994.
The main reasons for the increase were a $4.1 million gain on the sale of
servicing rights and $3.5 million in additional gains on the sale of mortgage
loans from the adoption of Financial Accounting Standards Board Statement No.
122, "Accounting for Mortgage Servicing Rights an amendment of FASB Statement
No. 65" (FAS 122). Impairment expense on the capitalized originated mortgage
servicing rights was $95,700. Mortgage originations totaling $1.6 billion were
down 24.8 percent from 1994, but increased each quarter throughout 1995. Despite
the sale of servicing rights, First of America's outside servicing portfolio was
up slightly over a year ago totaling $3.2 billion and added $9.2 million in
servicing revenue.
Other operating revenue increased 46.2 percent over 1994. The largest
component of this category, gains on branch sales, totaled $16.3 million and
added $0.16 to earnings per share. The review of branch offices to determine
their fit with the company's marketing strategies is an ongoing activity, but
such scrutiny was intensified during the internal restructuring effort.
Excluding branch sale gains, other operating revenue increased 6.3 percent over
a year ago. Included in this total were nonaffiliate corporate services at $10.6
million, up 6.6 percent; ATM network fees at $6.6 million, up 7.6 percent; and
credit life income at $4.8 million, up 19.8 percent.
NON-INTEREST EXPENSE. As detailed in Table V, non-interest expense was
$815.3 million in 1995, up only 0.2 percent from 1994. Operating efficiencies
generated by the internal restructuring and reduced FDIC premiums, down $13.7
million for the year, offset the additional operating expense from acquisitions
completed at year-end 1994 and $13.2 million in restructuring charges incurred
during 1995. Non-interest expense was 3.61 percent of average assets for 1994
and 3.72 percent for 1993.
Total personnel cost was $431.0 million in 1995 compared with $430.6 million
in 1994 and $403.1 million in 1993. Excluding severance charges, personnel costs
were down 1.7 percent from 1994 and represented 1.77 percent of average assets
compared with 1.89 percent in 1994. This improvement demonstrates the positive
impact the restructuring had on personnel cost, the largest component of
non-interest expense. Total full time equivalent employees (FTEs) were 12,690 at
December 31, 1995 compared with 14,500 in August 1994 when the restructuring was
announced. The lower level of FTEs was achieved even with the addition of 340
FTEs from acquisitions completed since September 30, 1994. Two ratios which
measure the progress made through internal efficiencies are the number of FTEs
per one million dollars of average assets and net income per FTE. For 1995,
there were 0.53 FTEs per one million dollars of average assets compared with
0.56 a year ago, and $18,653 of net income per FTE versus $16,570 a year ago.
These ratios were 0.63 and $18,559 for 1993.
Net occupancy and equipment costs increased 5.9 percent in 1995 to $123.4
million compared with $116.6 million in 1994 and $108.5 million in 1993. The
1995 growth in this expense was largely the result of acquisitions completed
late in 1994 and early in 1995.
Other operating expense, which includes all the other costs of doing
business such as advertising, supplies, travel, telephone, professional fees and
outside services purchased, was $192.5 million in 1995, up 1.3 percent from
1994's total of $190.1 million. As a percent of average assets, other operating
expense was 0.81 percent compared with 0.84 percent in 1994 and 0.92 percent in
1993.
EFFICIENCY RATIO AND BURDEN 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 revenue. Table V presents the efficiency ratio over the last
five years. The improvement in this ratio to 63.39 percent for 1995 compared
with 65.59 percent a year ago is directly related to revenue growth since total
non-interest expense was basically level with a year ago. The growth in
non-interest revenue offset the impact of a lower net interest margin and
resulting lower net interest income.
The higher level of non-interest revenue also directly impacted the burden
ratio as non-interest revenue was 1.46 percent of average total assets compared
with 1.26 percent a year ago. The lower FDIC premiums in 1995 also served to
improve the burden ratio to 1.97 percent; one of First of America's long term
goals is to maintain this ratio at or below 2.00 percent.
INCOME TAX EXPENSE. Income tax expense was $126.6 million in 1995 compared
with $102.6 million in 1994 and $98.6 million in 1993. The increased income tax
expense was primarily related to the 12.4 percent increase in
13
14
income before taxes. A summary of significant tax components is provided in Note
18 of the Notes to Consolidated Financial Statements included later in this
document.
PRO FORMA RESULTS -- CASH APPROACH
The calculation of "cash earnings" provides an alternative analysis of
First of America's results. "Cash earnings" adds back the amortization of
intangibles and assumes that all intangibles were charged off against retained
earnings upon the original acquisition date of all mergers accounted for as
purchases. These pro forma results, as detailed below, indicate that First of
America's underlying return on equity for the last two years would have been
within the 17 to 18 percent range, which has been the company's stated long term
goal. Also earnings per share and return on assets would have been higher than
reported. The book value per share, while lower than the reported $28.89 for
year-end 1995, would be the equivalent of a reported tangible book value per
share. In fact, the tier I leverage ratio, the strictest regulatory capital
ratio, remains unchanged under these assumptions since it already excludes
intangibles from its computation.
1995 1994 1993
-------- ------- -------
Net income.............................................. $255,131 235,093 256,012
Earnings per share...................................... 4.02 3.93 4.28
Book value per share (year end)......................... 25.30 21.10 23.27
Return on average assets................................ 1.09% 1.05 1.25
Return on total equity.................................. 17.43 17.77 19.92
Efficiency ratio........................................ 61.75 64.26 61.99
Tier I leverage ratio................................... 6.70 5.81 6.43
14
15
LINE OF BUSINESS FINANCIAL PERFORMANCE TABLE VI
($ in thousands)
Trust &
Community Bank Mortgage Financial Consolidated
For the year ended December 31, 1995 Banking Card Banking Services Results
- ---------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
Net interest income (FTE)....................... $779,852 96,779 59,403 4,002 940,036
Provision for loan losses....................... 43,259 48,488 (259) -- 91,488
Non-interest income............................. 140,578 61,972 32,418 94,845 329,813
Non-interest expense............................ 618,735 59,574 55,114 68,618 802,041
Income tax expense (FTE)........................ 97,234 19,097 13,881 11,364 141,576
----------------------------------------------------------
Income before one-time gains and charges........ $161,202 31,592 23,085 18,865 234,744
===========================================
Gains from branch sales (net of tax)............ 10,464
Severance and other one-time charges (net of
tax) 8,500
----------
Net income...................................... $236,708
=============================================================================================================
PERFORMANCE RATIOS
Profit margin (pre-tax)......................... 28.08% 31.93 40.26 30.58 29.50
Return on equity................................ 12.01 31.93 10.26 49.69 13.89
Efficiency ratio................................ 67.22 37.53 60.02 69.42 63.39
=============================================================================================================
1995 RESULTS BY QUARTER (a)
Net income
First quarter................................. $ 35,600 9,032 2,939 3,527 47,389
Second quarter................................ 40,546 7,855 7,218 4,560 56,586
Third quarter................................. 44,847 8,477 7,051 5,410 66,714
Fourth quarter................................ 40,209 6,228 5,877 5,368 66,019
- -------------------------------------------------------------------------------------------------------------
Return on equity
First quarter................................. 11.47% 39.33 5.68 40.13 12.03
Second quarter................................ 12.27 32.56 12.96 49.04 13.49
Third quarter................................. 12.96 33.39 12.03 55.29 15.17
Fourth quarter................................ 11.31 23.54 9.95 53.20 14.64
- -------------------------------------------------------------------------------------------------------------
Efficiency ratio
First quarter................................. 70.91% 34.64 75.95 75.19 68.80
Second quarter................................ 67.62 37.00 55.46 69.79 64.93
Third quarter................................. 64.49 38.92 53.36 65.90 60.29
Fourth quarter................................ 65.88 39.59 58.48 67.40 59.79
=============================================================================================================
(a) The consolidated results by quarter include gains on branch sales and
charges for severance and other restructuring costs.
15
16
LINE OF BUSINESS ANALYSIS
An objective of First of America's recent restructuring effort was to define
specific lines of business which would cross legal entity lines and focus its
management and accounting systems accordingly. As a result, First of America now
measures the individual performance of four business lines -- community banking,
bank card, mortgage banking and trust and financial services -- as well as the
performance of certain product lines within those businesses.
In developing the management accounting system for line of business
reporting, certain assumptions and allocations were necessary. Equity was
allocated on the basis of required regulatory levels, inherent operational risk
or market-determined factors as evidenced by similar independent single business
line companies. Support services which were centrally provided were allocated on
a per-unit cost basis or in proportion to the balances of assets and liabilities
associated with a particular business line. Funds transfer pricing was used to
allocate a cost of funds used or a credit for funds provided from
market-determined indices. Because of the assumptions and allocations utilized,
the financial results of the individual business lines might vary from the
actual results if those lines were in fact separate operating entities. While no
comparative results from previous years are available, Table VI presents a
summarized income statement, performance ratios and selected quarterly
information from 1995 for the four business lines identified above.
COMMUNITY BANKING. The community banking business line is responsible for
gathering and managing deposits, lending to commercial and consumer installment
customers, and managing the four state branch networks for the delivery of First
of America's products and services. It also provides customers with home equity
and student loans, international banking services and other general banking
services, such as ATM operations and safety deposit boxes.
Community banking is the core of First of America's business activities, and
its contribution to the consolidated net income is the largest of the business
lines. In 1995 community banking benefited from the reduction of FDIC premiums
at mid-year as evidenced by the increase in its net income from second to third
quarter and by the improvement in its efficiency ratio between those same
quarters. For the full year, community banking earned a return on allocated
equity of 12.01 percent. Excluding the indirect lending product line and the
start-up effort in Florida, it would have earned 15.47 percent on its allocated
equity. Investment in Florida's physical franchise, advertising and other
developmental activities significantly affected its 1995 results; however,
progress was made on re-mixing its customer base and changing its product
offerings. The performance of the indirect lending product line was lowered by
the lingering effect of pricing competition in 1994 and the deterioration of
credit quality during 1995 which necessitated a higher provision for loan losses
particularly in the fourth quarter. Further credit quality problems are not
anticipated, and management has taken steps to improve the interest spreads on
newly originated indirect installment loans.
Community banking's non-interest expense included virtually all of the
goodwill amortization included in the corporation's consolidated financial
results, a total of $21.1 million in 1995. Without that amortization, its
efficiency ratio and return on allocated equity would have been 63.99 percent
and 13.62 percent, respectively.
BANK CARD. Bank card is responsible for managing and servicing First of
America's $1.5 billion managed portfolio of credit card and other revolving
loans, as well as the merchant services operation. In addition to the managed
portfolio of VISA/Mastercard credit cards, bank card manages affinity cards for
30 groups and offers a FirstAir card. The revolving portfolio remained
relatively level with 1994 as fewer customer promotions were initiated than in
previous years. In 1996, renewed emphasis will be placed on promoting the
VISA/Mastercard portfolio.
This business line was a strong performer during 1995 with an efficiency
ratio of 37.53 percent and a return on allocated equity of 31.93 percent. As the
year progressed, the provision for loan losses was increased in order to provide
for net charge-offs which also rose. This reflected a trend in consumer debt
which was generally experienced across the industry. As a result, the bank
card's quarterly net income and return on allocated equity declined over the
second half of the year as indicated in Table VI.
MORTGAGE BANKING. Mortgage banking originates all residential mortgages
across First of America's four community banking states and in separate
origination offices in Arizona, Missouri, North Carolina and South Carolina. The
loans are originated both for portfolio retention and sale to the secondary
market. Mortgage banking also provides
16
17
servicing for First of America's entire portfolio and a $3.2 billion portfolio
for external investors. Since mortgage banking is responsible for originating,
servicing and managing First of America's residential loan portfolio, the
portfolio's interest income and related funds transfer charge are included in
mortgage banking's net income.
Mortgage banking earned the lowest return on allocated equity of the four
business lines in 1995. Its results can vary substantially from period to period
since origination activity is rate-sensitive, and gains on loan sales vary
directly with the volume of originations. Some seasonality was evident in the
1995 results with net income highest during the second and third quarters when
origination activity was at its peak. FAS 122 added $3.5 million in pre-tax
gains during the year and a sale of servicing rights contributed $4.1 million in
pre-tax gains during the second quarter.
TRUST AND FINANCIAL SERVICES. Trust and financial services provides
traditional trust services to individuals and institutions, as well as
investment management and brokerage services. It also manages First of America's
proprietary mutual funds, The Parkstone Group of Funds and recently began
offering certain insurance services and annuity products.
This business line earned the highest return on allocated equity at 49.69
percent. The nature of its business activity -- fee generating and personnel
intensive -- will generally result in comparatively higher returns on equity and
higher efficiency ratios. Net income climbed steadily over the year, in part due
to the increasing market value of its managed assets upon which fees are
assessed. Its managed assets totaled $15.6 billion at year-end 1995, up 18.3
percent from the previous year.
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 the loan
portfolio of each line of business on a regular basis and shares its evaluation
with the management of the business line as well as corporate management.
First of America's loan portfolio includes a large percentage of loans with
balances less than $100,000 which effectively reduces total portfolio risk. At
year-end 1995, consumer installment and revolving loans totaled 28.0 percent of
the total portfolio, one-to-four family residential mortgages and home equity
loans accounted for 32.2 percent, commercial loans totaled 16.1 percent, and
commercial mortgages totaled 23.7 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 $16.1 billion at
year-end 1995, down slightly from the $16.8 billion a year ago.
COMPONENTS OF THE LOAN PORTFOLIO TABLE VII
($ in thousands)
December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
Consumer, net................................... $ 4,504,255 5,799,025 5,062,173 4,288,431 4,060,126
Commercial, financial and agricultural.......... 2,589,038 2,344,969 2,148,663 2,170,715 2,223,202
Real estate -- construction..................... 514,612 438,067 252,839 300,954 342,944
Real estate -- mortgage......................... 8,469,037 8,252,797 6,930,480 6,995,917 6,601,755
- ----------------------------------------------------------------------------------------------------------------------
Total loans..................................... $16,076,942 16,834,858 14,394,155 13,756,017 13,228,027
======================================================================================================================
CONSUMER LOANS. First of America's consumer loan portfolio, which includes
indirect and direct installment loans, credit cards and other revolving loans,
declined 22.3 percent from 1994's level. The managed credit card portfolio at
$1.3 billion remained level with 1994. First of America offers its credit card
products in all fifty states; the largest portion of the portfolio, 56 percent,
was to customers in its four operating states. As a percent of average loans,
the net charge-offs for the managed portfolio were 3.23 percent in 1995 compared
with 2.14 percent in 1994.
The consumer installment portfolio was $3.5 billion at December 31, 1995,
down 17.9 percent from the previous year due to the combination of intense
competition within the industry and First of America's more stringent pricing
policies. First of America's consumer installment loans originate primarily from
its four state operating area. The net charge-offs as a percent of average
consumer installment loans were 0.91 percent in 1995 and 0.36 percent in 1994.
Management increased the provision for loan losses in 1995 to adequately cover
the estimated risk of loss in this
17
18
portfolio and, unless there is a serious economic downturn, does not expect
further significant deterioration in its credit quality.
RESIDENTIAL MORTGAGE LOANS. At December 31, 1995, residential mortgage loans
totaled $5.2 billion compared with $5.3 billion at year-end 1994. Originations
of residential mortgage loans during 1995 were $1.6 billion compared with $2.2
billion in 1994. The average loan size in the balance sheet portfolio was
$57,200, and the loans in portfolio were originated within First of America's
four home states. First of America's portfolio continued to have excellent
credit quality measurements. Net charge-offs as a percent of average residential
mortgage loans were 0.01 percent in 1995 and 0.02 in 1994.
At December 31, 1995, residential mortgage loans held for sale, originated
at prevailing market rates, totaled $101.3 million with a market value of $104.1
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, totaling $48.9 million. Mandatory commitments to deliver mortgage loans
to investors, at prevailing market rates, totaled $125.0 million as of December
31, 1995.
COMMERCIAL AND COMMERCIAL MORTGAGE LOANS. First of America's commercial and
commercial mortgage loan portfolio is comprised primarily of loans to small and
mid-sized businesses within the local markets of its four operating states.
Evidence of this philosophy is the average loan size within this portfolio at
year-end which was $48,000 for commercial loans and $235,000 for commercial
mortgages, allowing for a more diverse customer base and limiting the exposure
from any one borrower. 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 commercial and commercial mortgages demonstrated the
highest growth of any of the portfolios during 1995. This portfolio grew 11.0
percent to $6.4 billion compared with $5.8 billion at year-end 1994. Total
non-performing commercial and commercial mortgage loans as a percent of
outstandings decreased to 1.38 percent from 1.44 percent a year ago, and net
charge-offs as a percent of average loans was 0.09 percent compared with 0.22
percent for 1994.
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS TABLE VIII
($ in thousands)
One year
to After
One year five five
December 31, 1995 or less years years Total
- -----------------------------------------------------------------------------------------------------
Commercial, financial and agricultural............ $1,430,411 710,316 155,847 2,296,574
Commercial tax-exempt............................. 40,808 108,396 143,260 292,464
Real estate construction.......................... 314,236 141,834 58,542 514,612
- -----------------------------------------------------------------------------------------------------
Total............................................. $1,785,455 960,546 357,649 3,103,650
=====================================================================================================
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate.................. $462,857 190,516 653,373
With floating or adjustable interest rates........ 497,689 167,133 664,822
- -----------------------------------------------------------------------------------------------------
Total............................................. $960,546 357,649 1,318,195
=====================================================================================================
ASSET QUALITY. Non-performing assets, including nonaccrual loans,
renegotiated loans and other real estate owned, totaled $147.6 million or 0.63
percent of total assets. Non-performing assets were 0.57 percent and 0.86
percent of total assets at year-end 1994 and 1993, respectively. Total
non-performing loans, other real estate owned and other loans of concern for the
past five years are detailed in Table IX.
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RISK ELEMENTS IN THE LOAN PORTFOLIO TABLE IX
($ in thousands)
December 31, 1995 1994 1993 1992 1991
- -----------------------------------------------------------------------------------------------------
Non-accrual loans......................... $104,174 96,814 121,186 126,619 116,995
Restructured loans........................ 12,327 4,852 10,879 20,669 16,837
Other real estate owned................... 31,103 38,662 50,595 48,699 34,601
-------- -------- -------- -------- --------
Non-performing assets................... 147,604 140,328 182,660 195,987 168,433
Past due loans 90 days or more
(excluding the above two categories).... 28,124 18,208 23,462 20,887 32,499
Other loans of concern.................... 17,660 31,653 53,206 37,663 37,189
- -----------------------------------------------------------------------------------------------------
Total..................................... $193,388 190,189 259,328 254,537 238,121
=====================================================================================================
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 $17.7
million at year-end 1995, a decrease of 44.2 percent from 1994's year-end total
of $31.7 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. Management evaluates the
adequacy of the allowance for loan losses quarterly based on information
compiled by the corporate loan review area. 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 1995 was 207.02
percent compared with 224.38 percent at year-end 1994 and 142.86 percent at
year-end 1993. 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 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" (FAS 114). This resulted in a specifically identified allowance
for impaired loan losses of $17.4 million which was transferred from the general
allowance. At year-end 1995, the allowance for impaired loan losses was $17.6
million. The adoption of FAS 114 did not significantly impact the comparability
of the allowance related tables included in this report.
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ALLOCATION OF ALLOWANCE FOR LOAN LOSSES TABLE X
($ in thousands)
December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans*
- ------------------------------------------------------------------------------------------------------------------------
Commercial, financial
and agricultural.... $ 37,133 1.43% $ 33,543 1.43% $ 39,231 1.83% $ 43,466 2.00% $ 49,129 2.21%
Real estate........... 46,712 0.52 55,721 0.68 55,661 0.81 54,873 0.76 49,639 1.14
Consumer.............. 103,498 2.30 76,235 1.31 69,633 1.38 52,847 1.23 54,333 1.34
Unallocated........... 53,839 0.33 62,616 0.37 24,139 0.17 25,607 0.19 21,781 0.16
- ------------------------------------------------------------------------------------------------------------------------
Total................. $241,182 $228,115 $188,664 $176,793 $174,882
========================================================================================================================
Allowance to total
loans............... 1.50% 1.36 1.31 1.29 1.32
========================================================================================================================
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
SUMMARY OF LOAN LOSS EXPERIENCE TABLE XI
($ in thousands)
December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period.................. $ 228,115 188,664 176,793 174,882 137,012
Provision charged against income................ 91,488 86,571 84,714 78,809 71,030
Allowance for loan losses of acquired/(sold)
banks......................................... -- 11,420 50 (372) 27,094
RECOVERIES:
Commercial, financial and agricultural.......... 5,757 7,277 8,692 7,215 8,616
Real estate -- construction..................... 54 51 -- -- --
Real estate -- mortgage......................... 3,896 2,404 2,615 2,112 1,487
Consumer loans.................................. 47,231 28,402 24,556 24,313 20,177
----------- ---------- ---------- ---------- ----------
Total recoveries................................ 56,938 38,134 35,863 33,640 30,280
----------- ---------- ---------- ---------- ----------
CHARGE-OFFS:
Commercial, financial and agricultural.......... 7,007 13,621 19,764 22,558 13,475
Real estate -- construction..................... 395 80 -- -- --
Real estate -- mortgage......................... 7,777 8,825 10,539 10,588 5,669
Consumer loans.................................. 120,180 74,148 78,453 77,020 71,390
----------- ---------- ---------- ---------- ----------
Total charge-offs............................... 135,359 96,674 108,756 110,166 90,534
----------- ---------- ---------- ---------- ----------
Net charge-offs................................. 78,421 58,540 72,893 76,526 60,254
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period........................ $ 241,182 228,115 188,664 176,793 174,882
======================================================================================================================
Average loans (net of unearned income).......... $16,532,752 15,172,618 13,875,584 13,435,991 11,276,061
======================================================================================================================
Earnings coverage of net losses................. 5.80x 7.00 5.91 4.44 4.90
Allowance to total end of period loans.......... 1.50% 1.36 1.31 1.29 1.32
Net losses to end of period allowances.......... 32.51 25.66 38.64 43.29 34.45
Recoveries to total charge-offs................. 42.06 39.45 32.98 30.54 33.45
Provision to average loans...................... 0.55 0.57 0.61 0.59 0.63
Net charge-offs to average loans................ 0.47 0.39 0.53 0.57 0.53
======================================================================================================================
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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 95.5 percent at year-end 1995 and
94.8 percent at year-end 1994. 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 83.1 percent compared with 83.3 percent and
78.9 percent for 1994 and 1993, 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, 1995, are presented in Table
XII. The maturity distribution of time deposits of $100,000 or more at year-end
1995 is detailed in Table XIII.
In addition to deposits, First of America's sources of funding include money
market borrowings, capital funds, securitizations 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, 1995 and the Second Amendment dated February 15, 1996
(collectively, the Credit Agreement). The Credit Agreement allows First of
America to borrow up to $350,000,000 on a standby revolving credit basis and an
uncommitted competitive advance basis. 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, 1995, there was no outstanding
balance under the Credit Agreement.
In June 1995, First of America securitized $500 million in credit card
receivables. This transaction was an effective management balance sheet tool
since it had no impact on net income, but released funds which were used to
reduce short-term borrowings.
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, 1995 was $699.9
million, of which $105.0 million was included in long term debt.
DEPOSITS TABLE XII
($ in thousands)
1995 1994 1993
Average Average Average
- ---------------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
- ---------------------------------------------------------------------------------------------------------------------
Non-interest bearing.......................... $ 2,710,566 -- $ 2,665,183 -- $ 2,463,534 --
Savings and NOW accounts...................... 3,444,077 1.72% 3,948,604 1.51% 3,980,815 2.08%
Money market savings.......................... 4,254,533 3.92 3,551,445 3.10 3,009,796 2.62
Time.......................................... 9,105,938 5.48 8,849,576 4.50 8,638,044 4.74
- ---------------------------------------------------------------------------------------------------------------------
Total......................................... $ 19,515,114 19,014,808 18,092,189
=====================================================================================================================
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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.......................... $937,084 256,093 254,617 137,263 1,585,057
Other time deposits.............................. 8,874 7,911 9,700 39,216 65,701
- ----------------------------------------------------------------------------------------------------------------
Total............................................ $945,958 264,004 264,317 176,479 1,650,758
================================================================================================================
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, 1995, totaling $105.5 million in notional amounts versus $707.9 million at
December 31, 1994. This total included notional amounts of $75.0 million as a
hedge against the parent company's 8.50% Subordinated Notes Due February 1,
2004, $10.0 million against various fixed rate bank notes, $12.0 million against
certain FirstRate Fund deposits, and $8.5 million as a hedge against certain
Market Rate certificates of deposit. First of America had swaps of variable rate
instruments for fixed rate instruments with notional amounts totaling $22.0
million, $75.0 million of fixed rate instruments for variable rate instruments
and $8.5 million representing basis swaps.
The aggregate market value of interest rate swaps at year-end was a positive
$499 thousand. The full year 1995 impact from swap activity on net interest
income was a negative $4.0 million versus a negative $1.2 million impact for
1994. If interest rates increased one hundred basis points, First of America
would increase net interest income $173 thousand 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.
During 1994, First of America also entered into interest rate cap agreements
as a means of managing interest rate risk. These caps were agreements to receive
payments for interest rate differentials between an index rate and a specified
maximum rate, computed on notional amounts. At December 31, 1995, First of
America had no outstanding interest rate caps compared with $125 million in
interest rate cap agreements at year-end 1994.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities
and includes the impact of off-balance sheet interest rate swap and cap
agreements. Table XVI presents First of America's Gap position at December 31,
1995, for one year and shorter periods, and Table XVII details the company's
five year Gap position. The Gap reports' reliability in measuring the risk to
income from a change in interest rates is tested through the use of simulation
models. At year-end 1995 simulation models showed that less than two percent of
First of America's annual net income was at risk if interest rates were to move
up or down by one percent in a parallel fashion. However, changing economic
conditions affect results, therefore, the management of First of America's
interest rate sensitivity is an ongoing process. Management has determined that
these simulations provide a more meaningful measurement of the company's
interest rate risk positions than the following Gap tables.
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INTEREST RATE SENSITIVITY -- SHORT TERM TABLE XIV
($ in millions)
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1995 Days Days Days Days Days
- -------------------------------------------------------------------------------------------------------------------
ASSETS:
Other earning assets....................................... $ 284 284 284 284 285
Investment securities (1).................................. 74 193 301 632 1,369
Loans, net of unearned discount (2)........................ 4,988 5,408 5,919 6,987 8,615
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA).......................... $5,346 5,885 6,504 7,903 10,269
===================================================================================================================
LIABILITIES:(3)
Money market type deposits................................. $3,597 3,597 3,597 3,597 3,597
Other core savings and time deposits....................... 1,236 2,149 3,030 4,420 6,577
Negotiated deposits........................................ 365 519 664 738 780
Borrowings................................................. 802 1,109 1,406 1,585 1,777
Interest rate swap agreements (3).......................... (12 ) 28 28 28 50
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)..................... $5,988 7,402 8,725 10,368 12,781
===================================================================================================================
GAP (RSA - RSL)............................................ $ (642 ) (1,517 ) (2,221 ) (2,465 ) (2,512)
===================================================================================================================
RSA divided by RSL......................................... 76.22 % 80.35
GAP divided by total assets................................ (10.44 ) (10.64)
===================================================================================================================
(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 and interest rate swaps are based
on contractual maturities and estimated repricing.
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24
INTEREST RATE SENSITIVITY -- LONG TERM TABLE XVII
($ in millions)
13 to 25 to 37 to 0 to
December 31, 1995 24 months 36 months 60 months 60 months
- -------------------------------------------------------------------------------------------------------------
ASSETS:
Other earning assets............................. $ -- -- -- 285
Investment securities(1)......................... 1,188 1,019 1,009 4,585
Loans, net of unearned discount(2)............... 1,911 1,829 2,700 15,055
============================================================================================================
Total rate sensitive assets (RSA)................ $ 3,099 2,848 3,709 19,925
============================================================================================================
LIABILITIES:(3)
Money market type deposits....................... $ 262 262 175 4,296
Other core savings and time deposits............. 3,131 1,830 1,630 13,168
Negotiated deposits.............................. 5 4 87 876
Borrowings....................................... 2 -- -- 1,779
Interest rate swap agreements(3)................. (25) (25) -- --
- ------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)........... $ 3,375 2,071 1,892 20,119
============================================================================================================
GAP (RSA - RSL).................................. $ (276) 777 1,817 (194)
============================================================================================================
RSA divided by RSL............................... 99.04%
GAP divided by total assets...................... (0.82)
============================================================================================================
(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 and interest rate swaps 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 XVIII, at December 31, 1995, First of America's capital ratios exceeded
required regulatory minimums with a tier I risk based ratio of 9.52 percent, a
total risk based ratio of 12.89 percent and a tier I leverage ratio of 6.70
percent. 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, 1995,
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, $3.1 million in 10.675% Subordinated Notes
due in equal installments through 1998 and the above mentioned $200 million in
7.75% Subordinated Notes Due July 15, 2004. This debt is included in tier II
capital on a weighted maturity basis. Additional information relating to First
of America's various long term debt agreements is provided in Note 11 of the
Notes to Consolidated Financial Statements included later in this document.
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25
RISK-BASED CAPITAL TABLE XVIII
($ in thousands)
December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
TIER I CAPITAL:
Common shareholders' equity............................................ $1,827,981 1,578,888 1,523,437
Less: Intangibles...................................................... 227,303 252,979 138,423
Net unrealized gain (loss) on securities available for sale.......... 25,939 (92,271) 31,531
Section 20 affiliate debt and equity................................. 12,500 -- --
- --------------------------------------------------------------------------------------------------------------
Tier I capital......................................................... 1,562,239 1,418,180 1,353,483
==============================================================================================================
TIER II CAPITAL:
Allowance for loan losses*............................................. 205,515 210,164 179,094
Qualifying long term debt.............................................. 360,000 361,867 167,396
Less: Section 20 affiliate debt and equity............................. 12,500 -- --
- --------------------------------------------------------------------------------------------------------------
Tier II capital........................................................ 553,015 572,031 346,490
==============================================================================================================
Total capital.......................................................... $2,115,254 1,990,211 1,699,973
==============================================================================================================
RISK-BASED CAPITAL RATIOS:
Tier I................................................................. 9.52% 8.44 9.45
Total.................................................................. 12.89 11.85 11.87
Tier I leverage ratio.................................................. 6.70 5.81 6.43
==============================================================================================================
* Limited to 1.25% of total risk-weighted assets.
TOTAL SHAREHOLDERS' EQUITY. First of America's total shareholders' equity
increased 15.8 percent to $1.8 billion at year-end 1995. The increase in equity
was the result of $128.0 million in earnings retention and the $118.2 million
positive change in the adjustment to equity for available for sale securities.
IN CONCLUSION
In the effort to fully fund the Savings Association Insurance Fund (SAIF),
the U.S. Congress has been considering legislation which would assess a one-time
premium on thrift deposits insured by SAIF of which First of America has
approximately $4.5 billion. When this legislation is finally enacted which is
expected during 1996, First of America will accrue the required liability which
could result in a maximum, one-time expense of $38 million, or $0.39 per share.
After the one-time charge, the premium rate on thrift deposits is expected to
match the lower bank deposit rate.
First of America's management remains committed to its long term goals of a
return on assets of 1.25 percent, an efficiency ratio below 60 percent and a
return on equity of 17 to 18 percent. The benefits of its internal restructuring
effort, combined with a company-wide emphasis on pricing products by market and
customer type and a focus on the business lines which drive higher
profitability, provide the fundamentals for the achievement of these goals in
the future.
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26
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
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 six independent
directors with Robert L. Hetzler as chairman. The committee held five meetings
during fiscal year 1995.
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, 1995,
its duties, as indicated, were satisfactorily discharged and that First of
America's system of internal controls is adequate.
Robert L. Hetzler
Robert L. Hetzler
Chairman
Audit Committee
26
27
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, 1995 and 1994
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, 1995. 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, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 17, 1996
27
28
CONSOLIDATED BALANCE SHEETS
($ in thousands)
December 31, 1995 1994
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks.......................................................... $ 1,207,062 1,060,788
Bank time deposits............................................................... 49,349 34,883
Federal funds sold and resale agreements......................................... 220,388 20,388
Securities:
Securities held to maturity, market value of $2,942,793 at December 31, 1994... -- 3,112,876
Securities available for sale, amortized cost of $5,020,954 at December 31,
1995 and $2,694,929 at December 31, 1994..................................... 5,060,746 2,587,626
Loans, net of unearned income:
Consumer....................................................................... 4,504,255 5,799,025
Commercial, financial and agricultural......................................... 2,589,038 2,344,969
Commercial real estate......................................................... 3,812,001 3,423,268
Residential real estate........................................................ 5,070,369 5,237,400
Loans held for sale, market value of $104,132 for 1995 and $30,310 for 1994.... 101,279 30,196
----------- ----------
Total loans.................................................................. 16,076,942 16,834,858
Less: Allowance for loan losses.............................................. 241,182 228,115
----------- ----------
Net loans.................................................................... 15,835,760 16,606,743
Premises and equipment, net...................................................... 465,498 476,165
Other assets..................................................................... 761,292 669,233
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................................... $23,600,095 24,568,702
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................................... $ 2,925,679 2,810,203
Interest bearing............................................................... 16,416,788 17,390,063
----------- ----------
Total deposits............................................................... 19,342,467 20,200,266
Securities sold under repurchase agreements...................................... 429,483 583,184
Other short term borrowings...................................................... 1,220,482 1,299,555
Long term debt................................................................... 490,315 681,236
Other liabilities................................................................ 289,367 225,573
----------- ----------
Total liabilities.......................................................... 21,772,114 22,989,814
----------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value:
Authorized Outstanding
1995 100,000,000 63,283,857
1994 100,000,000 62,849,209............................................ 632,839 628,492
Capital surplus.................................................................. 283,409 284,877
Net unrealized gain/(loss) on securities available for sale, net of tax expense
of $13,853 for 1995 and net of tax benefit of $15,032 for 1994................. 25,939 (92,271)
Retained earnings................................................................ 885,794 757,790
----------- ----------
Total shareholders' equity................................................... 1,827,981 1,578,888
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $23,600,095 24,568,702
=============================================================================================================
See accompanying notes to consolidated financial statements.
28
29
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans.............................................. $1,473,210 1,277,950 1,217,139
Securities:
Taxable income..................................................... 304,145 303,098 262,871
Tax exempt income.................................................. 13,317 17,480 28,102
Federal funds sold and resale agreements............................. 4,651 2,229 2,744
Bank time deposits................................................... 1,201 120 110
---------- --------- ---------
Total interest income................................................ 1,796,524 1,600,877 1,510,966
---------- --------- ---------
INTEREST EXPENSE
Deposits............................................................. 725,161 567,935 570,499
Short term borrowings................................................ 100,684 60,389 18,546
Long term debt....................................................... 46,683 33,818 19,904
---------- --------- ---------
Total interest expense............................................... 872,528 662,142 608,949
---------- --------- ---------
NET INTEREST INCOME.................................................. 923,996 938,735 902,017
Provision for loan losses............................................ 91,488 86,571 84,714
---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................. 832,508 852,164 817,303
---------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts.................................. 100,281 89,164 84,648
Trust and financial services income.................................. 94,179 81,717 77,290
Investment securities transactions, net.............................. 62 5,349 16,753
Bank card revenue.................................................... 60,449 43,216 39,964
Mortgage banking revenue............................................. 31,505 23,461 39,099
Other operating income............................................... 59,624 41,466 34,430
---------- --------- ---------
Total non-interest income............................................ 346,100 284,373 292,184
---------- --------- ---------
NON-INTEREST EXPENSE
Personnel............................................................ 430,977 430,563 403,119
Occupancy, net....................................................... 64,108 60,471 55,093
Equipment............................................................ 59,322 56,111 53,376
Outside data processing.............................................. 18,825 17,524 14,963
Amortization of intangibles.......................................... 21,146 16,577 8,902
Other operating expenses............................................. 220,893 232,172 228,075
---------- --------- ---------
Total non-interest expense........................................... 815,271 813,418 763,528
---------- --------- ---------
Income before income taxes........................................... 363,337 323,119 345,959
Income taxes......................................................... 126,629 102,616 98,574
- --------------------------------------------------------------------------------------------------------------
NET INCOME........................................................... $ 236,708 220,503 247,385
- --------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Primary.............................................................. $ 3.73 3.69 4.20
Fully Diluted........................................................ 3.73 3.69 4.14
- --------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
29
30
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands, except per share data)
Net Unrealized
Gain (Loss) on
Preferred Common Capital Securities Retained
Stock Stock Surplus Available for Sale Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1993...................... $ 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 0
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 $32,296........................... (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
Net Income.................................... 236,708 236,708
Issuance of stock:
Acquisition of subsidiaries.................. 3,336 (2,243) 1,093
Stock Options Exercised...................... 1,016 1,089 2,105
Other........................................ (5) (314) (319)
Change in market value adjustment of
securities available for sale, net of tax
expense of $28,885........................... 118,210 118,210
Cash dividends declared:
Common -- $1.72 per share.................... (108,704) (108,704)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995.................... $ -- 632,839 283,409 25,939 885,794 1,827,981
=================================================================================================================================
See accompanying notes to consolidated financial statements.
30
31
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 236,708 220,503 247,385
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization..................................... 48,263 46,295 39,838
Provision for loan losses......................................... 91,488 86,571 84,714
Provision for deferred taxes...................................... (7,372) (4,974) (7,514)
Amortization of intangibles....................................... 21,146 16,577 8,902
(Gain) loss on sale of securities available for sale/held for
sale............................................................ (3,707) (5,349) (16,753)
(Gain) loss on sale of mortgage loans held for sale............... (19,627) (11,697) (29,456)
(Gain) loss on sale of other assets............................... (16,577) 625 (638)
Proceeds from the sales of mortgage loans held for sale........... 959,721 953,310 1,618,695
Originations of mortgage loans held for sale, net................. (1,011,177) (605,953) (1,891,928)
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable....... (81,195) (4,031) (35,868)
(Increase) decrease in other assets............................... (233,389) 42,044 136,955
Increase (decrease) in accrued expenses and other liabilities..... 38,068 1,510 32,947
----------- ---------- ----------
Net cash from operating activities............................ 22,350 735,431 187,279
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the maturities of investment securities (held to
maturity)......................................................... 368,738 448,395 921,031
Purchases of investment securities (held to maturity)............... (191,325) (1,718,714) (2,820,565)
Proceeds from the sale of securities available/held for sale........ 785,239 1,776,724 1,269,875
Proceeds from the maturities of securities available/held for
sale.............................................................. 518,927 843,109 433,191
Purchases of securities available/held for sale..................... (698,163) (1,649,902) (262,301)
Proceeds from the securitization of loans........................... 498,588 -- --
Net other (increase) decrease in loans and leases................... 251,990 (2,039,577) (398,592)
Premises and equipment purchased.................................... (63,485) (68,993) (93,203)
Proceeds from the sale of premises and equipment.................... 42,466 3,500 2,337
(Acquisition) sale of affiliates, net of cash acquired.............. (4,369) 352,131 475,263
----------- ---------- ----------
Net cash flows used in investing activities................... 1,508,606 (2,053,327) (472,964)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits...................... (164,820) 504,409 50,203
Net increase (decrease) in time deposits............................ (692,979) (97,744) (364,628)
Net increase (decrease) in short term borrowings.................... (232,774) 861,310 656,055
Proceeds from issuance of long term debt............................ 25,004 738,701 222,475
Repayments of long term debt........................................ (213,470) (311,658) (202,333)
Proceeds from issuance of common stock.............................. 2,105 460 1,132
Dividends paid...................................................... (107,429) (96,670) (92,333)
Payments for purchase and retirement of common stock................ -- (123,373) --
Other, net.......................................................... (319) (268) (329)
----------- ---------- ----------
Net cash provided by financing activities..................... (1,384,682) 1,475,167 270,242
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents................ 146,274 157,271 (15,443)
Cash and cash equivalents at beginning of year...................... 1,060,788 903,517 918,960
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END............................... $ 1,207,062 1,060,788 903,517
==============================================================================================================
See accompanying notes to consolidated financial statements.
31
32
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.
NATURE OF BUSINESS:
First of America Bank Corporation is a multi-bank holding company
headquartered in Kalamazoo, Michigan and was incorporated as a Michigan
corporation in May 1971. Its principal activity consists of owning and
supervising four affiliate financial institutions which operate general,
commercial banking businesses from 613 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.
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. First of America's 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 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES:
In accordance with Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," 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.
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.
32
33
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 was 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 Statement No. 114. This
resulted in an allowance for impaired loan losses of $17.4 million which was
transferred from the general allowance on that date.
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."
Commercial, commercial mortgage and residential mortgage 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 in the process of
collection. Consumer and revolving loans are generally charged off when payments
are 120 days past due; therefore, they are not included in non-performing loans.
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.
Management has determined that First of America's non-accrual and
renegotiated commercial and commercial mortgage loans meet the definition for
impaired loans under Statement No. 114. Payments received on non-accrual loans
are applied to the principal balance.
OTHER REAL ESTATE OWNED:
Other real estate owned includes, primarily, properties acquired through
foreclosure or deed in lieu of 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.
ORIGINATED MORTGAGE SERVICING RIGHTS:
Effective January 1, 1995, First of America adopted Financial Accounting
Standards Board Statement No. 122, "Accounting for Mortgage Servicing Rights an
amendment of FASB Statement No. 65," which requires the recognition as separate
assets the rights to service mortgage loans for others, however those rights are
acquired. After the residential mortgage loan portfolio is stratified by
servicing type, loan type, rate type and interest rate type, the fair value of
the Originated Mortgage Servicing Rights (OMSRs) is determined using the present
value of estimated expected future cash flows assuming a market discount rate
and certain forecasted prepayment rates based on industry experience. The OMSRs
are amortized in proportion to and over the period of the estimated net
servicing income.
At December 31, 1995, First of America had capitalized $3.3 million in OMSRs
with a fair market value of $3.2 million, resulting in an impairment allowance
and impairment expense of $95.7 thousand. Amortization expense of $193.5
thousand had also been incurred.
33
34
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.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
On January 1, 1996, First of America adopted Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. The impairment is measured based on the present value of expected
future cash flows from the use of the asset and its eventual disposition. If the
expected future cash flows are less than the carrying amount of the asset, an
impairment loss is recognized based on current fair values. Because First of
America regularly reviews its long-lived assets for impairment and adjusts the
carrying amounts as appropriate, the adoption of this statement did not have a
material impact on the financial statements of the corporation.
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, unless the loan is well secured and in the process of
collection. 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.
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 a
twelve month period.
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 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.
INTEREST RATE CAPS AND 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."
34
35
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 caps and interest rate
swaps as a hedge against certain deposit and debt liabilities in an attempt to
manage interest rate sensitivity.
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. Interest rate swaps are contracts that 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, 1995 follows.
Intangible
Financial Number of Assets
Date of Reporting Common Cash Paid/ Acquired at
Acquisition Value* Shares Issued Debt Issued Acquisition
- ------------------------------------------------------------------------------------------------------------------------------
West Suburban Financial Corp.
(Illinois)............................ Aug. 4, 1995 -- -- $ 1,000 --
Underwriting Consultants, Inc.
(Michigan)............................ Feb. 1, 1995 $ 1,000 148,170 -- **
New England Trust Company (Rhode
Island)............................... Jan. 1, 1995 1,092,000 185,327 -- **
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
- ------------------------------------------------------------------------------------------------------------------------------
* 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.
On February 28, 1995, First of America Investment Corporation purchased for
$4,742,000 in cash a 49 percent interest in Gulfstream Global Investors LTD, an
investment management firm based in Dallas, Texas. Gulfstream Global Investors
LTD acts as the investment advisor for the Parkstone International Discovery
Fund.
Goodwill, the cost over the fair value of assets acquired, is amortized on a
basis which matches the periods estimated to be benefitted. 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 included in other
assets in the Consolidated Balance Sheets, amounted to $226,979,000 at December
31, 1995 and $252,979,000 at December 31, 1994.
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 $359,319,000 and
$296,840,000 at December 31, 1995 and 1994, respectively.
35
36
NOTE 4: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1995, 1994 and 1993.
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
- --------------------------------------------------------------------------------------------------------------------
PURCHASE OF AFFILIATES
1995
Gulfstream Global Investors.................. $ 4,742 -- -- 4,742
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
- ----------------------------------------------------------------------------------------------------------------------
1995......................... $ 503,976 2,851,746 -- 864,519 92,338
1994......................... 38,838 -- -- 641,886 115,193
1993......................... 113,380 3,212,687 465,697 576,945 108,399
- ----------------------------------------------------------------------------------------------------------------------
In conjunction with the Financial Accounting Standards Board's ("FASB")
issuance of A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, FASB approved the transfer of
securities from the Held to Maturity to the Available for Sale classification
during the period from November 15, 1995, to December 31, 1995, with no
recognition of any related unrealized gain or loss in current earnings. On
December 1, 1995, First of America's portfolio of Securities Held to Maturity
was transferred, in its entirety, to the classification of Securities Available
for Sale. The unrealized gain related to the transferred securities was $3.9
million (after tax) and was recognized as a component of shareholders' equity.
NOTE 5: SECURITIES
At December 31, 1995, First of America had no Securities Held to Maturity.
Refer to Note 4 for a discussion of the transfer of Securities Held to Maturity
to the Securities Available for Sale classification. The amortized cost and
estimated market value of Securities Held to Maturity at December 31, 1994 and
their gross unrealized gains and losses for 1994 follow.
1994
- ---------------------------------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Market Unrealized Unrealized
($ in thousands) Cost Value Gains Losses
- ---------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................... $2,296,929 2,169,536 910 128,303
State and municipal securities........................... 244,298 245,559 4,091 2,830
Other securities......................................... 571,649 527,698 -- 43,951
- ---------------------------------------------------------------------------------------------------------------
Total.................................................... $3,112,876 2,942,793 5,001 175,084
===============================================================================================================
36
37
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1995 and 1994 follow.
1995 1994
- ---------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------
U.S. government and agency securities...................... $4,068,386 4,098,741 2,512,227 2,408,432
State and municipal securities............................. 248,947 258,707 1,521 1,523
Collateralized mortgage obligations........................ 579,788 579,441 99,451 96,040
Other securities........................................... 123,833 123,857 81,730 81,631
- ---------------------------------------------------------------------------------------------------------------
Total...................................................... $5,020,954 5,060,746 2,694,929 2,587,626
===============================================================================================================
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1995 and 1994.
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
- ----------------------------------------------------------------------------------------------------------------
U.S. government and agency securities........... $ 30,355 -- 436 104,231
State and municipal securities.................. 9,760 -- 2 --
Collateralized mortgage obligations............. -- 347 22 3,433
Other securities................................ 24 -- -- 99
- ----------------------------------------------------------------------------------------------------------------
Total........................................... $ 40,139 347 460 107,763
================================================================================================================
Except as indicated below, total securities of no individual state,
political subdivision or other issuer exceeded 10% of shareholders' equity at
December 31, 1995. At December 31, 1995 and 1994, the book value of securities
issued by the State of Michigan and all of its political subdivisions totaled
approximately $126,225,000 and $150,978,000, respectively, with a market value
of approximately $130,570,000 and $151,074,000, respectively. The securities at
December 31, 1995, 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 $1,516,639,000 at
December 31, 1995, and $1,467,386,000 at December 31, 1994, were pledged to
secure public deposits, exercise trust powers and for other purposes required or
permitted by law.
37
38
SECURITIES AVAILABLE FOR SALE
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in millions)
December 31, 1995 One year or less One year to five years
- ------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized
Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------
U.S. government securities............ $ 170.9 170.5 5.78% $ 711.3 702.0 6.01%
U.S. agency securities................ 19.0 19.0 6.30 287.5 283.6 6.15
State and municipal securities*....... 67.7 67.3 7.35 77.1 73.6 9.56
Collateralized mortgage obligations... -- -- -- -- -- --
Other securities...................... 102.4 102.4 6.72 5.1 5.0 8.18
- ------------------------------------------------------------------------------------------------------------
Total................................. $ 360.0 359.2 6.23% $1,081.0 1,064.2 6.29%
- ------------------------------------------------------------------------------------------------------------
Market value as a percent of amortized
cost................................. 100.22% 101.58
- ------------------------------------------------------------------------------------------------------------
December 31, 1995 Five years to ten years ten years Total
- ------------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------------------------------------------------
U.S. government securities............ $ 51.8 49.2 6.78% $ -- -- --% $ 934.0 921.7 6.01%
U.S. agency securities................ 869.7 869.8 5.71 1,988.5 1,974.3 6.03 3,164.7 3,146.7 5.96
State and municipal securities*....... 20.0 18.7 8.60 93.9 89.4 8.31 258.7 249.0 8.44
Collateralized mortgage obligations... .1 .1 6.42 579.3 579.7 6.04 579.4 579.8 6.04
Other securities...................... 9.0 9.0 6.69 7.4 7.4 -- 123.9 123.8 7.00
- ------------------------------------------------------------------------------------------------------------------------------------
Total $ 950.6 946.8 5.83% $2,669.1 2,650.8 6.11% $5,060.7 5,021.0 6.10%
====================================================================================================================================
Market value as a percent of amortized
cost................................. 100.40 100.69 100.79
====================================================================================================================================
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
38
39
SECURITIES HELD TO MATURITY
($ in thousands)
December 31, 1994
- ---------------------------------------------------------------------
Amortized Average
Cost Maturity
- ---------------------------------------------------------------------
U.S. government and agency securities....... $2,296,929 2.7 yrs.
State and municipal securities.............. 244,298 2.5
Other securities............................ 571,649 3.2
- ---------------------------------------------------------------------
Total....................................... $3,112,876
=====================================================================
SECURITIES AVAILABLE FOR SALE
($ in thousands)
December 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Amortized Average Amortized Average
Cost Maturity Cost Maturity
- --------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................... $4,068,386 2.4yrs. $2,512,227 3.3 yrs
State and municipal securities........................... 248,947 6.1 1,521 7.5
Collateralized mortgage obligations...................... 579,788 2.5 99,451 2.5
Other securities......................................... 123,833 2.1 81,730 --
- --------------------------------------------------------------------------------------------------------------------
Total.................................................... $5,020,954 $2,694,929
====================================================================================================================
NOTE 6: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal interest rates include (1) non-accrual
loans, (2) restructured loans (loans for which the interest rate or principal
balance has been reduced because of a borrower's financial difficulty) and (3)
other real estate owned which has been acquired in lieu of loan balances due.
Information concerning these assets, loans past due 90 days or more and other
loans of concern (loans where known information about possible credit problems
of borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1995 and 1994 follows:
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
BALANCES OUTSTANDING:
Non-accrual loans..................................................................... $104,174 96,814
Restructured loans.................................................................... 12,327 4,852
Past due 90 days or more.............................................................. 28,124 18,208
Other loans of concern................................................................ 17,660 31,653
Other real estate owned (included in other assets).................................... 31,103 38,662
- ------------------------------------------------------------------------------------------------------------
Total................................................................................. $193,388 190,189
============================================================================================================
Interest income of $3,052,000 and $3,801,000 during 1995 and 1994,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$10,090,000 and $8,520,000 of interest would have been reflected in interest
income during 1995 and 1994, respectively.
First of America has no significant concentrations of credit risk. Its loan
portfolio is well balanced both by type and by geographical area.
39
40
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 1995
totaled less than 5 percent of total shareholders' equity at year-end 1995.
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 Securities,
Inc. and First of America Community Development Corporation; at December 31,
1995 only First of America Community Development Corporation had any borrowings
outstanding in the amount of $613,400. In conformance with First of America's
corporate policy and applicable law, such extensions of credit to subsidiaries
are made in accordance with sound banking practices and on non-preferential
terms and rates.
In the opinion of management, the amount and nature of these loans to
related parties and subsidiaries do not materially affect the financial
condition of First of America.
NOTE 8: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1995,
1994 and 1993 follows.
($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Balance, beginning of year....................................... $ 228,115 188,664 176,793
Additions: Provision charged against income...................... 91,488 86,571 84,714
Allowance of acquired banks, net...................... -- 11,420 50
Recoveries............................................ 56,938 38,134 35,863
- -------------------------------------------------------------------------------------------------------------
376,541 324,789 297,420
Less: Loans charged off.......................................... (135,359) (96,674) (108,756)
- -------------------------------------------------------------------------------------------------------------
Balance, end of year............................................. $ 241,182 228,115 188,664
=============================================================================================================
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.
As of December 31, 1995, the recorded investment in loans considered to be
impaired under Statement No. 114 was $88.6 million with an average recorded
investment in impaired loans during 1995 of approximately $81.9 million.
Included in the impaired loans total were $42.6 million of impaired loans for
which the related specific allowance for loan losses was $17.6 million. The
remaining $46.0 million of impaired loans did not require a specific allowance
for loan losses due to the net realizable value of loan collateral, guarantees
and other factors.
40
41
NOTE 9: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994 follows.
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------------
Land........................................................................................ $ 78,326 77,458
Buildings and leasehold improvements........................................................ 446,721 428,877
Equipment................................................................................... 363,241 365,554
Capital leases.............................................................................. 24,115 25,082
-------- -------
912,403 896,971
Less:
Accumulated depreciation and amortization................................................... 446,905 420,806
- ------------------------------------------------------------------------------------------------------------------
Total....................................................................................... $465,498 476,165
==================================================================================================================
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 $17,554,000 in 1995, $16,100,000 in 1994, and $10,936,000
in 1993.
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1995.
($ in thousands) Capital Leases Operating Leases
- --------------------------------------------------------------------------------------------------------------
1996.................................................................. $ 2,119 16,487
1997.................................................................. 2,127 13,785
1998.................................................................. 2,117 10,708
1999.................................................................. 2,057 8,762
2000.................................................................. 2,042 6,186
Thereafter............................................................ 38,931 45,591
----------- ------------
Total minimum lease payments.......................................... 49,393 101,519
Amounts representing interest......................................... (28,198) --
- ----------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments........................... $ 21,195 101,519
==========================================================================================================
NOTE 10: SHORT TERM BORROWINGS
Information relating to securities sold under agreement to repurchase
follows:
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
At December 31:
Outstanding...................................................... $ 429,483 583,184 664,531
Average interest rate............................................ 5.83% 5.75 3.31
Daily average for the year:
Outstanding...................................................... $ 546,232 709,205 326,383
Average interest rate............................................ 6.07% 4.43 3.26
Maximum outstanding at any month end............................. $1,087,851 1,229,099 664,531
==============================================================================================================
Securities sold under agreements to repurchase are secured transactions with
customers, generally maturing within thirty days. As of December 31, 1995, First
of America did not have repurchase agreements which exceeded 10 percent of total
assets.
41
42
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1995 and 1994
follows.
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
PARENT COMPANY:
7.75% subordinated notes due July 15, 2004............................................ $200,000 200,000
10.625% subordinated notes payable in equal annual installments in 1990 through 1998,
interest payable semi-annually...................................................... 3,111 6,222
8.50% subordinated notes due February 1, 2004......................................... 150,000 150,000
Revolving credit agreement............................................................ -- 30,000
6.35% subordinated debenture due December 31, 2007.................................... 10,000 10,000
Capital lease obligations (Note 9).................................................... 19,970 20,198
-------- -------
383,081 416,420
SUBSIDIARIES:
Bank notes, with interest rates ranging from 4.875% to 5.05%, due through
August 26, 1996..................................................................... 104,971 259,903
Notes payable through 2001............................................................ -- 2,455
8.30% FHLB borrowing payable August 1996.............................................. 820 820
Mortgages and land contracts, payable in installments through 1999 with interest rates
ranging from 4.75% to 10.25%........................................................ 218 303
Capital lease obligations (Note 9).................................................... 1,225 1,335
- ------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM DEBT.................................................................. $490,315 681,236
============================================================================================================
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, and by the Second Amendment dated February 15,
1996 (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 operating 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 $1,421,141,000. The indebtedness of subsidiary banks is
subordinated to the claims of their depositors and certain other creditors.
Management has determined that First of America is in compliance with all of its
loan covenants.
42
43
Maturities of outstanding indebtedness at December 31, 1995 follow.
Total Principal
($ in thousands) Amount Due
- -------------------------------------------------------------------------------------------------------------------
Year ending December 31,
1996............................................................................................. $ 109,316
1997............................................................................................. 432
1998............................................................................................. 460
1999............................................................................................. 441
2000............................................................................................. 463
Thereafter....................................................................................... 379,203
- -------------------------------------------------------------------------------------------------------------------
Total............................................................................................ $ 490,315
===================================================================================================================
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.
If issued, each share of Series A Preferred is 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 granted 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.
43
44
The following is a summary of transactions which occurred during 1993, 1994
and 1995:
Shares Under Option Price
Option Per Share
- -------------------------------------------------------------------------------------------------------------
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....................................... 24,919 11.30
Granted................................................................... 295,900 33.00
Exercised................................................................. (23,050)
Canceled.................................................................. (5,366)
- -------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994.......................................... 1,247,036 $11.30-40.00
Granted................................................................... 325,200 43.25
Exercised................................................................. (101,589)
Canceled.................................................................. (13,900)
- -------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1995.......................................... 1,456,747 $11.30-43.25
=============================================================================================================
NOTE 14: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$337,407,000 in 1995, $173,350,000 in 1994 and $200,700,000 in 1993. Unless
prior regulatory approval is obtained, banking regulations limit the amount of
dividends that First of America's banking subsidiaries can declare during 1996,
to the 1996 net profits, as defined in the Federal Reserve Act, plus retained
net profits for 1995 and 1994, which amounted to $50,187,000. Under the FDIC
Improvement Act of 1993, 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 1995 and 1994 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1995, 1994, and 1993
equaled $3,980,000, $8,073,000, and $5,920,000, respectively.
44
45
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1995 and 1994.
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits of $304,707 for 1995
and $284,034 for 1994.......................................................... $312,916 294,336
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date.......................... $379,131 345,465
Plan assets at fair value, primarily listed stocks and U.S. Bonds.................. 438,752 358,392
-------- -------
Projected benefit obligation less than plan assets................................. 59,621 12,927
Unrecognized net (gain)/loss....................................................... (33,192) 8,228
Unrecognized prior service cost.................................................... 21,367 25,905
Unrecognized net assets being recognized over 15 years............................. (13,953) (15,902)
-------- -------
Prepaid pension included in other assets........................................... $ 33,843 31,158
- ------------------------------------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE FOLLOWING COMPONENTS:
Service cost....................................................................... $ 11,426 12,114
Interest cost on projected benefit obligation...................................... 24,689 22,661
Actual return on plan assets....................................................... (86,421) 6,948
Net amortization and deferral...................................................... 54,286 (33,650)
- ------------------------------------------------------------------------------------------------------------
Net periodic pension cost.......................................................... $ 3,980 8,073
============================================================================================================
First of America's weighted-average discount rate was 7.50 percent at
December 31, 1995 and 8.00 percent at December 31, 1994. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 5.50 percent at year-end 1995 and 6.00
percent at year-end 1994. The expected long term rate of return on assets was
9.50 percent and 9.00 percent at December 31, 1995 and 1994, respectively. The
assumed rates in place at each year-end are used to determine the net periodic
pension cost for the following year.
45
46
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.
The following table presents the plan's funded status reconciled with
amounts recognized in First of America's Consolidated Balance Sheet at December
31, 1995 and 1994:
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.............................................................................. $(17,932) (20,626)
Fully eligible active plan participants............................................... (7,065) (7,470)
Other active plan participants........................................................ (8,901) (9,299)
-------- -------
(33,898) (37,395)
Plan assets at fair value............................................................. -- --
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets................ (33,898) (37,395)
Unrecognized prior service cost....................................................... (4,700) (5,498)
Unrecognized net (gain) loss.......................................................... (857) 4,002
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities..................... $(39,455) (38,891)
============================================================================================================
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1995 AND 1994 INCLUDE THE FOLLOWING COMPONENTS:
- ------------------------------------------------------------------------------------------------------------
Service cost.......................................................................... $ 1,092 1,253
Interest cost......................................................................... 2,992 2,641
Net amortization and deferral......................................................... (524) (405)
- ------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost.............................................. $ 3,560 3,489
============================================================================================================
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 10.03 percent and 10.36 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, 1995 and 1994, respectively; the 1995 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 7.5 percent at December 31, 1995 and 8.00 percent at December 31,
1994. To determine First of America's net periodic postretirement benefit cost
for 1995 and 1994, a weighted average discount rate of 8.0 percent and 7.25
percent, respectively, and the health care trend rate of 10.36 percent and 10.95
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,
1995 by 2.1 percent and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by 1.5 percent.
46
47
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) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Revolving loan fees -- interchange income................................. $ 22,446 31,538 30,104
Revolving loan fees -- merchant discount.................................. 35,989 28,863 22,994
Gains on sale of loans.................................................... 19,627 11,697 29,456
Securitization service fees............................................... 24,123 -- --
Other..................................................................... 49,393 36,045 30,939
- -------------------------------------------------------------------------------------------------------------
Total other operating income.............................................. $151,578 108,143 113,493
=============================================================================================================
OTHER OPERATING EXPENSES:
Services purchased........................................................ $ 20,769 17,814 14,638
Office supplies........................................................... 20,669 20,924 22,541
FDIC insurance............................................................ 28,373 42,055 39,680
Advertising, business development and public relations.................... 18,368 20,884 22,573
Postage................................................................... 17,278 16,458 16,291
Telephone................................................................. 19,907 19,293 17,300
Other..................................................................... 95,529 94,744 95,052
- -------------------------------------------------------------------------------------------------------------
Total other operating expenses............................................ $220,893 232,172 228,075
=============================================================================================================
NOTE 18: INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1995,
1994 and 1993, respectively, was allocated as follows:
($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations......................................... $126,629 102,616 98,574
Shareholders' equity, for market value adjustments on investment
securities available for sale........................................... 28,885 (32,296) 17,263
- -------------------------------------------------------------------------------------------------------------
Total income tax expense.................................................. $155,514 70,320 115,837
=============================================================================================================
Income tax expense (benefit) attributable to income from continuing
operations consists of:
($ in thousands) Current Deferred Total
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
U.S. Federal................................................................ $125,611 (6,861) 118,750
State and local............................................................. 8,390 (511) 7,879
- --------------------------------------------------------------------------------------------------------------------
Total....................................................................... $134,001 (7,372) 126,629
====================================================================================================================
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
====================================================================================================================
47
48
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from operations as a result of the following:
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense.............................................. $127,168 113,092 121,086
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income.................................... (9,277) (9,904) (12,738)
Change in the beginning-of-the-year balance of the valuation allowance for
deferred tax assets allocated to income tax expense...................... -- (883) (9,686)
Alternative minimum tax credits utilized................................... -- -- (5,675)
State and local tax expense (benefit), net of federal tax.................. 5,122 (392) 1,630
Amortization of goodwill................................................... 4,821 3,844 3,116
Other, net................................................................. (1,205) (3,141) 841
- --------------------------------------------------------------------------------------------------------------------
Total........................................................................ $126,629 102,616 98,574
====================================================================================================================
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended December
31, 1995, 1994 and 1993 were as follows:
December 31,
- --------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of the effects of other components
below).................................................................. $(7,372) (4,811) 8,289
Decrease in beginning-of-the-year balance of the valuation allowance for
deferred tax assets..................................................... -- (883) (9,686)
- --------------------------------------------------------------------------------------------------------------
Total..................................................................... $(7,372) (5,694) (1,397)
==============================================================================================================
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below:
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Book loan loss deduction in excess of tax.......................................... $ 83,846 76,073
Deferred compensation.............................................................. 8,135 6,149
Deferred loan fees................................................................. 9,392 10,279
Employee benefits.................................................................. 145 1,916
Other real estate expenses......................................................... 1,827 3,229
Non-accrual loan income............................................................ 4,261 3,292
Market value adjustment on securities available for sale........................... -- 37,556
Expenses not currently deductible for tax purposes................................. 4,619 3,408
Other.............................................................................. 14,257 10,474
-------- -------
Total gross deferred tax assets.................................................... 126,482 152,376
Less valuation allowance........................................................... -- (22,524)
-------- -------
Net deferred tax assets............................................................ 126,482 129,852
-------- -------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation.......................... (10,969) (10,200)
Discount accretion on securities................................................... (1,587) (1,276)
Market value adjustment on securities available for sale........................... (13,853) --
Tax loan loss reserve to be recaptured............................................. (11,698) (7,094)
Other.............................................................................. (8,933) (10,327)
Total gross deferred liabilities................................................... (47,040) (28,897)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax asset............................................................. $ 79,442 100,955
============================================================================================================
48
49
The valuation allowance for deferred tax assets as of January 1, 1995 was
$22,524,000. The net change in the total valuation allowance for the year ended
December 31, 1995 was a decrease of $22,524,000.
The valuation allowance for deferred tax assets at January 1, 1995 was
related entirely to market value adjustments on Securities Available for Sale
which would have resulted in capital losses that could be recognized only when
offset against capital gains. During 1995, the market value adjustment on
Securities Available for Sale resulted in an overall capital gain position, and
accordingly, the reduction in the valuation allowance of $22,524,000 has been
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:
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
Common and common equivalents........................................ 63,500,784 59,811,568 57,416,771
Fully diluted........................................................ 63,500,784 59,811,568 59,772,113
- --------------------------------------------------------------------------------------------------------------
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, 279,856 in 1995, 281,498
in 1994 and 305,240 in 1993. 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, 279,856 in 1995, 281,498
in 1994 and 305,240 in 1993.
On December 31, 1995 and 1994, there were 63,283,857 and 62,849,209 common
shares outstanding, respectively. At the same dates there were 100,000,000
authorized shares of $10 par value common stock.
NOTE 20: COMMITMENTS AND CONTINGENT LIABILITIES
First of America and its subsidiaries are parties to routine litigation
arising in the normal course of their respective businesses. In the opinion of
management after consultation with counsel, liabilities arising from these
proceedings, if any, are not expected to be material to First of America's
financial position.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notional amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
49
50
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
Commitments on unused credit card lines.................................... $ 8,686,390 8,418,466
Other commitments to extend credit......................................... 2,930,624 2,699,651
Mortgages sold with recourse............................................... 79,952 101,565
Mortgage loan sale commitments............................................. 125,000 30,600
Standby letters of credit.................................................. 366,829 305,460
Commercial letters of credit............................................... 5,280 7,199
Foreign exchange contracts................................................. 1,440 13,192
Interest rate swaps........................................................ 105,507 707,864
Interest rate caps......................................................... -- 125,000
- ------------------------------------------------------------------------------------------------------------
Total...................................................................... $12,301,022 12,408,997
============================================================================================================
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, 1995, other commitments to
extend credit were comprised of $1,983,159,000 in unused commercial loan
commitments, $947,465,000 in commitments to fund commercial real estate,
construction and land development of which $445,643,000 was secured by real
estate, and $464,953,000 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 $80.0 million
at December 31, 1995 and are not included in the accompanying consolidated
balance sheets. Mortgage loan sale commitments represent agreements to deliver
mortgage loans to investors in future periods.
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 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.
At December 31, 1994, First of America had outstanding interest rate caps
which totaled $125 million and were designated to certain FirstRate Fund
deposits. First of America also had interest rate swaps with a total notional
value of $707.9 million of which $530.9 million was a hedge against certain
certificates of deposit, $125.0 million as a hedge against long term debt with
the remainder as a hedge against certain other deposits and borrowings. Although
the notional amounts are often used to express the volume of these transactions,
the amounts potentially subject to credit risk are much smaller. The company
minimizes this risk by performing normal credit reviews of its counterparties
and collateralizing its exposure when it exceeds a predetermined limit. The
following table outlines First of America's interest rate caps and interest rate
swaps at December 31, 1995.
50
51
INTEREST RATE SWAPS
($ in thousands)
Net Interest
Weighted Average Average Income Impact
Hedged Notional Fair Market Average Rate Received Rate Paid ------------------
Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
Interest Rate Swaps:
Rising Rate CDs.... $ -- -- -- -- -- (1,158) 82
Market Rate CDs*... 8,507 814 1.8 -- -- (808) (915)
FHLB advance....... -- -- -- -- -- 25 (46)
FirstRate Fund
deposits......... 12,000 (49) 7.5 5.94%/variable 6.03%/fixed (9) (35)
Bank notes......... 10,000 (56) 7.8 5.68/variable 6.23/fixed 24 (72)
Long term debt..... 75,000 (210) 12.4 5.30/fixed 5.88/variable (894) (93)
Interest rate caps... -- -- -- -- -- (1,150) (96)
- ----------------------------------------------------------------------------------------------------------------------
Total................ $105,507 499 10.6 (3,970) (1,175)
- ----------------------------------------------------------------------------------------------------------------------
* This represents a basis swap.
At December 31, 1995, there were no deferred losses included in other assets
from the termination of interest rate swaps. During 1995, no losses were
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 utilized interest rate caps in an attempt to
manage its interest rate risk. As of December 31, 1995, First of America had no
outstanding interest rate caps.
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, the 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 values 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 where available. If a quoted market price was not
available, fair value was estimated using quoted market prices for similar
securities.
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.
LOANS HELD FOR SALE:
Fair values for loans held for sale were based on quoted market prices where
available. If a quoted market price was not available, fair value was estimated
using market prices for similar assets.
51
52
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) were
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, 1995
and 1994 were as follows:
December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
Recorded Estimated Recorded Estimated
($ in millions) Book Value Fair Value Book Value Fair Value
- -----------------------------------------------------------------------------------------------------
FINANCIAL ASSETS:
Securities:
Held to maturity...................... $ -- -- 3,113 2,943
Available for sale.................... 5,061 5,061 2,588 2,588
Loans, net.............................. 15,734 15,825 16,577 16,374
Loans held for sale..................... 101 104 30 30
FINANCIAL LIABILITIES:
Deposits*............................... (19,342) (19,422) (20,200) (20,097)
Long term borrowings.................... (490) (520) (681) (657)
Off-balance sheet commitments........... -- 21 -- 29
Interest rate swap agreements........... -- -- -- (17)
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.
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53
NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1995 and 1994, and the statements of
income and statements of cash flows for the three years ended December 31, 1995
follow.
December 31,
- -------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary banks........................ $ 209,532 54,758
Investment in subsidiaries......................................................... 1,918,540 1,831,786
Other assets....................................................................... 170,613 207,683
- -------------------------------------------------------------------------------------------------------------
Total assets....................................................................... $2,298,685 2,094,227
=============================================================================================================
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities............................................. $ 87,623 98,919
Long term debt..................................................................... 383,081 416,420
---------- ---------
Total liabilities.................................................................. 470,704 515,339
---------- ---------
SHAREHOLDERS' EQUITY
Common stock....................................................................... 632,839 628,492
Surplus............................................................................ 283,409 284,877
Net unrealized gain/(loss) on securities available for sale, net of tax
expense/(benefit) of $13,853 for 1995 and $(15,032) for 1994..................... 25,939 (92,271)
Retained earnings.................................................................. 885,794 757,790
---------- ---------
Total shareholders' equity......................................................... 1,827,981 1,578,888
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity......................................... $2,298,685 2,094,227
=============================================================================================================
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries................................................. $337,407 175,350 205,891
Interest and other income................................................... 339,863 262,615 291,798
-------- ------- -------
Total operating income...................................................... 677,270 437,965 497,689
-------- ------- -------
EXPENSES
Interest on borrowed money.................................................. 33,600 27,793 19,597
Salaries and employee benefits.............................................. 159,461 151,766 134,734
Amortization of intangibles................................................. 5,692 5,974 5,095
Other operating expenses.................................................... 199,162 139,853 171,937
-------- ------- -------
Total operating expenses.................................................... 397,915 325,386 331,363
-------- ------- -------
Income before income taxes and undistributed earnings of subsidiaries....... 279,355 112,579 166,326
Applicable income tax benefit............................................... 19,291 22,609 14,084
-------- ------- -------
Net income before equity in undistributed earnings (losses) of
subsidiaries.............................................................. 298,646 135,188 180,410
Equity in undistributed earnings (losses) of subsidiaries................... (61,938) 85,315 66,975
- -------------------------------------------------------------------------------------------------------------
Net income.................................................................. $236,708 220,503 247,385
=============================================================================================================
53
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($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $236,708 220,503 247,385
Adjustment to reconcile net income to net cash provided by operating
activities.............................................................. 113,558 (13,723) (125,584)
-------- -------- --------
Net cash from operating activities........................................ 350,266 206,780 121,801
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased.......................................... (33,157) (24,845) (46,724)
Proceeds from sale of premises & equipment................................ 8,444 4,974 600
Capital infusions, net of redemptions..................................... (31,797) (112,850) (6,535)
-------- -------- --------
Net cash from investing activities........................................ (56,510) (132,721) (52,659)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt.................................. -- 438,000 222,000
Repayment of long term debt............................................... (33,339) (261,195) (190,891)
Proceeds from issuance of common stock.................................... 2,105 460 1,132
Repurchase of common stock................................................ -- (123,373) --
Dividends paid............................................................ (107,429) (96,670) (93,333)
Other, net................................................................ (319) (268) (329)
-------- -------- --------
Net cash from financing activities........................................ (138,982) (43,046) (61,421)
-------- -------- --------
Net increase (decrease) in cash........................................... 154,774 31,013 7,721
Cash at beginning of year................................................. 54,758 23,745 16,024
- -------------------------------------------------------------------------------------------------------------
Cash at year-end.......................................................... $209,532 54,758 23,745
=============================================================================================================
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SUPPLEMENTAL INFORMATION (Unaudited)
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share:
Primary................................... $ 28.89 25.12 25.60 22.12 20.58
Fully Diluted............................. 28.89 25.12 25.60 22.49 21.47
Common shares outstanding:
Weighted average.......................... 63,500,784 59,811,568 57,416,771 54,841,762 53,536,154
Year end.................................. 63,283,857 62,849,209 59,520,710 57,014,244 53,537,438
Market price of Common Stock:
High...................................... $ 46.125 40.125 42.875 37.875 31.750
Low....................................... 29.500 29.750 36.500 29.000 18.250
Year end.................................. 44.375 30.000 39.250 37.875 29.375
Number of shares traded (in thousands).... 19,427 18,313 13,708 14,284 13,612
Price earnings ratio*..................... 11.9x 8.1 9.3 15.4 9.1
Dividend yield (at year end).............. 3.97% 5.60 4.08 3.70 4.36
Dividend payout ratio..................... 45.58 43.90 35.71 53.25 45.35
NON-FINANCIAL DATA
Number of common shareholders*............ 31,300 30,900 28,400 23,800 17,815
Number of banking subsidiaries*........... 4 8 20 23 26
Number of banking offices*................ 613 630 572 551 487
Number of employees (FTE)*................ 12,690 13,307 13,330 12,940 13,404
Number of automated teller machines*...... 675 647 546 498 400
RETURN ON EQUITY AND ASSETS
Return on average total assets............ 1.00% 0.98 1.20 0.75 0.95
Return on average common shareholders'
equity.................................. 13.89 14.44 18.01 11.67 13.66
Return on average total shareholders'
equity.................................. 13.89 14.44 17.50 11.38 13.07
Average common shareholders' equity as a
percent of total average assets......... 7.17 6.77 6.52 5.91 6.28
Average shareholders' total equity as a
percent of total average assets......... 7.17 6.77 6.88 6.63 7.26
================================================================================================================
* Prior years numbers not restated.
55
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QUARTERLY INFORMATION (Unaudited)
($ in millions except per share data)
1995 Quarters 1994 Quarters
- ----------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- ----------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS
Total interest income................... $ 437.5 442.0 460.6 456.4 433.6 417.1 387.7 362.4
Total interest expense.................. 210.6 217.4 226.3 218.3 196.5 177.3 152.9 135.4
- ----------------------------------------------------------------------------------------------------------------
Net interest income..................... 226.9 224.6 234.3 238.1 237.1 239.8 234.8 227.0
Provision for loan losses............... 27.7 21.4 22.0 20.5 22.2 21.2 22.5 20.6
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision..... 199.2 203.2 212.3 217.6 214.9 218.6 212.3 206.4
- ----------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts..... 25.6 25.3 25.1 24.3 23.6 23.0 22.3 20.3
Trust income............................ 24.8 24.4 23.3 21.7 20.4 20.4 20.7 20.3
Investment securities transactions...... 1.0 0.5 0.1 (1.5) (4.3) 1.0 1.2 7.5
Other operating income.................. 49.4 42.0 35.0 25.1 27.2 26.7 25.6 28.5
- ----------------------------------------------------------------------------------------------------------------
Total non-interest income............... 100.8 92.2 83.5 69.6 66.9 71.1 69.8 76.6
- ----------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages...................... 85.9 86.3 90.9 93.2 91.7 88.9 88.4 84.7
Employee benefits....................... 16.2 16.4 19.9 22.2 17.0 19.4 20.5 19.9
- ----------------------------------------------------------------------------------------------------------------
Total personnel costs................... 102.1 102.7 110.8 115.4 108.7 108.3 108.9 104.6
Occupancy, net.......................... 16.9 15.8 15.1 16.3 14.7 15.9 14.5 15.3
Equipment............................... 15.2 14.9 14.5 14.7 15.1 14.2 13.8 13.0
Data processing......................... 4.8 4.5 4.7 4.8 3.9 4.6 4.7 4.3
Amortization of intangibles............. 5.3 5.3 5.4 5.3 5.4 4.5 4.0 2.6
Other operating expenses................ 54.1 50.1 58.5 58.1 56.5 59.3 58.5 58.1
- ----------------------------------------------------------------------------------------------------------------
Total non-interest expense.............. 198.4 193.3 209.0 214.6 204.3 206.8 204.4 197.9
- ----------------------------------------------------------------------------------------------------------------
Income before income tax................ 101.6 102.1 86.8 72.6 77.5 82.9 77.7 85.1
Applicable income tax expense........... 35.6 35.4 30.3 25.3 24.9 26.5 24.5 26.8
- ----------------------------------------------------------------------------------------------------------------
Net income.............................. $ 66.0 66.7 56.5 47.3 52.6 56.4 53.2 58.3
================================================================================================================
EARNINGS PER SHARE DATA
Earnings per common share............... $ 1.04 1.05 0.89 0.75 0.87 0.96 0.88 0.98
Common stock cash dividend paid......... 0.44 0.42 0.42 0.42 0.42 0.40 0.40 0.40
Market price of Common Stock:
High.................................... 46.125 45.250 38.000 34.250 34.875 37.500 40.125 39.000
Low..................................... 41.750 36.375 33.125 29.500 29.750 34.500 35.500 35.375
Period-end.............................. 44.375 42.875 37.125 33.625 30.000 35.250 35.625 37.875
================================================================================================================
56
57
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 24 of the
Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held in 1996. Such information is incorporated herein by reference. The
information concerning executive officers of the Registrant appears on page 5 in
Part I of this document.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to 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 6 through 17 of
the Registrant's definitive Proxy Statement for the Annual Meeting of
Shareholders to be held in 1996. 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 1996 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 1996. 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, 1995 and 1994
Consolidated Statements of Income -- three years ended December 31,
1995
Consolidated Statements of Changes in Shareholders' Equity -- three
years ended December 31, 1995
Consolidated Statements of Cash Flows -- three years ended December
31, 1995
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.
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58
(2) Plan of acquisition, reorganization, arrangement, liquidation or
succession.
Not applicable.
(3) Articles of Incorporation and Bylaws
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 First Trust 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 which was amended by the
First Amendment dated December 9, 1994, was filed as an Exhibit to the
Registrant's Annual Report on Form 10-K for the year ended December 31, 1994
and is incorporated herein by reference. The Agreement was also amended by
the Second Amendment dated February 15, 1996, 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 an Exhibit 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 an Exhibit 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 an Exhibit 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.
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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 an Exhibit 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 Registrant's Annual Report on
Form 10-K for the year ended December 31, 1993 and is incorporated herein by
reference.
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 an
Exhibit 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 an Exhibit 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
and certain other senior officers of the Registrant was filed as an Exhibit
to the Registrant's Annual Report on Form 10-K for the year ended December
31, 1994 and is incorporated herein by reference.
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 an Exhibit 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
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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 -- Illinois, N.A. United States
First of America Bank -- Michigan, N.A. United States
First of America Bank -- Florida, FSB Florida
First of America Brokerage Service, Inc. Michigan
First of America Community Development Corporation Michigan
First of America Insurance Company Arizona
First of America Loan Services, Inc. Michigan
First of America Mortgage Company Arizona
First of America Investment Corporation Michigan
First of America Securities, Inc. Michigan
First of America Trust Company Illinois
FOA Investco -- Michigan, Inc. Michigan
CNB Investment Company Michigan
First Charlotte Corporation Florida
First Presidential Service Corporation II Florida
New England Trust Company Rhode Island
Underwriting Consultants, Inc. Michigan
First of America Insurance Group -- Illinois, Inc. Illinois
(22) Published report regarding matters submitted to a vote of security
holders.
Not applicable.
(23) Consents of experts
Consent of KPMG Peat Marwick
(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 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, 1995.
(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 4, 1996
- ----------------------------------------------- Executive Officer
Daniel R. Smith
/s/ THOMAS W. LAMBERT Executive Vice President March 4, 1996
- ----------------------------------------------- and Chief Financial Officer
Thomas W. Lambert (Principal Financial Officer and
Principal Accounting Officer)
*DIRECTORS
Jon E. Barfield Clifford L. Greenwalt James S. Ware
Richard F. Chormann Robert L. Hetzler James W. Wogsland
Joseph J. Fitzsimmons Martha M. Mertz
Joel N. Goldberg
*By: /s/ THOMAS W. LAMBERT
- ----------------------------------------
Attorney in Fact
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EXHIBIT INDEX
NUMBER
- ---------------------
(10)A Second Amendment dated February 15, 1996, of the Three-Year Competitive Advance and
Revolving Credit Facility Agreement dated March 25, 1994.
(23) Consent of KPMG Peat Marwick LLP.
(24) Power of Attorney signed by various directors.
(27) Financial Data Schedule