<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-6198
FIRST AMERICAN CORPORATION
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-0799975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
FIRST AMERICAN CENTER, NASHVILLE, TENNESSEE 37237
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615/748-2000
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No .
----- -----
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Common shares outstanding: 58,359,035 as of July 31, 1997.
<PAGE> 2
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Part I. Financial Information Page
- --------------------------------- ----
<S> <C> <C>
Item 1 Financial Statements (unaudited)
Consolidated Income Statements for the Three and Six
Months Ended June 30, 1997 and 1996 3
Consolidated Balance Sheets as of June 30, 1997,
June 30, 1996 and December 31, 1996 4
Consolidated Statements of Changes in Shareholders' Equity
for the Six Months Ended June 30, 1997 and June 30, 1996 5
Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and June 30, 1996 6
Notes to Consolidated Financial Statements 7
Item 2 Management's Discussion and Analysis 11
Part II. Other Information
- -----------------------------
Item 1 Legal Proceedings 20
Item 4 Submission of Matters to a Vote of Security Holders 20
Item 6 Exhibits and Reports on Form 8-K 21
</TABLE>
2
<PAGE> 3
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
---------------------- -----------------------
(dollars in thousands, except per share amounts) 1997 1996 1997 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $141,961 $135,259 $280,663 $268,251
Interest and dividends on securities 39,773 37,740 80,340 71,819
Interest on federal funds sold and securities purchased under
agreements to resell 709 961 1,597 4,719
Interest on time deposits with other banks and other interest 1,193 663 2,336 1,164
- ---------------------------------------------------------------------------------------------------------------------------
Total interest income 183,636 174,623 364,936 345,953
- ---------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 4,801 3,956 9,316 7,836
Money market accounts 26,570 27,331 51,960 52,646
Regular savings 1,744 1,997 3,515 4,199
Certificates of deposit under $100,000 21,530 21,864 43,500 43,593
Certificates of deposit $100,000 and over 10,426 8,894 20,568 18,043
Other time and foreign 6,442 6,677 12,708 13,257
- ---------------------------------------------------------------------------------------------------------------------------
Total interest on deposits 71,513 70,719 141,567 139,574
- ---------------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 13,579 12,108 26,935 24,319
Interest on long-term debt 4,995 6,569 9,951 13,015
- ---------------------------------------------------------------------------------------------------------------------------
Total interest expense 90,087 89,396 178,453 176,908
- ---------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 93,549 85,227 186,483 169,045
PROVISION FOR LOAN LOSSES - - - -
- ---------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 93,549 85,227 186,483 169,045
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME
Service charges on deposit accounts 16,514 14,640 31,235 28,229
Commissions and fees on fiduciary activities 4,734 4,329 9,434 8,756
Investment services income 28,298 3,667 58,292 6,867
Trading account revenue 288 11 657 284
Merchant discount fees 880 856 1,720 1,625
Net realized gain on sales of securities 619 106 766 1,507
Other income 11,506 7,847 22,486 16,197
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest income 62,839 31,456 124,590 63,465
- ---------------------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE
Salaries and employee benefits 46,634 39,057 93,929 77,924
Net occupancy expense 6,856 5,665 13,684 11,690
Equipment expense 5,523 4,155 10,337 8,235
Systems and processing expense 3,945 3,537 7,876 6,633
FDIC insurance expense 304 722 593 1,376
Marketing expense 3,515 3,449 6,171 6,980
Communication expense 3,588 2,968 6,962 5,761
Supplies expense 1,513 1,109 3,119 2,375
Foreclosed properties expense (income), net (1,601) (2,466) (2,228) (2,652)
Subscribers' commissions 17,159 - 34,961 -
Other expenses 11,605 8,225 23,174 15,787
- ---------------------------------------------------------------------------------------------------------------------------
Total noninterest expense 99,041 66,421 198,578 134,109
- ---------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX EXPENSE
57,347 50,262 112,495 98,401
Income tax expense 22,006 19,373 43,124 37,712
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 35,341 $ 30,889 $ 69,371 $ 60,689
===========================================================================================================================
PER COMMON SHARE: (RESTATED FOR 2-FOR-1 STOCK SPLIT ON MAY 9, 1997)
Net income $ .600 $ .520 $1.180 $1.020
Dividends declared .200 .155 .355 .295
===========================================================================================================================
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING 58,842 59,397 58,961 59,216
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
3
<PAGE> 4
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
------------------------ ------------
(dollars in thousands, except per share amounts) 1997 1996 1996
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $ 551,533 $ 452,360 $ 603,456
Time deposits with other banks 8,039 7,692 53,801
Securities:
Held to maturity (market value $739,309, $885,446, and $835,192,
respectively) 738,690 890,051 834,547
Available for sale (amortized cost $1,569,361, $1,532,856, and
$1,685,743, respectively) 1,558,826 1,513,420 1,678,232
- ---------------------------------------------------------------------------------------------------------------------------
Total securities 2,297,516 2,403,471 2,512,779
- ---------------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under agreements to resell 59,041 62,201 161,677
Trading account securities 57,154 44,375 60,210
Loans:
Commercial 3,138,706 2,923,322 3,010,125
Consumer--amortizing mortgages 1,768,482 1,840,511 1,782,630
Consumer--other 1,589,160 1,301,216 1,334,750
Real estate--construction 189,436 168,520 190,673
Real estate--commercial mortgages and other 368,843 372,302 345,466
- ---------------------------------------------------------------------------------------------------------------------------
Total loans 7,054,627 6,605,871 6,663,644
Unearned discount and net deferred loan fees 4,191 6,389 5,047
- ---------------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and net deferred loan fees 7,050,436 6,599,482 6,658,597
Allowance for loan losses 118,695 133,562 123,265
- ---------------------------------------------------------------------------------------------------------------------------
Total net loans 6,931,741 6,465,920 6,535,332
- ---------------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 178,462 143,357 162,257
Foreclosed properties 4,549 8,778 7,363
Other assets 291,986 285,691 302,593
- ---------------------------------------------------------------------------------------------------------------------------
Total assets $10,380,021 $ 9,873,845 $10,399,468
===========================================================================================================================
LIABILITIES
Deposits:
Demand (noninterest-bearing) $ 1,342,330 $ 1,240,038 $ 1,374,528
NOW accounts 888,937 792,221 830,269
Money market accounts 2,364,170 2,195,793 2,295,112
Regular savings 292,766 339,207 303,691
Certificates of deposit under $100,000 1,617,963 1,699,914 1,665,675
Certificates of deposit $100,000 and over 773,013 696,276 893,794
Other time 349,712 363,369 332,651
Foreign 131,938 93,173 97,257
- ---------------------------------------------------------------------------------------------------------------------------
Total deposits 7,760,829 7,419,991 7,792,977
- ---------------------------------------------------------------------------------------------------------------------------
Short-term borrowings 1,254,915 1,154,541 1,154,372
Long-term debt 317,627 349,766 331,157
Other liabilities 173,623 130,479 252,255
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities 9,506,994 9,054,777 9,530,761
- ---------------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $2.50 par value; authorized 100,000,000 shares; issued:
58,720,229 shares at June 30, 1997; 59,135,902 shares at
June 30, 1996 and 59,262,998 shares at December 31, 1996 146,801 147,840 148,158
Capital surplus 129,780 159,226 157,792
Retained earnings 618,206 527,296 569,851
Deferred compensation on restricted stock (15,091) (2,693) (2,066)
Employee stock ownership plan obligation (291) (599) (443)
- ---------------------------------------------------------------------------------------------------------------------------
Realized shareholders' equity 879,405 831,070 873,292
Net unrealized losses on securities available for sale, net of tax (6,378) (12,002) (4,585)
- ---------------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 873,027 819,068 868,707
- ---------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,380,021 $ 9,873,845 $10,399,468
===========================================================================================================================
</TABLE>
See notes to consolidated financial statements.
4
<PAGE> 5
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
NET
UNREALIZED
GAINS
SIX MONTHS ENDED JUNE 30, 1996, AND COMMON DEFERRED EMPLOYEE (LOSSES)
JUNE 30, 1997 SHARES COMPENSATION STOCK ON
ISSUED ON OWNERSHIP SECURITIES
(DOLLARS IN THOUSANDS EXCEPT PER SHARE AND COMMON CAPITAL RETAINED RESTRICTED PLAN AVAILABLE
AMOUNTS) OUTSTANDING STOCK SURPLUS EARNINGS STOCK OBLIGATION FOR SALE TOTAL
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 59,079,638 $147,699 $162,254 $483,973 $ (1,263) $ (661) $ 3,530 $795,532
Issuance of common shares in
connection with Employee Benefit
Plan, net of discount on Dividend
Reinvestment Plan 451,626 1,129 7,067 - - - - 8,196
Issuance of shares of restricted
common stock 88,976 223 1,868 - (2,091) - - -
Repurchase of shares of common
stock (2,630,662) (6,577) (52,884) - - - - (59,461)
Issuance of common shares for
purchase of First City Bancorp, Inc. 2,147,518 5,369 40,937 - - - - 46,306
Amortization of deferred
compensation on restricted stock - - - - 661 - - 661
Reduction in employee stock
ownership plan obligation - - - - - 62 - 62
Net income - - - 60,689 - - - 60,689
Cash dividends declared ($.295 per
common share) - - - (17,366) - - - (17,366)
Change in net unrealized gains/losses
on securities available for sale, net
of tax - - - - - - (15,532) (15,532)
Other (1,194) (3) (16) - - - - (19)
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1996 59,135,902 $147,840 $159,226 $527,296 $ (2,693) $ (599) $ (12,002) $819,068
==================================================================================================================================
Balance, January 1, 1997 59,262,998 $148,158 $157,792 $569,851 $ (2,066) $ (443) $ (4,585) $868,707
Issuance of common shares in
connection with Employee Benefit
Plan, net of discount on Dividend
Reinvestment Plan 759,318 1,898 11,606 - - - - 13,504
Issuance of shares of restricted
common stock 448,914 1,122 13,600 - (14,722) - - -
Repurchase of shares of common
stock (2,101,611) (5,254) (64,253) - - - - (69,507)
Issuance of shares for Hartsville
Bancshares, Inc. 350,522 876 9,223 - - - - 10,099
Amortization of deferred
compensation on restricted stock - - - - 1,697 - - 1,697
Reduction in employee stock
ownership plan obligation - - - - - 152 - 152
Net income - - - 69,371 - - - 69,371
Cash dividends declared ($.355 per
common share) - - - (21,016) - - - (21,016)
Change in net unrealized gains/losses
on securities available for sale, net
of tax - - - - - - (1,793) (1,793)
Tax benefit from stock option and
award plans - - 1,809 - - - - 1,809
Other 88 1 3 - - - - 4
- ----------------------------------------------------------------------------------------------------------------------------------
Balance, June 30, 1997 58,720,229 $146,801 $129,780 $618,206 $(15,091) $ (291) $(6,378) $873,027
==================================================================================================================================
</TABLE>
See notes to consolidated financial statements.
5
<PAGE> 6
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30
-----------------------
(in thousands) 1997 1996
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $ 69,371 $ 60,689
Adjustments to reconcile net income to net cash provided by operating
activities:
Gain on foreclosed property (2,382) -
Depreciation and amortization of premises and equipment 9,305 7,239
Amortization of intangible assets 5,585 4,356
Other amortization, net 1,894 250
Deferred income tax expense 6,545 6,844
Net realized gain on sales of securities (766) (1,507)
Net (gain) loss on sales and writedowns of premises and equipment 39 (15)
Change in assets and liabilities, net of effects from acquisitions:
(Increase) decrease in accrued interest receivable (5,480) 5,215
Increase (decrease) in accrued interest payable 412 (14,215)
(Increase) decrease in trading account securities 3,056 (21,956)
Decrease in other assets 18,520 38,226
Increase (decrease) in other liabilities (79,796) (1,895)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 26,303 83,231
- -----------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net decrease in time deposits with other banks 45,768 19,579
Proceeds from sales of securities available for sale 406,130 240,255
Proceeds from maturities of securities available for sale 182,083 191,338
Purchases of securities available for sale (447,931) (635,710)
Proceeds from maturities of securities held to maturity 119,000 109,564
Purchases of securities held to maturity (22,869) (65,792)
Net decrease in federal funds sold and securities purchased under
agreements to resell 102,636 264,030
Net increase in loans, net of repayments and sales (339,000) (6,612)
Acquisition, net of cash acquired 2,678 4,525
Proceeds from sales of premises and equipment 33 11,809
Purchases of premises and equipment (24,049) (28,457)
- -----------------------------------------------------------------------------------------------------------------
Net cash provided by investing activities 24,479 104,529
- -----------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net decrease in deposits (113,741) (289,539)
Net increase (decrease) in other short-term borrowings (73,457) 217,811
Advances from (repayment to) Federal Home Loan Bank 159,776 (89,187)
Net repayment of other long-term debt (77) (393)
Issuance of common shares under Employee Benefit and Dividend
Reinvestment Plans 13,504 8,196
Cash dividends paid (21,016) (17,366)
Repurchase of common stock (69,507) (59,461)
Tax benefit related to stock options 1,809 -
Other 4 43
- -----------------------------------------------------------------------------------------------------------------
Net cash used in financing activities (102,705) (229,896)
- -----------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (51,923) (42,136)
Cash and due from banks, January 1 603,456 494,496
- -----------------------------------------------------------------------------------------------------------------
Cash and due from banks, June 30 $551,533 $452,360
=================================================================================================================
Cash paid during the year for:
Interest expense $177,549 $189,684
Income taxes 26,397 26,308
Non-cash investing activities:
Foreclosures 1,075 216
Stock issued for acquisition 10,099 46,306
=================================================================================================================
</TABLE>
See notes to consolidated financial statements.
6
<PAGE> 7
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity
with generally accepted accounting principles and general practices within the
banking industry.
The interim consolidated financial statements should be read in
conjunction with the consolidated financial statements and notes thereto
presented in First American Corporation's (the "Corporation" or "First
American") 1996 Annual Report to Shareholders. The quarterly consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. All such adjustments are of a normal recurring nature. Certain prior
year amounts have been reclassified to conform with the current year
presentation. The results for interim periods are not necessarily indicative of
results to be expected for the complete fiscal year.
On April 7, 1997, the Board of Directors authorized a 2-for-1 stock split
of First American's common stock payable on May 9, 1997. Accordingly, the
consolidated financial statements for all periods presented have been restated
to reflect the impact of the stock split.
(2) ACCOUNTING POLICIES FOR DERIVATIVE INSTRUMENTS
The Corporation enters into interest rate swap and forward interest rate
swap transactions (swaps), as well as futures contracts, in connection with its
asset/liability management program in managing interest rate exposure arising
out of non-trading assets and liabilities. There must be correlation of interest
rate movements between these derivative instruments and the underlying assets or
liabilities. The impact of a swap is accrued over the life of the agreement
based on expected settlement payments and is recorded as an adjustment to
interest income or expense in the period in which it accrues and in the category
appropriate to the related asset or liability. The related amount receivable
from or payable to the swap counterpart is included as accrued interest in other
assets or liabilities in the consolidated balance sheets. Realized and
unrealized gains and losses on futures contracts which are designated as
effective hedges of interest rate exposure arising out of non-trading assets and
liabilities are deferred and recognized as interest income or interest expense,
in the category appropriate to the related asset or liability, over the covered
periods or lives of the hedged assets or liabilities. Gains or losses on early
terminations of derivative financial instruments that modify the underlying
characteristics of specified assets or liabilities are deferred and amortized as
an adjustment to the yield or rate of the related assets or liabilities over the
remaining covered period. At such time that there is no longer correlation of
interest rate movements between the derivative instrument and the underlying
asset or liability, or if all of the underlying assets or liabilities
specifically related to a derivative instrument matures, is sold, or terminated,
then the related derivative instrument would be closed out or marked to market
as an element of noninterest income on an ongoing basis.
On a limited basis, the Corporation also enters into interest rate swap
agreements, as well as interest rate cap and floor agreements, with customers
desiring protection from possible adverse future fluctuations in interest rates.
As an intermediary, the Corporation generally maintains a portfolio of matched
offsetting interest rate contract agreements. At the inception of such
agreements, the portion of the compensation related to credit risk and ongoing
servicing, if any, is deferred and taken into income over the term of the
agreements.
7
<PAGE> 8
(3) NONPERFORMING ASSETS
Nonperforming assets were as follows:
<TABLE>
<CAPTION>
JUNE 30 December 31
- ----------------------------------------------------------------------------------------------
(in thousands) 1997 1996 1996
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Non-accrual loans $ 11,254 $ 17,567 $ 16,331
Foreclosed properties 4,549 8,778 7,363
- ----------------------------------------------------------------------------------------------
Total nonperforming assets $ 15,803 $ 26,345 $ 23,694
==============================================================================================
90 days or more past due on accrual $ 13,421 $ 13,797 $ 11,711
==============================================================================================
Nonperforming assets as a percent of loans
and foreclosed properties (excluding
90 days or more past due on accrual) .22% .40% .36%
==============================================================================================
</TABLE>
(4) ALLOWANCE FOR LOAN LOSSES
Transactions in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
- -----------------------------------------------------------------------------------
(in thousands) 1997 1996
- -----------------------------------------------------------------------------------
<S> <C> <C>
Balance, January 1 $123,265 $132,415
Provision charged to operating expenses - -
Allowance of subsidiary purchased 711 2,126
- -----------------------------------------------------------------------------------
123,976 134,541
- -----------------------------------------------------------------------------------
Loans charged off 13,964 12,295
Recoveries of loans previously charged off 8,683 11,316
- -----------------------------------------------------------------------------------
Net charge-offs 5,281 979
- -----------------------------------------------------------------------------------
Balance, June 30 $118,695 $133,562
===================================================================================
</TABLE>
Allowance ratios were as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
JUNE 30
- --------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------
<S> <C> <C>
Allowance end of period to net loans outstanding 1.68% 2.02%
Net charge-offs to average loans (annualized) .16 .03
================================================================================
</TABLE>
(5) ACQUISITIONS
On January 1, 1997, the Corporation completed its acquisition of
Hartsville Bancshares, Inc. ("Hartsville"), an $89.5 million bank holding
company, by exchanging approximately 350,000 shares of the Corporation's common
stock (adjusted for the 2-for-1 split) for all of the outstanding shares of
Hartsville. The acquisition was accounted for as a purchase. The purchase price
in excess of the fair value of net assets acquired was $6 million and was
recorded as goodwill. Hartsville was the parent of CommunityFirst Bank, which
operated five branches in Middle Tennessee. CommunityFirst was simultaneously
merged with and into First American National Bank ("FANB"), a wholly-owned
subsidiary of the Corporation.
On July 1, 1996, FANB purchased 96.2% of the stock of INVEST Financial
Corporation ("INVEST") for $26.0 million in cash. Simultaneously, INVEST
completed its acquisition of Investment Center Group, Inc., the parent of
Investment Centers of America, in a transaction valued at approximately $5.0
million. INVEST is a national marketer of mutual funds, annuities and other
investment products sold through financial institutions. Both transactions were
accounted for as purchases. During the third quarter of 1996, FANB purchased an
additional 2.1% of the stock of INVEST. The purchase price in excess of the fair
value of net assets acquired was an aggregate of $17.7 million which is recorded
as goodwill. Effective
8
<PAGE> 9
February 1, 1997, AmeriStar Capital Markets, Inc., formerly a wholly-owned
subsidiary of FANB and a broker-dealer registered with the National Association
of Securities Dealers, was merged with and into INVEST. As a result of this
merger, FANB's equity ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a healthcare payments processing company, for $8.6 million. The
transaction was accounted for under the equity method of accounting.
Effective March 11, 1996, the Corporation acquired First City Bancorp,
Inc. ("First City") by exchanging approximately 2.2 million shares of First
American Corporation common stock (adjusted for the 2-for-1 stock split) for all
of the outstanding shares of First City. First City was a bank holding company
headquartered in Murfreesboro, Tennessee, and operated two Tennessee state
chartered banks and a consumer finance company. First City had $366 million in
assets, 11 banking offices, and nine consumer finance locations in the middle
Tennessee area. The transaction was accounted for as a purchase. The purchase
price in excess of the fair value of net assets acquired (goodwill) was $32.2
million.
(6) ACCOUNTING MATTERS
Statement of Financial Accounting Standards ("SFAS") No. 125, "Accounting
for Transfers and Servicing of Financial Assets and Extinguishments of
Liabilities," was adopted prospectively by the Corporation on January 1, 1997
with the exception of certain transactions that are deferred by the provisions
of SFAS No. 127, "Deferral of the Effective Date of Certain Provisions of FASB
Statement No. 125." SFAS No. 125 provides accounting and reporting standards for
sales, securitizations, and servicing of receivables and other financial assets,
secured borrowing and collateral transactions, and extinguishments of
liabilities. The adoption of this statement had no material impact on the
consolidated financial statements.
SFAS No. 128, "Earnings Per Share," establishes standards for computing
and presenting earnings per share ("EPS") and applies to entities with publicly
held common stock. The statement simplifies the standards for computing EPS and
provides a more compatible computation with EPS standards of other countries. It
replaces the presentation of primary EPS with a presentation of basic EPS and
requires dual presentation of basic and diluted EPS on the face of the income
statement. SFAS No. 128 is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods; earlier application
is not permitted. Restatement of all prior period EPS data presented is
required. The adoption of this statement is not expected to have a material
impact on the consolidated financial statements.
SFAS No. 129, "Disclosure of Information about Capital Structure,"
requires disclosure of information about an entity's capital structure that has
issued securities. This statement requires no change in the Corporation's
previous disclosure requirements under Accounting Principles Board Opinion No.
15 and, as such, will have no material impact on the consolidated financial
statements. SFAS No. 129 is effective for financial statements issued for
periods ending after December 15, 1997.
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements and requires that all components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. SFAS No. 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of financial
statements for earlier periods provided for comparative purposes is required.
Adoption of SFAS No. 130 does not affect recognition or measurement of
comprehensive income and its components and as such will only affect the
reporting and display in the consolidated financial statements.
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," is effective for financial statements for periods beginning after
December 15, 1997. SFAS No. 131 establishes standards for the way that public
business enterprises report information about operating segments in annual
financial statements and requires that those enterprises report selected
information about operating segments in interim financial reports to
shareholders. Operating segments are components of an enterprise about which
separate financial information is available that is evaluated regularly by the
chief operating decision maker in deciding how to allocate resources and in
assessing performance. Adoption of SFAS No. 131 will expand disclosures related
to the consolidated financial statements.
9
<PAGE> 10
(7) EARNINGS PER COMMON SHARE
Earnings per common share amounts are computed by dividing net income by
the weighted average number of common shares outstanding during each respective
period.
(8) COMMON STOCK
The Corporation purchased 2.1 million shares of First American
Corporation common stock (adjusted for the 2-for-1 stock split) in the open
market during the first six months of 1997 at a total cost of $69.5 million.
Under Tennessee law, such shares have been recognized as authorized but
unissued. Accordingly, the Corporation reduced the par value and reflected the
excess of the purchase price over par of such repurchased shares as a reduction
from capital surplus.
All of the First American shares exchanged in the Hartsville transaction
were repurchased during January 1997 in the open market.
(9) LEGAL AND REGULATORY MATTERS
Following the adoption of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA"), Charter Federal Savings Bank ("Charter" or
now "FAFSB"), brought an action against the Office of Thrift Supervision and the
Federal Deposit Insurance Corporation seeking injunctive and other relief,
contending that Congress' elimination of supervisory goodwill required
rescission of certain supervisory transactions. The Federal District Court found
in Charter's favor, but in 1992 the Fourth Circuit Court of Appeals reversed,
and the U.S. Supreme Court denied Charter's petition for certiorari. In 1995,
the Federal Circuit Court found in favor of another thrift institution in a
similar case (Winstar Corp. v. United States) in which the association sought
damages for breach of contract. Charter also filed suit against the United
States Government ("Government") in the Court of Federal Claims based on breach
of contract. Pending the Supreme Court's review of the Winstar decision, FAFSB's
action was stayed. In July 1996, the Supreme Court affirmed the lower court's
decision in Winstar. The stay was automatically lifted and FAFSB's suit is now
proceeding. The Government, however, has filed a motion to dismiss the suit
based on the prior Fourth Circuit decision. This motion has not yet been decided
by the Federal Claims Court.
The value of FAFSB's claims against the Government, as well as their
ultimate outcome, are contingent upon a number of factors, some of which are
outside of FAFSB's control, and are highly uncertain as to substance, timing and
the dollar amount of any damages which might be awarded should FAFSB finally
prevail. Under the Agreement and Plan of Reorganization as amended by and
between FAFSB and the Corporation, in the event that FAFSB is successful in this
litigation, the FAFSB shareholders as of December 1, 1995 will be entitled to
receive additional consideration equal in value to 50% of any recovery, net of
all taxes and certain other expenses, including the costs and expenses of such
litigation, received on or before December 1, 2000 subject to certain
limitations in the case of certain business combinations. Such additional
consideration, if any, is payable in the common stock of the Corporation, based
on the average per share closing price on the date of receipt by FAFSB of the
last payment constituting a recovery from the Government.
Also, there are from time to time other legal proceedings pending against
the Corporation and its subsidiaries. In the opinion of Management and counsel,
liabilities, if any, arising from such proceedings presently pending would not
have a material adverse effect on the consolidated financial statements of the
Corporation.
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MANAGEMENT'S DISCUSSION AND ANALYSIS
The following discussion should be read in conjunction with the
consolidated financial statements appearing within this report and by reference
to First American Corporation's 1996 Annual Report.
OVERVIEW
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split of First American Corporation common stock which was made on May 9, 1997.
The par value of the common stock was reduced from $5.00 to $2.50 per share. All
financial data included has been restated to reflect the impact of the stock
split.
Net income for the six months ended June 30, 1997, was $69.4 million, an
$8.7 million or 14.3% increase from the $60.7 million earned during the same
time last year. The $8.7 million increase in earnings for the first half of 1997
compared to the same time last year included a $17.4 million increase in net
interest income, a $61.1 million increase in non-interest income, and a $64.5
million increase in non-interest expense. Earnings per share also increased
during the six months ended June 30, 1997 to $1.18 per share, up 15.7% over the
$1.02 for the same period in 1996. ROA was 1.39% versus 1.27% in the first half
of 1996, and ROE was 15.98% compared to 15.07% in the first half of 1996.
During 1997, First American has taken steps to further align the goals of
management with the strategic and financial goals of First American. The Board
of Directors approved a new program under the terms of the 1991 Employee Stock
Incentive Plan to compensate management based on the Corporation's overall
achievement of its goals. Executive and senior management were given the choice
of receiving part of their annual incentive compensation (20%-50% of total
compensation) in restricted common stock, rather than cash, with the opportunity
to have it matched by the Corporation. First American's matching contribution
will vest if the Corporation achieves a price-to-book multiple greater than or
equal to the median of a defined high performing peer group by the end of the
year 2000. The composition of the peer group and the Corporation's goals are
subject to change by the Human Resources Committee in order to ensure that they
remain reflective of the most high performing, highly valued companies in the
industry.
Effective January 1, 1997, First American acquired Hartsville, an $89.5
million bank holding company, by exchanging approximately 350,000 shares of the
Corporation's common stock for all of the outstanding shares of Hartsville. All
of the First American shares exchanged in the transaction were repurchased in
the open market during January 1997. Hartsville had five branches in Middle
Tennessee and operated under the name CommunityFirst. Immediately following the
merger of Hartsville with and into First American, CommunityFirst was merged
with and into FANB. The acquisition was accounted for as a purchase.
Effective July 1, 1996, FANB, a wholly-owned subsidiary of First
American, purchased 96.2% of the stock of INVEST for $26.0 million in cash.
Simultaneously, INVEST completed its acquisition of Investment Center Group,
Inc., the parent of Investment Centers of America, in a transaction valued at
$5.0 million, which makes INVEST the nation's largest marketer of mutual funds,
annuities, and other investment products sold through financial institutions.
Both transactions were accounted for as purchases. During the third quarter of
1996, FANB purchased an additional 2.1% of the stock of INVEST. Effective
February 1, 1997, AmeriStar Capital Markets, Inc., formerly a wholly-owned
subsidiary of FANB and a broker-dealer registered with the National Association
of Securities Dealers, was merged with and into INVEST. As a result of the
merger, FANB's equity ownership in INVEST increased to 98.5%.
Effective April 1, 1996, FANB purchased 49% of the stock of The SSI
Group, Inc., a health care payments processing company, for $8.6 million. The
transaction is being accounted for under the equity method of accounting.
Effective March 11, 1996, First American acquired First City by
exchanging approximately 2.2 million shares of First American Corporation common
stock for all of the outstanding shares of First City. First City was a bank
holding company headquartered in Murfreesboro, Tennessee, and operated two
Tennessee state chartered banks and a consumer finance company. First City had
$366 million in assets, 11 banking offices, and nine consumer finance locations
in the middle Tennessee area. The transaction was accounted for as a purchase.
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INCOME STATEMENT ANALYSIS
NET INTEREST INCOME
Net interest income on a taxable equivalent basis represented 60% of
total revenues in the second quarter of 1997 and 73% in the second quarter of
1996. For purposes of this discussion, total revenues consist of the sum of net
interest income and noninterest income. Net interest income on a taxable
equivalent basis in the second quarter of 1997 was $94.4 million, up $8.2
million, or 9.5%, from $86.1 million in the second quarter of 1996. Net interest
income is the difference between total interest income earned on earning assets
such as loans and securities and total interest expense incurred on
interest-bearing liabilities such as deposits. Net interest income is affected
by the volume and mix of earning assets and interest-bearing liabilities and the
corresponding interest yields and costs.
Total interest income on a taxable equivalent basis amounted to $184.4
million for the second quarter of 1997, compared to $175.5 million for the
second quarter of 1996, an increase of $8.9 million, or 5.1%. Of the $8.9
million increase in total interest income, $6.7 million resulted from an
increase in the volume of earning assets (primarily loans) and $2.2 million
resulted from an increase in average yields. Average earning assets rose $340.1
million, or 3.8%, to $9.29 billion. Average loans increased $245.9 million, or
3.8%, to $6.77 billion, average securities increased $85.3 million, or 3.7%, to
$2.40 billion, and average federal funds sold and securities purchased under
agreements to resell decreased $20.0 million to $51.8 million. Excluding the
effects of the Hartsville acquisition, average loans for the quarter ended June
30, 1997, increased 2.9% over the same period last year. The average yield on
earning assets increased 8 basis points to 7.96% from 7.88%, reflecting a
generally higher interest rate environment in the second quarter of 1997
compared to the same quarter last year. For example, the 1-year treasury rate
and 5-year treasury security yields averaged 5.85% and 6.57%, respectively, in
the second quarter of 1997 compared to 5.66% and 6.46%, respectively, in the
second quarter of 1996. Shorter-term external interest rates were generally
higher than the second quarter of 1996. Longer term external interest rates were
generally equal to or slightly higher in the second quarter of 1997 than the
second quarter of 1996. Because some of First American's earning assets (and
interest-bearing liabilities) do not reprice immediately upon a change in
external rates and because of other factors, such as competitive pressures, a
change in external rates will not result in a change in the Company's average
yields on earning assets (and rates paid on interest-bearing liabilities) of the
same magnitude or timing as the change in external rates.
Total interest income on a taxable equivalent basis amounted to $366.7
million for the six months ended June 30, 1997, compared to $347.7 million for
the same time last year, an increase of $19.0 million, or 5.5%. Of the $19.0
million increase in total interest income, $15.1 million resulted from an
increase in the volume of earning assets (primarily loans and securities) and
$3.9 million resulted from an increase in average yields. Average earning assets
rose $384.1 million, or 4.3%, to $9.28 billion. Average loans increased $255.9
million, or 4.0%, to $6.73 billion, average securities increased $213.1 million,
or 9.6%, to $2.42 billion, and average federal funds sold and securities
purchased under agreements to resell decreased $117.1 million to $59.3 million.
Excluding the Hartsville and First City acquisitions, average loans for the six
months ended June 30, 1997, increased 2.0% over the same period last year. The
average yield on earning assets increased 11 basis points to 7.97% from 7.86%,
reflecting a generally higher interest rate environment in the first half of
1997 compared to the same time last year. For example, the 1-year treasury rate
and 5-year treasury security yields averaged 5.75% and 6.47%, respectively, in
the first six months of 1997 compared to 5.39% and 6.02%, respectively, in the
first six months of 1996. Short-term and long-term external interest rates were
generally higher in the first six months of 1997, compared to the first six
months of 1996.
Total interest expense in the second quarter of 1997 increased $691.0
thousand, or .8%, to $90.1 million from the second quarter of 1996. Of the
increase, $3.7 million resulted from an increase in the volume of
interest-bearing liabilities which was offset by a $2.9 million decrease which
was due to lower average interest rates paid on interest-bearing funds. In the
second quarter of 1997, average interest-bearing liabilities grew $301.4
million, or 4.0%, to $7.85 billion from $7.54 billion in the second quarter of
1996. Average interest-bearing deposits increased $232.5 million, or 3.8%, to
$6.41 billion, average short-term borrowings rose $108.9 million, or 10.8%, to
$1.11 billion, and average long-term debt decreased $40.1 million, or 11.1%, to
$321.5 million. Excluding the effects of the Hartsville acquisition, total
average interest-bearing deposits increased 2.5%. The average rate paid on
interest-bearing liabilities decreased 16 basis points to 4.61% from 4.77% due
to a more favorable mix of interest-bearing liabilities
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(higher NOW account and money market account balances as a percentage of
interest-bearing liabilities), and more favorable average interest rates paid on
interest-bearing liabilities in 1997 versus 1996, partially due to a decrease in
the expense involved in hedging the rates paid on these liabilities.
Total interest expense in the six months ended June 30, 1997, increased
$1.5 million, or .9%, to $178.5 million from the same time last year. Of the
increase, $8.0 million resulted from an increase in the volume of
interest-bearing liabilities which was offset by a $6.0 million decrease due to
lower average interest rates paid on interest-bearing funds. In the first six
months of 1997, average interest-bearing liabilities grew $342.8 million, or
4.6%, to $7.83 billion from $7.49 billion in the first half of 1996. Average
interest-bearing deposits increased $290.2 million, or 4.7%, to $6.41 billion,
average short-term borrowings rose $103.1 million, or 10.3%, to $1.10 billion,
and average long-term debt decreased $50.6 million, or 13.6%, to $322.1 million.
Excluding the Hartsville and First City acquisitions, total average
interest-bearing deposits increased 1.7%. The average rate paid on
interest-bearing liabilities decreased 16 basis points to 4.59% from 4.75%, due
to a more favorable mix of interest-bearing liabilities (higher NOW account and
money market account balances as a percentage of interest-bearing liabilities),
and more favorable average interest rates paid on interest-bearing liabilities
in 1997 versus 1996, partially due to a decrease in the expense involved in
hedging the rates paid on these liabilities.
Net interest income in the second quarter of 1997 increased largely as a
result of the increase in the volume of earning assets and an improved net
interest spread. Net interest spread is the difference between the yield on
earning assets and the rate paid on interest-bearing liabilities. First
American's net interest spread improved 24 basis points to 3.35% during the
second quarter of 1997 from 3.11% for the second quarter of 1996. This increase
was due to an 8 basis point increase in yields on earning assets and a 16 basis
point decrease in the rates paid on interest-bearing liabilities.
As the net interest spread improved, the net interest margin, which is
net interest income expressed as a percentage of average earning assets,
increased to 4.07% for the second quarter of 1997 as compared with 3.87% for the
same quarter a year earlier. The primary factors leading to the improvement in
the net interest margin were the increase in the volume of earning assets and
the improvement in net interest spread.
Net interest income in the six months ended June 30, 1997, increased
largely as a result of the increase in the volume of earning assets and an
improved net interest spread. First American's net interest spread improved 27
basis points to 3.38% during the first six months of 1997 from 3.11% for the
same time last year. This increase was due to an 11 basis point increase in the
yields on earning assets and a 16 basis point decrease on interest-bearing
liabilities.
As the net interest spread improved, the net interest margin increased to
4.09% for the six months ended June 30, 1997, as compared with 3.86% for the
same period a year earlier. The primary factors leading to the improvement in
the net interest margin were the increase in the volume of earning assets and
the improvement in net interest spread.
PROVISION FOR LOAN LOSSES
This topic is addressed under the caption "Allowance and Provision for
Loan Losses."
NONINTEREST INCOME
Total noninterest income was $62.8 million for the second quarter of 1997
compared with $31.5 million for the second quarter of 1996, an increase of $31.3
million, or 99.8%. Noninterest income represented 40% of total revenues in the
second quarter of 1997 and 27% during the same time last year. Non-interest
income, excluding net realized securities gains, totaled $62.2 million, an
increase of $30.8 million, or 98.5% from $31.4 million in the second quarter of
1996. The increase in noninterest income from the second quarter of 1996
included a $24.6 million increase in investment services income, a $3.7 million,
or 46.6% increase in other income, and a $1.9 million, or 12.8%, increase in
service charges on deposit accounts. All of the $24.6 million improvement in
investment services income over the second quarter of 1996 resulted from the
acquisition of INVEST. The $1.9 million increase in service charges on deposit
accounts can be attributed to a greater number of deposit accounts and related
activities for commercial and retail deposits. The average number of retail
deposit accounts increased .8% and the average number of commercial deposit
accounts increased .9% from second quarter 1996 to the current quarter. The
increase of $3.7 million in other income from the previous year's second quarter
is primarily
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due to a $1.2 million increase in other corporate service fees resulting mainly
from increases in automatic teller machine ("ATM") surcharge and network
transaction fee items due principally to fees generated by the introduction of
new ATM services such as stamps, mini-statements, and ATM use by non-First
American customers. Other income also included a $1.0 million increase in income
from the Corporation's investment in the Financial Institution Reserve Group
("FIRG") which is accounted for under the equity method of accounting. FIRG is a
risk-retention group providing Director's and Officer's insurance. Income
increased over the second quarter of 1996 largely due to the fact that FIRG
changed its reserve methodology and subsequently took a portion of its reserves
back into income. Excluding INVEST, noninterest income increased $6.2 million,
or 19.6%.
Total non-interest income was $124.6 million for the first six months of
1997 compared with $63.5 million for the same time last year, an increase of
$61.1 million, or 96.3%. Noninterest income represented 40% of total revenues in
the first half of 1997 and 27% during the same time last year. Non-interest
income, excluding net securities gains, totaled $123.8 million, an increase of
$61.9 million, or 99.9%, from $62.0 million in the six months ended June 30,
1996. The increase from the first six months of 1996 included a $51.4 million
increase in investment services income, a $6.3 million or 38.8% increase in
other income, a $3.0 million, or 10.6%, increase in service charges on deposit
accounts, and a $.7 million increase in commissions and fees on fiduciary
activities. Of the total $51.4 million improvement in investment services income
over the year-to-date 1996, $50.3 million resulted from the acquisition of
INVEST and the remainder resulted primarily from growth in retail brokerage
commissions related to mutual funds and annuities sales and institutional
brokerage commissions on various types of securities transactions. The $6.3
million increase in other income resulted largely from a $2.3 million increase
in ATM surcharge and network transaction fee items due substantially to fees
generated by the introduction of new ATM services such as stamps,
mini-statements, and ATM use by non-First American customers. Other income in
the first six months of 1997 also included $1.3 million of gains on the sale of
mortgage loans, a $1.0 million increase in income from FIRG due primarily to the
fact that FIRG changed its reserve methodology and subsequently took a portion
of its reserves back into income, a $1.0 million increase in income related
mainly to the acquisition of INVEST which consists of fees collected from
clients related to account activity, and a $.7 million increase in open-end,
non-loan fees occurred essentially because of interchange fees generated by the
"CheckCard" product. The increase in service charges on deposit accounts can be
attributed to a greater number of deposit accounts and related activities for
commercial and retail deposits. The average number of retail deposit accounts
increased 1.8% and the average number of commercial deposit accounts increased
2.0% from six months ended June 30, 1996 to the current period. The $.7 million
increase in commission and fees on fiduciary activities resulted principally
from favorable market conditions, as well as increased trust activity due to
improved marketing efforts. Excluding INVEST, non-interest income increased $9.6
million, or 15.1%, from the six months ended June 30, 1996.
NONINTEREST EXPENSE
Total noninterest expense increased $32.6 million, or 49.1%, to $99.0
million for the second quarter of 1997 compared with $66.4 million for the same
period in 1996. The increase in noninterest expense included a $17.2 million
increase in subscribers' commissions related to INVEST's brokerage activities, a
$7.6 million increase in salaries and employee benefits, a $3.4 million increase
in other expenses, a $1.4 million increase in equipment expense, a $1.2 million
increase in net occupancy expense, and a $.9 million increase in foreclosed
property expense.
Salaries and employee benefits increased $7.6 million, or 19.4%, from the
same period in 1996 principally due to merit increases and additional employees
resulting predominantly from acquisitions. From June 30, 1996, to June 30, 1997,
the number of full-time equivalent employees increased 12% associated primarily
with the Hartsville and INVEST acquisitions. Other expenses increased $3.4
million, or 41.1% mainly due to a $1.2 million increase in professional fee
expense related largely to an increase in various consulting projects during the
second quarter of 1997. Also included in other expenses was a $.6 million
increase in security clearing fees, a $.6 million increase in travel expenses,
and a $.3 million increase in convention and group meeting expense, primarily
associated with the acquisition of INVEST. Equipment expense increased $1.4
million over last year's second quarter due to higher depreciation expense
resulting from the addition of furniture and fixtures at various branches and
enhancements and
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housing for the ATMs. Additional equipment expense was also incurred due to an
increased usage of computer maintenance contracts. Net occupancy expense grew
$1.2 million essentially due to higher rent and other occupancy-related expenses
from the Hartsville and INVEST acquisitions while foreclosed property expense
grew by $.9 million due to fewer sales of foreclosed property during the second
quarter of 1997. Of the total $32.6 million increase in noninterest expense,
$24.8 million was associated with INVEST. Excluding INVEST, noninterest expense
increased $7.8 million, or 11.8%.
Total non-interest expense increased $64.5 million, or 48.1%, to $198.6
million for the six months ended June 30, 1997, compared with $134.1 million for
the same period in 1996. The increase in noninterest expense included a $35.0
million increase in subscribers' commissions related to INVEST's brokerage
activities, a $16.0 million increase in salaries and employee benefits, a $7.4
million increase in other expenses, a $2.1 million increase in equipment
expense, a $2.0 million increase in net occupancy expense, a $1.2 million
increase in communications expense, and a $1.2 million increase in systems and
processing expense.
Salaries and employee benefits increased $16.0 million, or 20.5%, from
the same period in 1996 principally due to merit increases and additional
employees resulting predominantly from acquisitions. Other expenses increased
$7.4 million, or 46.8% from the prior year mainly due to a $1.2 million increase
in the amortization of intangibles related to the Hartsville, First City and
INVEST acquisitions, an increase of $.9 million in professional fee expense
related to additional consulting fees generated by various projects during the
second quarter of 1997, and an $.8 million increase in other miscellaneous
expenses. Other expenses also included a $1.3 million increase in security
clearing fees, a $.9 million increase in travel expenses, and a $.6 million
increase in convention and group meeting expense, all of which can be attributed
to the acquisition of INVEST. Equipment expense increased $2.1 million from the
year-to-date 1996, largely due to higher depreciation expense resulting from the
addition of furniture and fixtures at various branches, the addition of new
image scanning equipment, and enhancements and housing for the ATMs. Additional
equipment expense was also incurred due to an increased usage of computer
maintenance contracts. Net occupancy expense grew $2.0 million essentially from
higher rent and other occupancy-related expenses related to the Hartsville,
First City, and INVEST acquisitions. Communication expenses increased $1.2
million, mainly because of higher expenditures for telecommunications, postage,
and air courier services. Systems and processing expense increased $1.2 million
chiefly due to higher processing volumes related to the recent acquisitions and
various projects to enhance systems. Of the total $64.5 million increase in
noninterest expense, $50.3 was associated with INVEST. Excluding INVEST,
noninterest expense increased $14.1 million, or 10.5%.
First American's operating efficiency ratio from the traditional banking
business improved to 56.05% in the second quarter of 1997 compared to 56.38% for
the second quarter of 1996, while the operating efficiency ratio for the first
half of 1997 improved to 56.46% compared to 57.18% for the same period in 1996.
INCOME TAXES
During the second quarters of 1997 and 1996, income tax expense was $22.0
million and $19.4 million, respectively. During the six months ended June 30,
1997 and June 30, 1996, income tax expense was $43.1 million and $37.7 million,
respectively. The major factor for the 14.4% increase in year-to-date income tax
expense was the higher income before income taxes.
BALANCE SHEET REVIEW
ASSETS
Total assets of First American rose $506.2 million, or 5.1%, to $10.38
billion at June 30, 1997, compared to $9.87 billion one year earlier. The growth
in total assets was largely due to the $450.9 million, or 6.8%, increase in
loans, net of unearned discount and net deferred loan fees, to $7.05 billion at
June 30, 1997, from $6.60 billion at June 30, 1996. Leading the growth in loans
were consumer loans, which increased $287.9, or 22.1% primarily due to the
purchase of $200.0 million of loans, with recourse, from the Tennessee Valley
Authority on June 30, 1997, and growth in installment and open-ended loans,
commercial loans, which increased $215.4 million, or 7.4%, over a broad range of
industry categories, and construction loans, which increased $20.9 million, or
12.4% partially offset by a decrease in consumer residential mortgages of $72.0
million. The increase in loan volume was generally a reflection of positive
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economic conditions in Tennessee and adjacent states, and the success of First
American's sales efforts and marketing programs. Also contributing to asset
growth were increases in cash ($99.2 million), trading securities ($12.8
million), partially offset by a decrease in investment securities ($106.0
million).
Total assets decreased $19.4 million from $10.4 billion at December 31,
1996, to $10.38 billion at June 30, 1997. The decrease in total assets from
December 31, 1996, to June 30, 1997, was from the $215.3 million decrease in
investment securities, the $102.6 million decrease in Federal funds sold and
securities purchased under agreements to resell, and by the $51.9 million
decrease in cash, offset by a $391.8 million increase in loans, net of unearned
discount and net deferred loan fees. Leading the growth in loans were consumer
installment loans which increased $254.4 million, or 19.1%, and commercial loans
$128.6 million, a 4.3% increase.
During the six months ended June 30, 1997, approximately $54.5 million of
mortgage loans were sold with the mortgage servicing rights retained by First
American. The transaction resulted in a gain of approximately $1.2 million.
ALLOWANCE AND PROVISION FOR LOAN LOSSES
Management's policy is to maintain the allowance for loan losses at a
level which is adequate to absorb estimated loan losses inherent in the loan
portfolio. The provision for loan losses is a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance at
an appropriate level. Determining the appropriate level of the allowance and the
amount of the provision for loan losses involves uncertainties and matters of
judgment and therefore cannot be determined with precision.
In order to maintain the allowance at an appropriate level, First
American's loan loss methodology produced no provision for loan losses during
the second quarter of 1997 nor during the second quarter of 1996. The primary
factors leading to no provision for loan losses in the second quarters of 1997
and 1996, were the continued favorable levels of asset quality as discussed
under the caption "Asset Quality" and relatively low net loan charge-off
experience. In the second quarter of 1997 there were net charge-offs of $3.9
million which compared to net recoveries of $1.1 million in the second quarter
of 1996. Net (recoveries) charge-offs as a percentage of average loans on an
annualized basis amounted to .23% and (.07)%, respectively, in the second
quarters of 1997 and 1996. Activity in the allowance for loan losses in the
first six months of 1997 also included a $.7 million increase due to the January
1, 1997 acquisition of Hartsville. For the six months ended June 30, 1997 and
June 30, 1996, net charge-offs were $5.3 million and $1.0 million, respectively,
and net charge-offs as a percentage of average loans on an annualized basis
amounted to .16% and .03%, respectively.
The allowance for loan losses was $118.7 million at June 30, 1997, $133.6
million at June 30, 1996, and $123.3 million at December 31, 1996. The allowance
for loan losses represented 1.68% and 2.02% of net loans at June 30, 1997 and
1996, respectively, and 1.85% at December 31, 1996.
ASSET QUALITY
First American's nonperforming assets (excluding loans 90 days past due
on accrual status) were $15.8 million at June 30, 1997, $26.3 million at June
30, 1996, and $23.7 million at December 31, 1996. Nonperforming assets
(excluding loans 90 days past due on accrual status) at June 30, 1997,
represented .22% of total loans and foreclosed properties, compared to .40% at
June 30, 1996, and .36% at December 31, 1996. At June 30, 1997, nonperforming
assets were comprised of $11.3 million of non-accrual loans and $4.5 million of
foreclosed properties.
Other potential problem loans consist of loans that are currently not
considered nonperforming but on which information about possible credit problems
has caused Management to doubt the ability of the borrowers to comply fully with
present repayment terms. At June 30, 1997, such loans totaled approximately $66
million compared with approximately $88 million of such loans at June 30, 1996,
and $52 million at December 31, 1996. Depending on the economy and other
factors, these loans and others, which may not be presently identified, could
become nonperforming assets in the future.
LIABILITIES
Total deposits were $7.76 billion at June 30, 1997, an increase of $340.8
million, or 4.6%, from $7.42 billion a year earlier. Core deposits, which are
defined as total deposits excluding certificates of deposit
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$100,000 and over and foreign deposits, totaled $6.86 billion at June 30, 1997,
and $6.63 billion at June 30, 1996. Short-term borrowings increased $100.4
million, or 8.7%, to $1.25 billion at June 30, 1997, from $1.15 billion at June
30, 1996. Long-term debt decreased $32.1 million from June 30, 1996, to $317.6
million at June 30, 1997, essentially due to the reclassification of $41.5
million of fixed rate Federal Home Loan Bank ("FHLB") borrowing from long- to
short-term.
Total deposits decreased $32.1 million from $7.79 billion at December 31,
1996, to $7.76 billion at June 30, 1997. Core deposits increased $54.0 million,
short-term borrowings increased $100.5 million, and long-term debt decreased
$13.5 million from December 31, 1996, to June 30, 1997. The decrease in
long-term debt resulted primarily from the reclassification of $14.5 million of
fixed rate FHLB borrowings from long- to short-term.
DERIVATIVE INSTRUMENTS
First American has utilized off balance sheet derivative products for a
number of years in managing its interest rate sensitivity. Generally, a
derivative transaction is a payments exchange agreement whose value derives from
an underlying asset or underlying reference rate or index. The use of
non-complex, non-leveraged derivative products has reduced the Company's
exposure to changes in the interest rate environment. By using derivative
products such as interest rate swaps and futures contracts to alter the nature
of (hedge) specific assets or liabilities on the balance sheet (for example to
change a variable to a fixed rate obligation), the derivative product offsets
fluctuations in net interest income from the otherwise unhedged position. In
other words, if net interest income from the otherwise unhedged position changes
(increases or decreases) by a given amount, the derivative product should
produce close to the opposite result, making the combined amount (otherwise
unhedged position impact plus the derivative product position impact)
essentially unchanged. Derivative products have enabled First American to
improve its balance between interest-sensitive assets and interest-sensitive
liabilities by managing interest rate sensitivity, while continuing to meet the
lending and deposit needs of its customers.
In conjunction with managing interest rate sensitivity, at June 30, 1997,
First American had derivatives with notional values totaling $1.75 billion.
These derivatives had a net positive fair value (unrealized net pre-tax gain) of
$6.8 million. Notional amounts are key elements of derivative financial
instrument agreements. However, notional amounts do not represent the amounts
exchanged by the parties to derivatives and do not measure First American's
exposure to credit or market risks. The amounts exchanged are based on the
notional amounts and the other terms of the underlying derivative agreements. At
June 30, 1996, First American had derivatives with notional values totaling
$1.25 billion. These derivatives had a net positive fair value (unrealized
pre-tax gain) of $6.1 million at June 30, 1996. The instruments utilized are
noted in the following table along with their notional amounts and fair values
at June 30, 1997 and 1996.
<TABLE>
<CAPTION>
Weighted
Average
Weighted Average Rate Maturity
Related Variable Rate Notional ---------------------------- -------- Fair
(in thousands) Asset/Liability Amount Paid Received Years Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
JUNE 30, 1997
Interest rate swaps Money market deposits $ 250,000 5.80% (1) 5.79% (2) 1.7 $2,337
Interest rate swaps Loans 550,000 5.84 (3) 6.76 (1) 4.5 6,140
Forward interest rate Available for sale
swaps securities 200,000 7.01 (4) 5.84 (4) 3.4 (2,487)
Forward interest rate
swaps Money market deposits 750,000 6.37 (5) 5.81 (5) .7 772
---------- ------
$1,750,000 $6,762
=================================================================================================================================
June 30, 1996
Interest rate swaps Money market deposits $ 700,000 5.86% (1) 5.50% (2) 1.5 $5,286
Interest rate swaps Long-term debt 100,000 6.32 (1) 5.49 (3) .2 (173)
Interest rate swaps Loans 250,000 5.51 (3) 6.75 (1) 3.0 1,632
Forward interest rate Available for sale
swaps securities 100,000 7.02 (6) N/A (6) 3.9 (661)
Forward interest rate
swaps Money market deposits 100,000 6.50 (7) N/A (7) 1.9 (9)
---------- -------
$1,250,000 $ 6,075
=================================================================================================================================
</TABLE>
17
<PAGE> 18
(1) Fixed rate.
(2) Variable rate which reprices quarterly based on 3-month LIBOR except for $25
million which reprices every 6 months based on 6-month LIBOR.
(3) Variable rate which reprices quarterly based on 3-month LIBOR.
(4) Forward swap periods have become effective for $100 million and will begin
in April 1998 for $100 million. The rates to be paid are fixed and were set
at the inception of the contracts. Variable rates to be received are based
on 3-month LIBOR, repricing quarterly, but were unknown for $100 million of
forward swaps at June 30, 1997, since the related forward swap period had
not yet begun.
(5) Forward swap periods have become effective for $100 million and will begin
in September 1997 for $100 million, November 1997 for $200 million, and June
1998 for $350 million. The rates to be paid are fixed and were set at the
inception of the contracts. Variable rates to be received are based on
3-month LIBOR, repricing quarterly, but were unknown for $650 million of
forward swaps at June 30, 1997, since the related forward swap periods had
not yet begun.
(6) Forward swap periods to begin in May 1997 for $50 million and June 1997 for
$50 million. The rates to be paid are fixed and were set at the inception of
the contracts. Variable rates to be received are based on 3-month LIBOR,
repricing quarterly, but were unknown at June 30, 1996, since the forward
swap period had not yet begun.
(7) Forward swap period to begin in May 1997. The rates to be paid are fixed and
were set at the inception of the contracts. Variable rates to be received
are based on 3-month LIBOR, repricing quarterly, but were unknown at June
30, 1996, since the forward swap period had not yet begun.
As First American's individual derivative contracts approach maturity,
they may be terminated and replaced with derivatives with longer maturities
which offer more interest rate risk protection. At June 30, 1997, there were
$3.3 million of deferred net gains related to terminated derivatives contracts,
and there were $1.4 million of deferred net losses at June 30, 1996. Deferred
gains and losses on off balance sheet derivative activities are recognized as
interest income or interest expense over the original covered periods.
Net interest income for the quarter ended June 30, 1997, was increased by
derivative products income of $1.0 million. Net interest income for the quarter
ended June 30, 1996, was decreased by $4.1 million derivative products expense.
Net interest income for the six months ended June 30, 1997, was increased by
derivative products income of $1.6 million. Net interest income for the six
months ended June 30, 1996, was decreased by derivative products expense of $6.8
million. The change from derivative products net expense for year-to-date 1996
to net pretax income for year-to-date 1997 was primarily due to the reduced
amortization of deferred losses on terminated derivative contracts and changes
in the interest rate environment.
Credit risk exposure due to off-balance-sheet hedging is closely
monitored, and counterparts to these contracts are selected on the basis of
their credit worthiness, as well as their market-making ability. As of June 30,
1997, all outstanding derivative transactions were with counterparts with credit
ratings of A-2 or better. Enforceable bilateral netting contracts between First
American and its counterparts allow for the netting of gains and losses in
determining net credit exposure. First American's net credit exposure on
outstanding derivatives was $6.9 million on June 30, 1997. Given the credit
standing of the counterparts to the derivative contracts, Management believes
that this credit exposure is reasonable in light of its objectives.
CAPITAL POSITION
Total shareholders' equity was $873.0 million, or 8.41% of total assets
at June 30, 1997, $819.1 million, or 8.30% of total assets, at June 30, 1996,
and $868.7 million, or 8.35% of total assets at December 31, 1996. Book value
per share was $14.87 on June 30, 1997, $13.85 (post-split basis) per share on
June 30, 1996, and $14.66 per share (post-split basis) on December 31, 1996.
Total shareholders' equity increased $4.3 million from December 31, 1996,
principally from increases of $48.4 million of earnings retention ($69.4 million
of net income less $21.0 million of dividends), $13.5 million of common stock
issued for employee benefit and dividend reinvestment plans, and $10.1 million
of common stock issued for the acquisition of Hartsville offset principally by
the repurchase of $69.5 million of common stock. All of the First American
shares exchanged in the Hartsville transaction were repurchased during January
1997 in the open market.
On April 17, 1997, the Board of Directors authorized a 2-for-1 stock
split and a 29% increase in the quarterly cash dividend. All financial data has
been restated to reflect the impact of the stock split. In the second quarter of
1997, First American declared cash dividends on its common stock of $.20 per
share compared to $.155 per share in the second quarter of 1996 (post-split
basis). Cash dividends for the first six months of 1997 were $.355 per share
versus $.295 per share in the first six months of 1996 (post-split
18
<PAGE> 19
basis), an increase of 20%. The dividend payout ratio was 33% in the second
quarter of 1997 compared to 30% in the second quarter of 1996. The dividend
payout ratio for the six months ended June 30, 1997 and 1996 was 30% and 29%,
respectively.
The Federal Reserve Board and Office of the Comptroller of the Currency
(OCC) regulations require that bank holding companies and national banks
maintain minimum capital ratios. As of June 30, 1997, the Corporation and its
bank subsidiaries, FANB and First American National Bank of Kentucky ("FANBKY"),
had ratios which exceeded the regulatory requirements to be classified as "well
capitalized," the highest regulatory capital rating. At June 30, 1997, the
Corporation, FANB, and FANBKY had total risk-based capital ratios of 11.63%,
11.16%, and 10.59%, respectively, Tier I risk-based capital ratios of 9.19%,
9.91%, and 10.01%, respectively, and Tier I leverage capital ratios of 7.72%,
8.51%, and 5.73%, respectively. In order to be considered well capitalized, the
total risk-based capital ratio must be a minimum of 10%, the Tier I risk-based
capital ratio must equal or exceed 6%, and the Tier I leverage capital ratio
must be 5% or greater. Effective July 1, 1997, FANBKY was merged with and into
FANB.
First American Federal Savings Bank ("FAFSB") is subject to capital
requirements adopted by the Office of Thrift Supervision ("OTS"), which are
similar to those issued by the Federal Reserve Board and the OCC. At June 30,
1997, FAFSB's total risk-based capital ratio was 14.38%, its Tier I capital
ratio was 13.54% of risk based weighted assets, and its core (leverage) capital
ratio was 6.46%, all of which exceeded the minimum ratios established by the
OTS.
On July 17, 1997, the Board of Directors authorized the repurchase of up to
4.0 million additional shares of the Corporation's common stock to fund its
various employee benefit plans, dividend reinvestment plans and potential future
acquisitions.
LIQUIDITY
Liquidity management consists of maintaining sufficient cash levels to
fund operations and to meet the requirements of borrowers, depositors, and
creditors. Liquid assets, which include cash and cash equivalents (less Federal
Reserve Bank reserve requirements), money market instruments, and securities
that will mature within one year, amounted to $905.1 million and $801.6 million
at June 30, 1997 and 1996, respectively. The estimated average maturity of
securities was 3.8 years and 4.7 years at June 30, 1997 and 1996, respectively.
The average repricing life of the total securities portfolio was 2.8 years and
2.3 years at June 30, 1997 and 1996, respectively. The overall liquidity
position of First American is further enhanced by a high proportion of core
deposits, which provide a stable funding base. Core deposits comprised 88% of
total deposits at June 30, 1997, versus 89% at June 30, 1996.
An additional source of liquidity is the Corporation's three year $70
million revolving credit agreement which will expire March 31, 1998. First
American had no borrowings under this agreement during 1996 or 1997.
19
<PAGE> 20
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The information called for by this item is incorporated by reference
to Item 3 of the Registrant's annual report on Form 10-K for the year
ended December 31, 1996, and Note 9 to the Corporation's Consolidated
Financial Statements for the quarter ended June 30, 1997 included
herein.
Item 4. Submission of Matters to a Vote of Security Holders
(a) An annual meeting of shareholders was held on April 17, 1997.
(b) At the annual meeting, the shareholders voted on four proposals. The
description of each proposal, including a tabulation of votes, is as
follows:
Proposal 1. Election of directors.
<TABLE>
<CAPTION>
Name For Against Abstain
---- --- ------- -------
<S> <C> <C> <C>
Dennis C. Bottorff 25,370,247 30,112 51,848
James A. Haslam II 25,367,450 32,909 51,848
Walter G. Knestrick 25,367,971 31,378 52,859
Robert A. McCabe, Jr. 25,366,098 34,461 51,648
Celia A. Wallace 25,359,683 40,516 52,008
David K. Wilson 25,350,823 54,714 56,671
Toby S. Wilt 25,370,106 30,254 51,848
</TABLE>
The name of each other director whose term of office as a director
continued after the annual meeting is as follows: (until 1998 meeting)
Sam H. Anderson, Jr., Reginald D. Dickson, Gene C. Koonce, Dale W.
Polley, James F. Smith, Jr., Cal Turner, Jr., and Ted H. Welch; (until
1999 meeting) Earnest W. Deavenport, Jr., Martha R. Ingram, James R.
Martin, Roscoe R. Robinson and William S. Wire II.
Proposal 2. Approval of annual incentive compensation terms for
certain executives:
For Against Abstain
--- ------- -------
25,539,259 1,074,581 385,322
Proposal 3. Approval of long-term performance incentive
compensation terms for key executives:
For Against Abstain
--- ------- -------
23,447,225 1,155,957 395,989
Proposal 4. Approval of an amendment to the Corporation's 1991
Employee Stock Incentive Plan increasing the number of
shares of common stock reserved thereunder by 1,400,000
shares:
For Against Abstain
--- ------- -------
21,643,260 3,250,054 367,002
20
<PAGE> 21
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------
<S> <C>
3.1 Restated Charter of the Registrant currently in effect as
amended and corrected is incorporated herein by reference to
Exhibit 3.1 of the Registrant's Form 10-Q for the period
ended March 31, 1997.
3.2 By-laws of the Registrant currently in effect as amended January
16, 1997, are incorporated herein by reference to Exhibit 3.2 of
the Registrant's Annual Report on Form 10-K for the year ended
December 31, 1996.
11 Statement regarding computation of per share earnings is
included in Note 7 to the Consolidated Financial Statements for
the quarter ended June 30, 1997. See Part 1, Item 1.
15 Letter regarding unaudited interim financial information from
KPMG Peat Marwick LLP, dated July 17, 1997.
27 Financial Data Schedule for interim year-to-date period ended
June 30, 1997. (For SEC use only)
</TABLE>
(b) Reports on Form 8-K
A report on Form 8-K dated April 17, 1997, was voluntarily filed
under Item 5 disclosing that the Corporation's board of directors
declared a 2-for-1 stock split on the Corporation's common stock,
$5.00 par value, to shareholders of record April 28, 1997, payable
May 9, 1997, as a result of which each of the Corporation's
authorized shares of common stock, with a par value of $5.00, will
be converted to two shares of common stock, with a par value of
$2.50.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST AMERICAN CORPORATION
--------------------------
(Registrant)
/s/ Dale W. Polley
-----------------------------------------
Dale W. Polley
President and Principal Financial Officer
Date: August 13, 1997
-----------------------------------
22
<PAGE> 1
Exhibit 15. Letter regarding unaudited interim financial information from KPMG
Peat Marwick LLP
Independent Auditors' Review Report
The Board of Directors and Shareholders
First American Corporation:
We have reviewed the consolidated balance sheets of First American Corporation
and subsidiaries as of June 30, 1997 and 1996, and the related consolidated
income statements, changes in shareholders' equity and cash flows for the
three-month and six-month periods ended June 30, 1997 and 1996. These
consolidated financial statements are the responsibility of the Corporation's
management.
We conducted our reviews in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures to
financial data and making inquiries of persons responsible for financial and
accounting matters. It is substantially less in scope than an audit conducted in
accordance with generally accepted auditing standards, the objective of which is
the expression of an opinion regarding the financial statements taken as a
whole. Accordingly, we do not express such an opinion.
Based on our reviews, we are not aware of any material modifications that should
be made to the consolidated financial statements referred to above for them to
be in conformity with generally accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet of First American Corporation and
subsidiaries as of December 31, 1996; and the related consolidated income
statements, changes in shareholders' equity and cash flows for the year then
ended (not presented herein); and in our report dated January 16, 1997, we
expressed an unqualified opinion on those consolidated financial statements. In
our opinion, the information set forth in the accompanying consolidated balance
sheet as of December 31, 1996, is fairly stated, in all material respects, in
relation to the consolidated balance sheet from which it has been derived.
/s/ KPMG Peat Marwick LLP
- -------------------------------
July 17, 1997
Nashville, Tennessee
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 551,533
<INT-BEARING-DEPOSITS> 8,039
<FED-FUNDS-SOLD> 59,041
<TRADING-ASSETS> 57,154
<INVESTMENTS-HELD-FOR-SALE> 1,558,826
<INVESTMENTS-CARRYING> 738,690
<INVESTMENTS-MARKET> 739,309
<LOANS> 7,050,436
<ALLOWANCE> 118,695
<TOTAL-ASSETS> 10,380,021
<DEPOSITS> 7,760,829
<SHORT-TERM> 1,254,915
<LIABILITIES-OTHER> 173,623
<LONG-TERM> 317,627
0
0
<COMMON> 146,801
<OTHER-SE> 726,226
<TOTAL-LIABILITIES-AND-EQUITY> 10,380,021
<INTEREST-LOAN> 280,663
<INTEREST-INVEST> 80,340
<INTEREST-OTHER> 3,933
<INTEREST-TOTAL> 364,936
<INTEREST-DEPOSIT> 141,567
<INTEREST-EXPENSE> 178,453
<INTEREST-INCOME-NET> 186,483
<LOAN-LOSSES> 0
<SECURITIES-GAINS> 766
<EXPENSE-OTHER> 198,578
<INCOME-PRETAX> 112,495
<INCOME-PRE-EXTRAORDINARY> 112,495
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,371
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 0
<YIELD-ACTUAL> 4.05
<LOANS-NON> 11,254
<LOANS-PAST> 13,421
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 65,831
<ALLOWANCE-OPEN> 123,265
<CHARGE-OFFS> 13,964
<RECOVERIES> 8,683
<ALLOWANCE-CLOSE> 118,695
<ALLOWANCE-DOMESTIC> 69,344
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 49,351
</TABLE>
