FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1996
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 0-7638
FIRST MICHIGAN BANK CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2024376
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Financial Plaza, Holland, Michigan 49423
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 355-9200
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
The number of shares outstanding of each of the issuers classes of
common stock, as of the latest practicable date: 26,300,795 shares of the
Company's Common Stock ($1 par value) were outstanding as of October 31,
1996.
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Financial Statements 3
Notes to Consolidated Financial Statements 6
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations 6
Part II. Other Information 13
Item 6.
Exhibits and Reports on Form 8-K 13
Signatures 14
<PAGE>
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
September 30, December 31, September 30,
1996 1995 1995
------ ------ -----
(dollars in thousands)
<S> <C> <C> <C>
Assets
Cash and due from banks ............... $ 153,529 $ 128,168 $ 113,241
Federal funds sold .................... 15,800 117,100 52,500
--------- --------- --------
Total cash and cash equivalents .... 169,329 245,268 165,741
Interest bearing deposits with banks .. 1,349 5,361 6,914
Securities:
Available-for-sale .................. 440,427 323,503 201,899
Held-to-maturity (market values
$309,818, $362,787 and $505,327,
respectively) ...................... 301,079 355,412 501,209
Loans ................................. 2,421,875 2,216,947 2,159,353
Allowance for loan losses ............. (30,967) (28,163 (27,217)
Premises and equipment ................ 68,875 68,551 67,809
Other assets .......................... 60,496 53,728 52,316
--------- --------- ---------
Total assets ....................... $ 3,432,463 $ 3,240,607 $3,128,024
========= ========= =========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing .................. $ 352,031 $ 337,238 $ 317,129
Interest bearing:
Savings and NOW accounts ............ 989,444 893,732 907,279
Time ................................ 1,636,104 1,582,590 1,495,840
--------- --------- ---------
Total deposits ..................... 2,977,579 2,813,560 2,720,248
Short-term borrowings ................... 122,470 134,323 125,239
Other liabilities ....................... 37,095 33,218 30,050
Long-term debt .......................... 29,714 5,678 7,125
--------- --------- ---------
Total liabilities .................. 3,166,858 2,986,779 2,882,662
--------- --------- ---------
Shareholders' equity:
Preferred stock - no par value;
1,000,000 shares authorized .......... -- -- --
Common stock - $1 par value;
50,000,000 shares authorized;
issued and outstanding:
26,277,243, 18,848,338 and
18,798,826, respectively ............. 26,277 18,848 18,799
Surplus ............................... 163,302 146,930 146,007
Retained earnings ..................... 76,703 86,232 79,816
Securities valuation, net of tax ...... (677) 1,818 740
--------- --------- ---------
Total shareholders' equity ......... 265,605 253,828 245,362
--------- --------- ---------
Total liabilities and
shareholders' equity .. $3,432,463 $ 3,240,607 $3,128,024
========= ========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Three months ended Nine months ended
September 30, September 30,
1996 1995 1996 1995
---- ---- ---- ----
(in thousands, except for per share data)
<S> <C> <C> <C> <C>
Interest Income
Interest and fees on loans ...... $56,533 $51,794 $163,429 $149,027
Interest on securities:
Taxable ....................... 8,203 7,255 23,697 22,128
Tax-exempt .................... 3,219 3,425 9,716 10,467
Other interest income ........... 182 928 1,743 1,675
-------- -------- ------- --------
Total interest income ........ 68,137 63,402 198,585 183,297
-------- -------- ------- --------
Interest Expense
Interest on deposits ............ 30,548 29,171 89,587 83,150
Interest on short-term borrowings 1,718 1,346 4,893 4,398
Interest on long-term debt ...... 243 170 498 533
-------- -------- -------- --------
Total interest expense ....... 32,509 30,687 94,978 88,081
-------- -------- -------- --------
Net Interest Income ............... 35,628 32,715 103,607 95,216
Provision for loan losses ....... 2,728 2,064 7,417 5,833
-------- -------- -------- --------
Net interest income after
provision for loan losses 32,900 30,651 96,190 89,383
-------- -------- -------- --------
Non-Interest Income
Service charges on deposits ..... 3,674 3,225 10,490 9,480
Trust income .................... 1,949 1,825 5,965 5,288
Other operating income .......... 3,732 2,899 10,340 7,744
Securities gains (losses) ....... 0 18 (84) 36
-------- -------- -------- --------
Total non-interest income .... 9,355 7,967 26,711 22,548
-------- -------- -------- --------
Non-Interest Expense
Salaries and employee benefits .. 15,013 14,323 44,195 41,014
Occupancy ....................... 1,750 1,662 5,363 4,943
Equipment ....................... 1,751 1,547 5,152 4,450
FDIC insurance .................. 7 (145) 21 2,642
Other operating ................. 8,466 7,997 25,700 22,462
-------- -------- -------- --------
Total non-interest expense ... 26,987 25,384 80,431 75,511
-------- -------- -------- --------
Income Before Income Taxes ........ 15,268 13,234 42,470 36,420
Income taxes .................... 4,287 3,523 11,709 9,353
-------- -------- -------- --------
Net Income ........................ $10,981 $9,711 $30 27,067
======== ======== ======== ========
Net income per share .............. $.41 $.37 $1.15 $1.02
Cash dividends declared
per share ...................... .16 .14 .47 .40
Average shares outstanding
(in thousands) ................. 26,749 26,669 26,773 26,619
See accompanying notes to financial statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Nine months ended September 30,
1996 1995
----- -----
<S> <C> <C>
Cash Flows From Operating Activities
Net income ......................................... $ 30,761 $ 27,067
Adjustments to reconcile
net income to net cash provided
by operating activities:
Provision for loan losses ...................... 7,417 5,833
Origination of loans for sale
in secondary market ......................... (167,382) (105,643)
Proceeds from sale of loans .................... 168,404 106,399
Gain on sale of loans .......................... (1,022) (756)
Realized securities (gains) losses ............. 84 (36)
Provision for depreciation,
amortization and accretion .................. 3,554 5,258
Deferred income taxes .......................... (724) (52)
Increase in interest receivable ................ (1,557) (1,906)
Increase (decrease) in interest
payable ..................................... (707) 2,919
Other - net .................................... 2,499 3,321
--------- ---------
Total adjustments .............................. 10,566 15,337
--------- ---------
Net cash provided by
operating activities ...................... 41,327 42,404
--------- ---------
Cash Flows From Investing Activities
Net (increase) decrease in interest
bearing deposits with banks ...................... 4,012 (2,948)
Purchase of securities available-for-sale ............ (216,898) (81,716)
Proceeds from sales of securities
available-for-sale ............................... 27,906 4,098
Proceeds from maturities and prepayments
of securities available-for-sale
75,733 17,623
Purchase of securities held-to-maturity .............. (11,530) (4,731)
Proceeds from maturities and prepayments
of securities held-to-maturity ................... 60,420 95,945
Net increase in loans ................................ (208,789) (203,126)
Purchase of premises and equipment and
other assets ..................................... (8,207) (8,345)
--------- ---------
Net cash used in investing activities ........ (277,353) (183,200)
--------- ---------
Cash Flows From Financing Activities
Net increase in non-interest bearing
demand, savings and NOW deposit accounts
110,505 12,727
Net increase in time deposits ........................ 53,514 219,688
Net increase (decrease) in short-term
borrowings ........................................ 13,147 (47,540)
Repayment of long-term debt .......................... (964) (937)
Cash dividends and fractional shares ................. (11,868) (9,931)
Proceeds from sales of stock ......................... 4,258 3,176
Common stock repurchased ............................. (8,505) (1,780)
--------- ---------
Net cash provided by financing
activities ................................. 160,087 175,403
--------- ---------
Increase (decrease) in Cash and
Cash Equivalents ................................. (75,939) 34,607
Cash and Cash Equivalents, beginning
of period ........................................ 245,268 131,134
--------- ---------
Cash and Cash Equivalents, end of period ............. $ 169,329 $ 165,741
========= =========
See accompanying notes to financial statements.
</TABLE>
<PAGE>
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
1. In the opinion of management of the Company, the unaudited consolidated
financial statements contained herein include all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
consolidated financial position of the Company as of September 30, 1996,
September 30, 1995 and December 31, 1995 and consolidated results of
operations for the three months and nine months ended September 30, 1996
and 1995.
2. On April 15, 1996, the Company acquired Arcadia Financial Corporation
(Arcadia), a one-bank holding company located in Kalamazoo, Michigan,
through the issuance of 653,749 shares of common stock (915,246 shares
adjusted for the May, 1996 stock dividend and the July, 1996 four-for-three
stock split). The acquisition has been accounted for as a
pooling-of-interests. Accordingly, the accompanying consolidated financial
statements have been restated to include the balances and results of
operations of Arcadia prior to acquisition.
3 Effective January 1, 1996, the Company adopted the accounting provisions
for the capitalization of mortgage servicing rights promulgated by
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights" ("SFAS No. 122"). Prior to the adoption of SFAS
No. 122, only purchased mortgaging servicing rights were subject to
capitalization, and the Company had no such activity.
4. On June 14, 1996, the Board of Directors of the Company approved a
four-for-three split on common shares outstanding, payable July 26, 1996 to
shareholders of record July 1, 1996. Accordingly, average share data and
earnings per share have been retroactively adjusted for the stock split.
5. In mid-September, the Company signed a definitive agreement to purchase
from another bank three branches that will expand certain markets already
served by the Company's subsidiary banks. Only the fixed assets and the
deposit liabilities approximating $35 million will be acquired. The
purchase is expected to be consummated in the fourth quarter 1996.
6. The results of operations for the three months and nine months ended
September 30, 1996 are not necessarily indicative of the results to be
expected for the full year.
7. The accompanying unaudited consolidated financial statements should be read
in conjunction with the Notes to Consolidated Financial Statements
contained in the Registrant's Form 10-K for the year ended December 31,
1995.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the Company's results of operations for the
three months ended September 30, 1996 and 1995, and also provides information
relating to the Company's financial condition, focusing on its liquidity and
capital resources.
Net income of $10,981,000 for the three months ended September 30, 1996
increased 13.1% from the $9,711,000 earned during the three months ended
September 30, 1995. Earnings per share for the third quarter 1996 were $.41
versus $.37 for the same period in 1995. The net income increase resulted from
<PAGE>
improvements in net interest income and in virtually all categories of
non-interest income. Partially offsetting the revenue increases was an addition
to the loan loss provision and increases in non-interest expense. These changes
are addressed in the analyses that follow.
<TABLE>
Net Interest Income Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
------- ------- -------- --------
<S> <C> <C> <C> <C>
Interest income ............ $ 68,137 $ 63,402 $198,585 $183,297
Interest expense ........... 32,509 30,687 94,978 88,081
-------- -------- -------- --------
Net interest income ........ $ 35,628 $ 32,715 $103,607 $ 95,216
======== ======== ======== ========
</TABLE>
The Company's third quarter 1996 net interest income of $35,628,000 increased by
$2,913,000 (8.9%) when compared with the same period of 1995. As shown in the
following table, in the third quarter of 1996 the rate on interest earning
assets at 8.91% reflected a decline of 8 basis points from the year-ago period,
while the rate for interest bearing liabilities decreased 7 basis points from
4.85 to 4.78. These changes resulted in a decrease of 1 basis point in the
interest spread for the comparative third quarters. The net interest margin
remained unchanged at 4.77% for the third quarter 1996 and 1995. Year-to-date,
the Company's net interest spread declined 4 basis points, while its net
interest margin also decreased 4 basis points from 4.77% to 4.73%. The following
table shows a comparison of average volumes, effective yields earned, and rates
paid during the comparable periods.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1
INTEREST EARNING ASSETS AND INTEREST BEARING
LIABILITIES BY MAJOR CATEGORIES
September 30, 1996 and 1995
---------------------------Third Quarter Averages--------------------
Volumes In Thousands Yield Earned/
of Dollars Rate Paid
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Earning Assets
Loans $2,377,852 $2,128,136 9.51% 9.71%
Securities:
Taxable 525,735 479,953 6.19 5.99
Tax-exempt 206,419 213,629 9.27 9.51
Short-term investments 14,115 65,551 5.13 5.62
----------- -----------
Total interest earning assets 3,124,121 2,887,269 8.91 8.99
--------- ---------
Interest Bearing Liabilities
Savings deposits 959,638 891,801 2.99 3.03
Time deposits 1,589,003 1,482,848 5.84 5.98
Short-term borrowings 145,912 127,302 4.70 4.20
Long-term debt 12,866 7,144 7.53 9.55
----------- -----------
Total interest bearing liabilities 2,707,419 2,509,095 4.78 4.85
--------- ---------
Interest spread $ 416,702 $ 378,174 4.13% 4.14%
========== ========== ==== ====
Net interest income margin 4.77% 4.77%
==== ====
</TABLE>
<TABLE>
---------------------------Year-to-date Averages----------------------
Volumes In Thousands Yield Earned/
of Dollars Rate Paid
1996 1995 1996 1995
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Earning Assets
Loans $2,304,020 $2,067,372 9.50% 9.67%
Securities:
Taxable 514,137 491,599 6.11 5.97
Tax-exempt 206,365 220,051 9.34 9.42
Short-term investments 42,783 38,872 5.44 5.76
----------- -----------
Total interest earning assets 3,067,305 2,817,894 8.87 8.95
--------- ---------
Interest Bearing Liabilities
Savings deposits 931,443 886,458 2.89 3.19
Time deposits 1,576,649 1,429,487 5.88 5.80
Short-term borrowings 147,577 132,613 4.43 4.43
Long-term debt 7,782 7,426 8.53 9.57
----------- -----------
Total interest bearing liabilities 2,663,451 2,455,984 4.76 4.79
--------- ---------
Interest spread $ 403,854 $ 361,910 4.11% 4.16%
========== ========== ==== ====
Net interest income margin 4.73% 4.77%
==== ====
</TABLE>
Average yields in the above table have been adjusted to a tax-equivalent basis,
and are computed using amortized cost for the securities portfolio. Non-accruing
loans are not significant for the periods presented and are included in the
average loan volumes above.
<PAGE>
Interest Earning Assets/ Interest Income
Interest income for the third quarter of 1996 increased $4,735,000 (7.5%) from
the third quarter of 1995. This is due to an 8.2% increase in average total
volume of earning assets during the third quarter 1996 versus 1995 offset, in
part, by the 8 basis point decline in the average yield on earning assets from
the year-ago quarter as indicated in the previous table. The average loan volume
for the third quarter 1996 increased by $249,716,000 over the average of the
year ago period. Short term investment volumes declined by over $51 million as
funds were allocated to the loan portfolios and to the $38,572,000 increase in
average securities volumes. Average quarterly volumes in the loan portfolios
increased 11.7% from those of the third quarter 1995. Growth was well balanced
with mortgage, commercial and installment loans all showing double digit volume
increases versus the prior year period averages.
With the above referenced increasing loan demand there has been a smaller growth
(5.6%) in the average volume of investment securities. Increases in the overall
taxable portfolio yield between the periods reflects the gradually rising market
of investment security yields in the last year.
Interest Bearing Liabilities/Interest Expense
The average volume of interest bearing liabilities increased by $198,324,000
when compared to the third quarter 1995. The majority of this 7.9% increase
occurred in the time deposit category as reflected in the previous table. This
is due in large part to growth in large certificates of deposit. However, strong
growth was also seen in other time deposit categories having maturities of up to
24 months. The rate paid on time deposits declined by 14 basis points from third
quarter 1995 levels. Savings deposit average volumes increased by over $67
million. Virtually all of this was in regular savings accounts. The average rate
paid on short-term borrowings increased by 50 basis points primarily due to a
change in the mix of borrowings in this category. Quarterly volumes in the
Company's Cash Investment Checking product between the third quarter 1996 and
1995 declined and were replaced by relatively higher costing funds in federal
funds purchased and other borrowed funds. The average rate and volume changes on
long term debt reflect the mid-quarter conversion of a $25,000,000 standby loan
agreement to a term loan due in the year 2002. The interest rate on this term
loan is seven-tenths of a percent over the daily federal funds rate. The overall
rate on quarterly average interest bearing liabilities decreased 7 basis points
to 4.78% in this quarter from the third quarter 1995 average rate of 4.85%.
Asset/Liability Management
The Company maintains an asset/liability management process whereby strategies
are developed and implemented to maintain the proper level of liquidity while
maximizing net interest income and minimizing the impact on earnings from major
interest rate changes. Particular attention is placed on the Company's interest
sensitivity, which is the degree net interest income is affected by a change in
market interest rates. Monitoring the balance of assets and liabilities that are
rate sensitive within 90 days and one year is a continuing aspect of this
process. When a cumulative rate sensitive ratio of 1.00 is maintained, both the
interest income and the interest expense increase or decline in tandem with
changes in market interest rates, with the net interest income of the Company
not changing significantly as a direct result.
Liquidity is monitored in order to meet the needs of customers, such as
depositors withdrawing funds or borrowers requesting funds to meet their credit
needs. The Company's current internal and external sources of funds are adequate
to meet its liquidity needs.
Deposit gathering is a principal source of funds for the Company. Development of
consumer deposits is achieved by paying competitive rates and by maintaining an
active marketing program. Larger certificates of deposit, issued to public
authorities and the private sector, also provide an important source of funds
for the Company. These certificates of deposit are purchased primarily from
within the Company's market areas and are considered a reliable source of funds.
<PAGE>
The Company also purchases brokered certificates of deposit (CDs) from time to
time for varying periods of up to three years. Such purchases, when they occur,
are made within established Company guidelines. Current balances represent
approximately 8% of large CDs and less than 2% of total deposits. The Company
made no brokered CD purchases during the current quarter.
Another principal source of funds derives from routine payments on loans and the
maturities of loans and securities. The Company's securities portfolio is
invested almost exclusively in investment grade issues. The Company transferred
securities with an amortized cost of $110,674,000 from the held- to-maturity
(HTM) category to available-for-sale (AFS) on December 27, 1995 as allowed by
the transition provisions in the guide to implementation of Statement of
Accounting Standards No. 115 issued in November 1995. The balance sheet change
between these two securities classifications is due primarily to this transfer,
as well as purchases (primarily in the AFS category) from the proceeds of
maturities of both HTM and AFS and sales of AFS since the end of the third
quarter of 1995.
Externally, the Company has the ability to enter the federal funds market as a
purchaser to meet daily liquidity needs. In addition, the Company has the
ability to enter into funding arrangements with other financial institutions.
<TABLE>
Allowance for Loan Losses Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
------ ------ ------- -------
<S> <C> <C> <C> <C>
Balance, at beginning of period $30,363 $26,390 $28,163 $24,839
Provision for loan losses 2,728 2,064 7,417 5,833
Loans charged-off (2,712) (1,803) (6,467) (5,041)
Recoveries of loans previously charged-off 588 566 1,854 1,586
-------- ------- ------ ------
Balance, at end of period $ 30,967 $27,217 $30,967 $27,217
======= ====== ====== ======
</TABLE>
The provision for loan losses increased $664,000 for the third quarter versus
the 1995 period. The provision for the third quarter 1996 is consistent with
management's evaluation of the loan portfolio and its recent growth and higher
levels of loans charged-off during the quarter, particularly in the consumer
loan category. The reserve for loan losses as a percent of loans at September
30, 1996 was 1.28%, up 1 basis point from 1.27% at December 31, 1995.
In assessing the adequacy of the loan loss allowance, management considers many
factors, including changes in the type and volume of the loan portfolio, past
loan loss experience, existing and anticipated economic conditions and other
factors that might be pertinent. The amount actually provided in any period may
be more or less than actual net loan charge-offs for that period.
Net charge-offs in the third quarter 1996 increased by $887,000 compared to the
third quarter 1995. Net charge-offs as a percent of average loans outstanding
during the quarter were .36% for the third quarter of 1996 and .23% in 1995.
This ratio is within the range of management's expectations and is considered a
reflection of prudent lending practices. Non-accrual, past due 90 day and
renegotiated loans in total were .66% and .48% of total loans outstanding at
September 30, 1996 and September 30, 1995 respectively. The Company compares
favorably with the banking industry nationwide in these credit ratios. Both the
net charge-off and nonperforming ratios are at recent highs, however, they are
below the Company's targeted thresholds.
Following are the balances constituting the nonperforming assets and loans 90
days past due and still accruing as of the end of the respective periods.
<PAGE>
<TABLE>
September 30,
1996 1995
(in thousands)
<S> <C> <C>
Non-accrual loans $7,546 $5,530
Renegotiated loans 551 1,236
Other real estate owned 711 1,798
------ -----
Total nonperforming assets $8,808 $8,564
===== =====
Loans 90 days past due $7,919 $3,569
===== =====
</TABLE>
<TABLE>
Non-interest Income Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
-------- -------- ------- ------
<S> <C> <C> <C> <C>
Total $ 9,355 $ 7,967 $26,711 $22,548
====== ====== ====== ======
</TABLE>
Non-interest income, which includes service charges on deposit accounts, loan
fees, trust and investment management fees, other operating income and
securities transactions, increased $1,388,000 (17.4%) during the three months
ended September 30, 1996 compared to the same period in 1995. The largest
increase amounting to approximately $449,000 was seen in service charges on
deposits which was due, primarily, to changes in product pricing. Non-interest
income was also favorably impacted both by mortgage banking, which consists of
mortgage loan origination, sales and servicing, and by trust and financial
services revenue improvements. Mortgage banking revenues increased by $329,000
while trust and investment management fees increased by $124,000 (6.8%) over the
year ago period. This is due both to asset growth in managed mutual funds and to
trust account asset increases. There were no securities transactions in the
third quarter 1996 compared to a gain of $18,000 in the year ago quarter.
<TABLE>
Non-interest Expense Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
-------- -------- ------ ------
<S> <C> <C> <C> <C>
Total $26,987 $25,384 $80,431 $75,511
====== ====== ====== ======
</TABLE>
Non-interest expense increased $1,603,000 (6.3%) when comparing the third
quarter of 1996 with 1995. Salary and benefits increased by 4.9% between the
third quarter 1996 and 1995. This approximates the level of annual merit and
promotional increases during the year on a corporate-wide basis. Other operating
expense increases occurred in communications expenses, computer processing and
software support, which are related to the improved delivery of retail products
and services. Federal Deposit Insurance Corporation (FDIC) insurance premiums
were virtually eliminated beginning in the third quarter of 1995 as a result of
the Bank Insurance Fund (BIF) achieving the statutory level for the reduction of
premiums. Management expects FDIC insurance premiums to be nominal in future
periods presuming the continued maintenance of the BIF at its current ratio and
the Company maintaining the appropriate risk-based capital levels.
<TABLE>
Income Tax Expense Third Quarter Year-to-Date
(in thousands) 1996 1995 1996 1995
------- ------- -------- ------
<S> <C> <C> <C> <C>
Total $4,287 $3,523 $11,709 $9,353
===== ===== ====== =====
</TABLE>
Fluctuations in income taxes result primarily from changes in the level of
profitability and variations in the amount of tax-exempt income. The increase in
pre-tax income and decline in tax-exempt income account for the increased income
tax expense between the periods. The level of tax-exempt income in the third
quarter 1996 declined by approximately $163,000 from 1995.
<PAGE>
Capital
Following is a statement of changes in shareholders' equity, restated for the
acquisition of Arcadia on a pooling of interests basis, for the nine month
period ended September 30, 1996 (in thousands):
<TABLE>
<S> <C>
Shareholders' Equity at December 31, 1995 $253,828
Net income 30,761
Shares issued upon exercise of employee stock option plans 890
Shares issued under dividend reinvestment and employee and director
stock purchase plans 3,368
Dividends to shareholders (12,242)
Change in securities valuation, net of tax (2,495)
Common stock repurchased (8,505)
--------
Shareholders' Equity at September 30, 1996 $265,605
=======
</TABLE>
Shareholder's equity is the Company's principal capital base and it is important
that it increase along with the growth in total assets in order for adequate
capital ratios to be maintained. The ratio of equity to total assets at
September 30, 1996 was 7.7% and 7.8% at December 31, 1995.
The Federal Reserve Board provides guidelines for the measurement of capital
adequacy of bank holding companies. The Company's capital, as adjusted under
these guidelines, is referred to as risk-based capital. The Company's Tier 1
risk-based capital ratio at September 30, 1996 was 10.2%, and the total
risk-based capital ratio was 11.6%. Minimum regulatory Tier 1 risk-based and
total risk-based capital ratios under the Federal Reserve Board guidelines are
4% and 8% respectively.
These same capital ratios are applied at the subsidiary bank level by the
Federal Deposit Insurance Corporation under which a well-capitalized bank is
defined as one with at least a 10% risk-based capital level. All Company
subsidiary banks met this definition at September 30, 1996 and December 31,
1995.
The capital guidelines also provide for a standard to measure risk-based capital
to total assets. This is referred to as the leverage ratio. The Company's
leverage ratio at September 30, 1996 was 7.8%. The minimum standard leverage
ratio is 3%, and virtually all financial institutions subject to these
requirements are expected to maintain a leverage ratio of 1 to 2 percentage
points above the 3% minimum.
In addition to shareholders' equity, the Company had long-term debt of
$29,714,000 at September 30, 1996 and $5,678,000 at December 31, 1995. The
increase in long-term debt during the third quarter 1996 was attributable to the
conversion to a term loan of $25,000,000 previously advanced on a stand-by loan.
Of this, $15,000,000 had been advanced since December 31, 1995. The conversion
was effective on August 15, 1996 as discussed in Note 7 to the consolidated
financial statements contained in the Registrant's Form 10-K for the year ended
December 31, 1995.
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See exhibit index on page 16.
(b) Reports on Form 8-K
There were no reports on Form 8-K filed during the third quarter 1996.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended September 30, 1996 to be signed on its behalf by the undersigned hereunto
duly authorized.
FIRST MICHIGAN BANK CORPORATION
/s/ Larry D. Fredricks
Larry D. Fredricks
(Executive Vice President and Chief
Financial Officer)
/s/ William F. Anderson
William F. Anderson
(Vice President and Controller)
DATE: November 12, 1996
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith.
Exhibits Page
(11) Computation of Earnings Per Share 16
<PAGE>
<TABLE>
<CAPTION>
Part I, Exhibit (11)
COMPUTATION OF EARNINGS PER SHARE
FIRST MICHIGAN BANK CORPORATION
Three Months Nine months
ended September 30, ended September 30,
1996 1995 1996 1995
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Average shares outstanding 26,299.6 26,311.4 26,348.5 26,289.1
Net effect of the assumed exercise of stock options
(based on the treasury stock method using higher
of either ending or average) 449.6 357.3 424.1 329.8
---------- ---------- --------- ---------
Total shares 26,749.2 26,668.7 26,772.6 26,618.9
======== ======== ======== ========
Net income $ 10,981 $ 9,711 $ 30,761 $ 27,067
======== ======== ======== =========
Per share amount $ .41 $ .37 $ 1.15 $ 1.02
====== ====== ====== ======
</TABLE>
<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC Form
10-Q and is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-mos
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 153,529
<INT-BEARING-DEPOSITS> 1,349
<FED-FUNDS-SOLD> 15,800
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 440,427
<INVESTMENTS-CARRYING> 301,079
<INVESTMENTS-MARKET> 309,818
<LOANS> 2,421,875
<ALLOWANCE> 30,967
<TOTAL-ASSETS> 3,432,463
<DEPOSITS> 2,977,579
<SHORT-TERM> 122,470
<LIABILITIES-OTHER> 37,095
<LONG-TERM> 29,714
0
0
<COMMON> 26,277
<OTHER-SE> 239,328
<TOTAL-LIABILITIES-AND-EQUITY> 3,432,463
<INTEREST-LOAN> 163,429
<INTEREST-INVEST> 33,413
<INTEREST-OTHER> 1,743
<INTEREST-TOTAL> 198,585
<INTEREST-DEPOSIT> 89,587
<INTEREST-EXPENSE> 94,978
<INTEREST-INCOME-NET> 103,607
<LOAN-LOSSES> 7,417
<SECURITIES-GAINS> (84)
<EXPENSE-OTHER> 80,431
<INCOME-PRETAX> 42,470
<INCOME-PRE-EXTRAORDINARY> 30,761
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 30,761
<EPS-PRIMARY> 1.15
<EPS-DILUTED> 1.15
<YIELD-ACTUAL> 4.73
<LOANS-NON> 7,546
<LOANS-PAST> 7,919
<LOANS-TROUBLED> 551
<LOANS-PROBLEM> 937
<ALLOWANCE-OPEN> 28,163
<CHARGE-OFFS> 6,467
<RECOVERIES> 1,854
<ALLOWANCE-CLOSE> 30,967
<ALLOWANCE-DOMESTIC> 30,967
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
