SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1995 Commission File
Number 0-7638
FIRST MICHIGAN BANK CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-2024376
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
One Financial Plaza, Holland, Michigan 49423
(Address of principal executive offices) (Zip Code)
(616) 355-9200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $1 Par Value
(Title of Class)
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X . No .
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by
"non-affiliates" of the Registrant (for this purpose only, the affiliates
of the Registrant have been assumed to be the executive officers and
directors of the Registrant and their associates) on March 1, 1996: Common
Stock, $1.00 Par Value - $509,050,000 (Based on $28.50 per share which was
the closing price in the over-the-counter market as quoted by "NASDAQ" on
March 1, 1996. Reference is made to Item 5, Part II for further information.)
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practical date.
Common Stock, $1.00 Par Value - 18,197,655 shares Outstanding as of
March 1, 1996.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's proxy statement for its annual meeting to be held
April 18, 1996 are incorporated by reference into Part III.
PART I
ITEM 1. BUSINESS OF FIRST MICHIGAN BANK CORPORATION
The Registrant was incorporated under the laws of the State of Michigan on
August 15, 1973. The Registrant was incorporated by the management of FMB-
First Michigan Bank for the purpose of acquiring all the outstanding stock
of the FMB-First Michigan Bank and becoming a bank holding company. As used
herein, the term "Registrant" refers to First Michigan Bank Corporation or,
if the context dictates, to First Michigan Bank Corporation and its wholly-
owned subsidiaries.
The Registrant is a bank holding company as defined in the Bank Holding
Company Act of 1956, as amended (the "Act"). The Registrant owned, on
December 31, 1995, all of the outstanding stock of fourteen state-chartered
banks under Michigan law: FMB-First Michigan Bank (Zeeland), FMB-Lumberman's
Bank (Muskegon), FMB-Community Bank (Dowagiac), FMB-Oceana Bank (Hart),
FMB-State Savings Bank (Lowell), FMB-Reed City Bank (Reed City), FMB-
Commercial Bank (Greenville), FMB-First Michigan Bank-Grand Rapids (Grand
Rapids), FMB-Maynard Allen Bank (Portland), FMB-Northwestern Bank (Boyne
City), FMB-Security Bank (Manistee), FMB-Old State Bank (Fremont), FMB-Sault
Bank (Sault Ste. Marie) through Registrant's ownership of Superior Financial
Corporation, a bank holding company and FMB-Trust (the "subsidiary banks").
Registrant also owns three nonbank subsidiaries: First Michigan Life Insurance
Company (FMLIC), incorporated in Arizona, which writes credit life, health
and accident insurance for customers of the affiliates of the Registrant only,
FMB-Brokerage Services, Inc. (Brokerage), doing business as FMB Investment
Services, which provides retail securities brokerage services to customers
of the Registrant's affiliate banks and others and, through FMB-Northwestern
Bank, FMB-Insurance Agency, Inc. (Agency), which serves as the agency through
which annuity investments are sold by licensed employees.
The Registrant conducts its business incident to the ownership of the
outstanding stock of the subsidiary banks, the collection of revenues from
the subsidiary banks, the payment of operating expenses and the disbursement
of dividends and reports to the Registrant's shareholders. Through certain
officers devoted to the corporate function, the Registrant directs and
coordinates the following activities for the subsidiary banks: investments,
marketing and promotion, personnel administration, employee benefits,
auditing, accounting and tax planning, insurance, operational support, and
strategic planning. The important customer service activities, including
receiving deposits and making of loans, are handled by the local subsidiary
banks and their respective management teams.
Aside from the stock of the subsidiary banks, FMLIC, Brokerage and Agency,
the Registrant has no substantial assets. The Registrant's income depends
primarily upon centralized support service fees, interest charges and
dividends received from subsidiary banks. Centralized support service fee
income from subsidiaries reflects the costs incurred by the Registrant in
the course of directing and providing the activities noted above. As noted
elsewhere, dividend income depends upon the subsidiary banks' earnings, their
financial condition, compliance with regulatory requirements (including legal
limitations on the payment of dividends), and other factors and, in addition,
are subject to declaration by their respective boards of directors. Under
Federal Reserve Board policy, Registrant is expected to act as a source of
financial strength to each subsidiary bank and to commit resources to
support each subsidiary bank.
As a bank holding company, the Registrant has broader corporate powers than
a bank or any of its subsidiary banks. These broader corporate powers
principally include the power to engage in certain non-banking businesses
closely related to banking, to own the capital stock of banks located in
Michigan and in certain other states, and to own the capital stock of business
corporations which are not banks, located either within Michigan or outside
of Michigan, all subject, however, to the Act and regulations of the Board
of Governors of the Federal Reserve System. In general, the Act and
regulations restrict the Registrant, with respect to its own activities or
the activities of corporations other than banks which it owns, to activities
which are closely related to banking. (See "Supervision and Regulation.")
The Registrant is continually reviewing and evaluating the possibility of
expanding bank services and non-banking services to be offered by affiliates.
Business of Subsidiary Banks
Except for FMB-Trust, which provides trust and trust related services only,
the subsidiary banks are engaged in the business of general commercial and
retail banking and, indirectly through other subsidiaries, the business of
trust services and investment services. Financial services and products
are delivered through a network of full service branches, specialized offices
and automatic teller machines. Commercial and retail banking activities
entail offering to businesses, individuals and governmental units a variety
of deposit products including checking accounts, savings accounts and time
deposits and short term deposits.
The banks conduct lending activities in the commercial and consumer
marketplaces, offering the following types of credits - secured and unsecured
business and personal loans commercial, residential and home equity mortgage
loans; construction financing; letters of credit; consumer installment loans
(automobiles and recreational vehicles and equipment); personal, home equity
and overdraft protection lines of credit; and credit cards.
The lending activities of the banks are governed by a uniform bank loan
policy (the "policy") established by the Registrant and adopted by the board
of directors of each bank. The policy specifies the types of credits that
are acceptable to the banks. It also establishes lending limits for the banks
loan officers and guidelines for appropriate, conservative collateral
margins for secured loans. Loan officers at the bank conduct the day-to-day
credit process in accordance with the policy, initiating and approving all
extensions of credit and monitoring credit quality. An independent loan
review function, established by the Registrant, assists bank management in
the process of monitoring credit underwriting standards and ensures that
lending decisions are made within the established policy guidelines. Under
the policy, senior loan officers are responsible for identifying, monitoring
and managing concentrations of credit that may occur. As of December 31, 1995,
the Registrant had no significant concentration of loans to any group of
borrowers engaged in similar activities that would be impacted by changes
in economic or other conditions and have a materially adverse impact on the
business of the Registrant.
All lending activities of the banks involve credit and interest rate risk to
varying degrees. Interest rate risk is managed through asset/liability
management committees at both the bank and consolidated level, which are
discussed in detail in management's discussion and analysis of financial
condition and results of operations in Item 7. Regarding credit risk, a
larger potential risk of loss to the banks exists on individual credits in the
commercial portfolio. Commercial credit risk is mitigated through the loan
underwriting process with reference to the policy guidelines regarding
acceptable credit risk and collateral margins. In the consumer portfolio,
there is much less potential risk of loss on an individual credit, but there
is a greater frequency of loss, which is both anticipated and predictable.
Consumer credit risk is also mitigated by reference to the policy guidelines
for collateral margins. Problem loan situations are identified by individual
loan officers for commercial credits and by collections departments for
consumer credits, both of which are responsible for initiating corrective
action to control losses within reasonable limits.
Three of the subsidiaries of the Registrant meet the definition of significant
subsidiaries. On a combined basis they account for 67% of December 31, 1995
total consolidated assets and 72% of consolidated earnings for the year then
ended. These subsidiaries are located in Zeeland, Muskegon and Grand Rapids.
Together they serve the largest banking markets in West Michigan. The other
subsidiaries of the Registrant serve various retail and commercial banking
markets of West Michigan from the southern-most counties of the State into
the upper peninsula serving the Sault Ste. Marie area.
Supervision and Regulation
The Registrant operates in a highly regulated industry and thus may be
affected by changes in state and federal legislation and regulations. As a
registered bank holding company under the Bank Holding Company Act of 1956, as
amended (the "Act"), the Registrant is subject to supervision and examination
by the Board of Governors of the Federal Reserve System (Federal Reserve
Board) and is required to file with the Federal Reserve Board annual reports
and information regarding its business operations and those of its
subsidiaries.
The Act requires the Registrant to obtain Federal Reserve Board approval
before: (a) acquiring (except in certain limited circumstances) more than a
five percent ownership interest in any class of the voting securities of any
bank or bank holding company; (b) acquiring all or substantially all of the
assets of a bank or bank holding company; or (c) merging or consolidating
with another bank holding company.
On September 29, 1994 the Riegle-Neal Interstate Banking and Branching
Efficiency Act was signed into law. This legislation authorizes adequately
capitalized and adequately managed bank holding companies, beginning September
29, 1995, to acquire banks located outside their respective home state,
irrespective of state law. This legislation also authorizes, effective
June 1, 1997, (subject to individual state's rights to (a) accelerate this
date, or (b) to prohibit interstate branching within their borders) banking
organizations to branch nationwide by acquisition or consolidation of existing
banks in other states. Effective November 29, 1995, subject to approval by
the Michigan Financial Institutions Bureau, Michigan law authorizes
out-of-state banks to acquire and establish branches in Michigan, provided
the laws of the out-of-state bank permits Michigan banks to acquire or
establish branches in that state. Interstate acquisitions and branching
are subject to the approval of various federal and state agencies and other
conditions. While it is too early to assess the impact of this legislation,
it is reasonable to assume it could foster further industry consolidation.
The Registrant could benefit indirectly from this legislation through lower
supervisory costs related to overall improved quality in the industry.
Although interstate banking and branching will bring challenges through
increased price competition, the Registrant will continue to address those
challenges through improved efficiency and continued emphasis on local
decision-making.
Subject to certain exceptions, a bank holding company is normally not
permitted to acquire direct or indirect ownership or more than five percent
of any class of voting securities of any company that is not a bank or not
engaged in activities determined by the Federal Reserve Board to be closely
related to banking. Under Federal Reserve Board regulations, activities
deemed to be closely related to banking include such business ventures as
consumer finance, equipment leasing, certain data processing services,
mortgage banking, brokerage and investment advisory services and insurance
services. The Act does not place geographic restrictions on the activities
of non-bank subsidiaries of bank holding companies.
The Federal Reserve Board has jurisdiction to regulate the terms of certain
debt issues of bank holding companies, including the authority to impose
interest ceilings and reserve requirements on such debt issues. In addition,
bank holding companies and their subsidiaries are prohibited from engaging in
certain "tie-in" arrangements in connection with any extensions of credit,
leases, sales of property or furnishing of services.
The fourteen subsidiary banks are organized as Michigan banking corporations
and thus are regulated and supervised by the Financial Institutions Bureau
of the Michigan Department of Commerce. Michigan law permits Michigan
state-chartered banks to consolidate on a state-wide basis and to operate
the offices of merged banks as branches of a surviving bank. Also, with the
written approval of the Financial Institutions Bureau, a Michigan bank may
relocate its main office to any location in the state, establish and operate
branch banks anywhere in the state and contract with other banks to act as
branches thereof. The Registrant's subsidiary banks, excluding FMB-Trust,
have entered into an interbank branching agreement whereby each of the banks
may act as branches of the other banks.
Thirteen of the subsidiary banks accept customer deposits, and the deposits of
each bank are insured by the Federal Deposit Insurance Corporation (FDIC).
Consequently, these subsidiary banks are subject to the provisions of the
Federal Deposit Insurance Act and to examination by the FDIC. As a result
of such supervision and regulation, these subsidiary banks are subject to
requirements to maintain reserves against deposits, restrictions on the nature
and amount of loans which may be made and the interest which may be charged
thereon, restrictions relating to investments and other activities,
limitations based on capital and surplus, limitations on branching and
limitations on the payment of dividends on their common stock. These
regulations are intended primarily for the protection of the depositors
and customers of the subsidiary banks, rather than shareholders of the
Registrant.
The provisions of the Financial Institutions Reform, Recovery and Enforcement
Act of 1989 (FIRREA) directly affect banks and bank holding companies.
FIRREA requires the FDIC to maintain two funds to insure customer deposits:
for banks the Bank Insurance Fund, and for savings and loan associations, the
Savings Association Insurance Fund. FIRREA also allows bank holding companies
to acquire financially sound thrift institutions. Previously, bank holding
companies could acquire only failing thrift institutions. Through a
"cross-guarantee" provision in FIRREA, the FDIC may hold commonly controlled
depository institutions liable if an affiliated depository institution fails.
In such an event, the interests of the FDIC are placed ahead of the bank
holding company shareholders.
As a Michigan business corporation, the Registrant may generally declare and
pay dividends, provided that the Registrant is not insolvent and that the
payment of the dividend would not render it insolvent, and, after giving
effect to the distribution, that the Registrant's total assets equal or
exceed its total liabilities plus the dissolution preference of any senior
equity securities. However, the Registrant's ability to pay dividends to
its stockholders is limited by its ability to obtain funds from its subsidiary
banks and by regulatory capital guidelines applicable to the Registrant.
Dividend restrictions are discussed in Note 18 of the Notes to the
Consolidated Financial Statements in Part II.
Competition
The banking business in Michigan is highly competitive. Large Michigan
metropolitan-based bank holding companies have established offices and
branches throughout the state. This has resulted in an increasing competitive
atmosphere in the market areas where the Registrant's banking business is
conducted. As noted above, out-of-state bank holding companies may acquire
Michigan banking institutions under certain conditions. This is expected to
further intensify competition. Based on total consolidated assets of
$3,136,123,000 at December 31, 1995, the Registrant ranked 7th in size among
bank holding companies located in Michigan.
Each of the Registrant's subsidiaries is subject to competition from banks
located within their respective markets and in surrounding communities. Many
of these banks are affiliated with major bank holding companies in Michigan.
The subsidiaries also compete with savings and loan associations, finance
companies, credit unions, money market mutual funds, personal loan companies,
investment firms and other financial institutions, many of which are
substantially larger in size. The principal methods of competition include
loan and deposit pricing, the quality and variety of services provided to
customers, and advertising and marketing efforts.
Employees
At December 31, 1995, the Registrant and its subsidiary banks had
approximately 1,500 employees, calculated in terms of full-time equivalents.
Employee relationships are considered to be excellent. Benefit programs,
generally for full-time employees, include a pension plan, cash or deferred
compensation plan, group comprehensive medical and long-term disability
plans, group life insurance, paid vacation and sick-leave programs.
Franchises
The Registrant has no material patents, licenses or franchises, except the
corporate franchises of its subsidiaries to engage in the banking business.
These franchises to engage in the banking business are perpetual in duration
but may be revoked under certain circumstances in accord with the provisions
of the laws to which each is applicable.
Industry Segments
The Registrant and its subsidiary banks are engaged in a single industry
segment, commercial banking, broadly defined to include commercial and retail
banking and trust activities along with other permitted activities closely
related to banking, namely brokerage services, credit life and accident and
health insurance and certain other insurance agency services.
ITEM 2. PROPERTIES
The Registrant and its subsidiary banks conduct business from 90 banking and
administrative offices. Of these 79 are owned, covering approximately 577,000
square feet, and 11 are leased, covering approximately 35,000 square feet.
The Registrant's corporate headquarters, at 135,000 square feet, is the
largest of the owned properties and is utilized primarily for centralized
support services and for corporate administration. Other owned and leased
properties are banks, banking branches and specialized offices for bank
administration and delivery of the subsidiaries' financial products and
services located in the communities they serve. All of the facilities are
believed to be in excellent condition and adequate to meet the Registrant's
present needs.
ITEM 3. LEGAL PROCEEDINGS
There are no material pending legal proceedings against the Registrant or its
subsidiaries.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the three
months ended December 31, 1995.
ADDITIONAL ITEM - EXECUTIVE OFFICERS OF REGISTRANT
The following are the executive officers of the Registrant:
Name Age Position (Date Elected to Position)
David M. Ondersma 54 Chairman (August, 1989)
Chief Executive Officer (June, 1985)
Stephen A. Stream 53 President and Chief Operating Officer
(January 1, 1995)
Secretary (May, 1992) Executive Officer of
Registrant for more than five years
Merle J. Prins 58 Executive Vice President (January, 1994)
Executive Officer of Registrant for more than
five years
Larry D. Fredricks 59 Executive Vice President and Chief Financial
Officer (January, 1994)
Senior Vice President and Chief Financial
Officer (May, 1991).
Previously a partner in the public accounting
firm, BDO Seidman LLP.
The foregoing officers serve at the pleasure of the Board of Directors and
are appointed by the Board annually. There are no family relationships among
the directors of the Registrant and the executive officers. Furthermore,
there are no arrangements or understandings between any officer and any
other person pursuant to which the officer was elected.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND
RELATED STOCKHOLDER
MATTERS
Dividend restrictions are set forth in Note 18 to Registrant's
Consolidated financial statements included in Item 8 of this form 10-K Annual
Report.
The Registrant's common stock is quoted on the NASDAQ National Market
System under the symbol FMBC. As of March 1, 1996, there were approximately
11,600 shareholders of the Registrant's common stock.
The prices shown below are based on reports published for representative
quotations in the over-the-counter market supplied by the National Association
of Securities Dealers, Inc. In all periods, the prices shown reflect inter-
dealer prices and do not include retail markups, markdowns or commissions.
There may have been transactions or quotations at higher or lower prices of
which management is not aware. The per share dividend and market price
information set forth below has been adjusted to give retroactive effect to
the four-for-three stock split paid in February 1994, and 5% stock dividends
paid in May 1995 and 1994.
<TABLE>
Per Share
Per Share and Dividends
Unaudited High Bid Low Bid Closing Declared
Bid
<S> <C> <C> <C> <C>
Year Ended December 31, 1995
First Quarter 22.875 21.625 22.875 .18
Second Quarter 24.750 22.875 24.250 .19
Third Quarter 25.750 24.250 25.750 .19
Fourth Quarter 29.500 25.750 27.500 .21
Year Ended December 31, 1994
First Quarter 20.125 18.500 19.750 .15
Second Quarter 22.625 19.000 21.375 .16
Third Quarter 22.125 21.000 21.625 .17
Fourth Quarter 22.375 19.750 22.375 .18
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
Summary of Earnings (in thousands)
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest Income
Loans and fees on loans $194,914 $151,440 $127,970 $129,260 $138,388
Securities:
Taxable 28,769 27,628 29,328 32,217 32,339
Tax-exempt 13,769 14,267 13,627 12,721 11,977
Other 2,757 926 870 1,389 2,351
Total interest income 240,209 194,261 171,795 175,587 185,055
Interest Expense
Deposits 108,831 75,371 68,488 77,854 97,435
Short-term borrowings 5,790 4,370 3,368 3,385 4,172
Long-term debt 642 787 880 579 497
Total interest expense 115,263 80,528 72,736 81,818 102,104
Net Interest Income 124,946 113,733 99,059 93,769 82,951
Provision for loan
losses 7,668 6,459 5,262 6,497 5,571
Net interest income
after provision
for loan losses 117,278 107,274 93,797 87,272 77,380
Non-Interest Income
Service charges on
deposits 12,617 11,723 10,532 9,235 8,228
Trust and investment
management fees 6,893 6,533 5,869 5,139 5,347
Other operating 10,608 10,269 14,627 12,983 8,441
Realized securities
gains (losses) 324 (297) 127 237 308
Total non-interest
income 30,442 28,228 31,155 27,594 22,324
Non-Interest Expense
Salaries and employee
benefits 53,854 48,994 45,185 42,027 36,394
Occupancy 6,380 5,820 5,328 4,976 4,064
Equipment 5,912 5,602 5,485 5,003 4,632
FDIC insurance 2,823 5,014 4,593 4,294 3,662
Other operating 30,226 27,582 26,275 26,073 24,214
Total non-interest
expense 99,195 93,012 86,866 82,373 72,966
Income Before Income
Taxes 48,525 42,490 38,086 32,493 26,738
Income taxes 12,615 10,110 8,609 6,817 5,343
Net Income $ 35,910 $ 32,380 $ 29,477 $ 25,676 $ 21,395
Profitability Ratios
Return on average assets 1.22% 1.21% 1.22% 1.14% 1.05%
Return on average equity 15.37 15.17 15.08 14.53 13.93
Net interest margin 4.78 4.88 4.73 4.82 4.68
</TABLE>
<TABLE>
Summary of Balance Sheet (in thousands)
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Total assets $3,136,123 $2,827,261 $2,520,818 $2,347,350 $2,146,406
Total securities 666,907 714,033 719,179 662,534 602,890
Total loans 2,134,570 1,891,480 1,616,269 1,444,716 1,360,701
Total deposits 2,717,493 2,404,669 2,172,333 2,023,184 1,859,075
Total long-term
debt 5,178 7,412 9,345 10,219 11,971
Total shareholders'
equity 246,773 217,870 204,228 186,010 165,753
Averages for the
year:
Assets 2,954,946 2,667,490 2,423,215 2,244,889 2,042,130
Shareholders'
equity 233,567 213,516 195,478 176,763 153,616
</TABLE>
<TABLE>
Per Share Data*
Year ended December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net income $ 1.95 $ 1.76 $ 1.59 $ 1.39 $ 1.20
Shareholders' equity
at year end 13.53 12.03 11.23 10.11 9.10
Cash dividends declared .77 .66 .52 .40 .37
Dividend payout ratio 39% 38% 33% 29% 31%
Average shares outstanding
(in thousands) 18,426 18,434 18,502 18,507 17,864
*Per share data is based on the average number of shares outstanding
during the year, except for shareholders' equity at year end which is
based on shares outstanding at year end. The number of shares used has
been adjusted to give retroactive effect to stock dividends and stock
splits. Cash dividends declared are the actual cash dividends that were
declared by FMB on a historical basis, adjusted to give retroactive
effect to stock dividends and stock splits.
</TABLE>
<TABLE>
Credit Quality Ratios
Year ended December 31,
<S> <C> <C> <C> <C> <C>
1995 1994 1993 1992 1991
Allowance for loan
losses to total loans 1.26% 1.26% 1.27% 1.31% 1.30%
Nonperforming assets
to total loans .48 .61 .84 1.10 1.30
Net charge-offs to
average loans .23 .18 .24 .37 .36
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND
RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
The following is management's analysis of operating results and financial
condition in recent years as presented in the Five-Year Consolidated Financial
Summary shown on the preceding pages. This analysis should be read in
conjunction with the consolidated financial statements and their accompanying
notes. First Michigan Bank Corporation (FMB) is incorporated under the laws
of Michigan and is registered under the Bank Holding Company Act of 1956, as
amended. FMB is engaged in commercial and retail banking through 13 subsidiary
community banks and provides other financial services including trust,
brokerage, and credit insurance. Since the formation of the holding company
in 1974, the following bank acquisitions have occurred:
Year Accounting
Bank Acquired Method
<S> <C> <C>
FMB-First Michigan Bank 1974 Pooling
FMB-First Michigan Bank-Grand Rapids 1974 De novo
FMB-Community Bank 1976 Pooling
FMB-Lumberman's Bank 1979 Pooling
FMB-Oceana Bank 1984 Purchase
FMB-State Savings Bank 1986 Pooling
FMB-Reed City Bank 1987 Pooling
FMB-Commercial Bank 1988 Purchase
FMB-Security Bank 1989 Pooling
FMB-Maynard Allen Bank 1990 Purchase
FMB-Trust 1991 De novo
FMB-Northwestern Bank 1991 Purchase
FMB-Old State Bank 1994 Pooling
Superior Financial Corporation 1995 Pooling
Arcadia Financial Corporation Pending Pooling
</TABLE>
The March 10, 1995 acquisition of Superior Financial Corporation (Superior)
and its wholly-owned subsidiary, subsequently renamed FMB-Sault Bank, was
accounted for as a pooling-of-interests, and Superior's financial condition
and results of operations are included for all years presented. The pending
acquisition of Arcadia Financial Corporation (Arcadia) is the result of a
definitive agreement, signed December 22, 1995, to acquire all of the
outstanding stock of Arcadia, a $105,000,000 one-bank holding company located
in Kalamazoo, Michigan. The acquisition of Arcadia is anticipated to be
consummated during the second quarter of 1996. The principal source of
revenues of FMB and its subsidiaries is interest and fees on loans which
amounted to 72% of total revenues in 1995, 68% in 1994, and 63% in 1993.
Interest on securities amounted to 16% of total revenues in 1995, 19% in 1994,
and 21% in 1993. The principal markets for FMB's banking services are the
communities within the State of Michigan in which the subsidiaries are
located. As of December 31, 1995, FMB and its subsidiaries served these
markets through 84 offices located in these communities.
<TABLE>
Earnings Summary (in thousands, except per share data)
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Net income $35,910 $32,380 $29,477
Per share 1.95 1.76 1.59
Earnings ratios:
Return on average assets 1.22% 1.21% 1.22%
Return on average equity 15.37 15.17 15.08
</TABLE>
The financial results presented above reflect the continued strong earnings
performance of FMB. 1995 was the fourteenth consecutive year that FMB has
reported record earnings. Net income of $35,910,000 was up $3,530,000, or
10.9%, over the results for 1994 which were up 9.8% over 1993. FMB's earnings
per share rose to $1.95, a 10.8% increase over the $1.76 per share recorded
for 1994. 1994 per share earnings were up 10.7% over 1993 results. FMB's
return on average assets has remained consistently above 1.20% in each of
the past three years while its return on average equity has risen in each of
the last five years to a level of 15.37% for 1995. FMB's shareholders have
benefitted from FMB's performance as dividends per share for the past five
years have increased at a 19.2% compounded annual rate, adjusted for the
effect of stock dividends and splits during those years, and the total return
on FMB stock has grown at a 31.4% compound annual rate for the same period,
considering reinvestment of dividends and stock price appreciation.
The increases in FMB's earnings over the last two years have been the result
of increased net interest income due to strong loan growth and excellent asset
quality and cost control efforts. 1995 results also benefitted from increases
in fee income and the mid-year reduction in FDIC insurance premiums.
<TABLE>
<CAPTION>
Net Interest Income
The following schedule presents the average daily balances, interest income
(on a fully-taxable equivalent basis) and interest expense and average rates
earned and paid for FMB's major categories of assets, liabilities and
shareholders' equity for the periods indicated (in thousands):
Year ended December 31,
1995 1994
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/
Balance Expense Paid Balance Expense Paid
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds
sold $42,817 $2,463 5.75% $16,978 $728 4.29%
Interest bearing
deposits with
banks 5,112 294 5.75 3,662 198 5.41
Securities(3):
Taxable 476,454 28,769 6.04 484,801 27,628 5.70
Tax-exempt(1) 216,288 20,270 9.37 227,703 21,224 9.32
Loans(1)(2) 2,023,475 195,661 9.67 1,749,796 152,015 8.69
Total earnings
assets/total
interest income 2,764,146 $247,457 8.95% 2,482,940 $201,793 8.13%
Cash and due
from banks 98,893 96,658
All other assets 117,217 110,290
Allowance for
loan losses (25,310) (22,398)
Total assets $2,954,946 $2,667,490
Liabilities and Shareholders' Equity
Interest bearing deposits:
Savings and NOW
accounts $859,277 $26,551 3.09% $896,940 $24,179 2.70%
Time 1,407,316 82,280 5.85 1,128,354 51,192 4.54
Short-term
borrowings 132,385 5,790 4.37 133,285 4,370 3.28
Long-term debt 6,688 642 9.60 8,440 787 9.32
Total interest
bearing
liabilities/
total interest
expense 2,405,666 $115,263 4.79% 2,167,019 $80,528 3.72%
Non-interest
bearing deposits 288,120 265,827
All other
liabilities 27,593 21,128
Shareholders'
equity 233,567 213,516
Total liabilities
and shareholders'
equity $2,954,946 $2,667,490
Net Interest Income
(fully-taxable
equivalent) $132,194 $121,265
Interest Spread
(average rate
earned minus
average rate
paid) 4.16% 4.41%
Net Interest Margin
(net interest
income/total
earnings assets) 4.78% 4.88%
</TABLE>
(1) Tax-exempt interest on securities and loans has been converted to a
fully-taxable equivalent basis as follows for the periods indicated
(in thousands):
<TABLE>
Fully-taxable equivalent adjustment: 1995 1994 1993
<S> <C> <C> <C>
Securities $6,501 $6,957 $6,672
Loans 747 575 684
Total $7,248 $7,532 $7,356
Marginal federal income tax rate 35% 35% 35%
</TABLE>
(2) Non-accruing loans are not significant during the 3-year period and, for
the purposes of the computations above, are included in the average daily
loan balances.
(3) Amortized cost is used to determine the average daily securities balances
for purposes of the computations above.
<TABLE>
Year ended December 31,
1993
Average
Interest Rate
Average Income/ Earned/
Balance Expense Paid
<S> <C> <C> <C>
Assets
Federal funds sold $ 22,782 $ 685 3.01%
Interest bearing deposits
with banks
3,488 185 5.30
Securities(3):
Taxable 494,074 29,328 5.94
Tax-exempt(1) 203,220 20,299 9.99
Loans(1)(2) 1,526,724 128,654 8.43
Total earnings assets/
total interest income 2,250,288 $179,151 7.96%
Cash and due from banks 90,789
All other assets 102,348
Allowance for loan losses (20,210)
Total assets $2,423,215
Liabilities and Shareholders' Equity
Interest bearing deposits:
Savings and NOW
accounts $ 852,260 $ 23,662 2.78%
Time 994,251 44,826 4.51
Short-term borrowings 116,837 3,368 2.88
Long-term debt 9,700 880 9.07
Total interest bearing
liabilities/total interest
expense 1,973,048 $ 72,736 3.69%
Non-interest bearing
deposits 236,586
All other liabilities 18,103
Shareholders' equity 195,478
Total liabilities and
shareholders' equity $2,423,215
Net Interest Income
(fully-taxable equivalent) $106,415
Interest Spread
(average rate earned
minus average rate paid) 4.27%
Net Interest Margin
(net interest income/total
earnings assets) 4.73%
</TABLE>
(1) Tax-exempt interest on securities and loans has been converted to a
fully-taxable equivalent basis as follows for the periods indicated
(in thousands):
<TABLE>
Fully-taxable equivalent adjustment: 1995 1994 1993
<S> <C> <C> <C>
Securities $6,501 $6,957 $6,672
Loans 747 575 684
Total $7,248 $7,532 $7,356
Marginal federal income tax rate 35% 35% 35%
</TABLE>
(2) Non-accruing loans are not significant during the 3-year period and, for
the purposes of the computations above, are included in the average daily
loan balances.
(3) Amortized cost is used to determine the average daily securities balances
for purposes of the computations above.
<TABLE>
<CAPTION>
The effect on FMB's interest income (on a fully-taxable equivalent basis)
and on interest expense due to the changes in volume and rate for the periods
indicated are shown below (in thousands):
1995 Compared to 1994 1994 Compared to 1993
Amount of Amount of
Increase/ Increase/
(Decrease) Total (Decrease) Total
Due to Amount of Due to Amount of
Change in Increase/ Change in Increase/
Volume Rate (Decrease) Volume Rate (Decrease)
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Federal funds sold $ 1,417 $ 318 $ 1,735 $ (203) $ 246 $ 43
Interest bearing
deposits with banks 82 14 96 9 4 13
Securities:
Taxable (482) 1,623 1,141 (543) (1,157) (1,700)
Tax-exempt (1,069) 115 (954) 2,341 (1,416) 925
Loans 25,336 18,310 43,646 19,278 4,083 23,361
Total interest
income $25,284 $20,380 $45,664 $20,882 $1,760 $22,642
Interest Expense
Interest bearing deposits:
Savings and NOW
accounts $ (1,048) $ 3,420 $ 2,372 $1,217 $ (700) $ 517
Time 14,342 16,746 31,088 6,082 284 6,366
Short-term borrowings (30) 1,450 1,420 507 495 1,002
Long-term debt (167) 22 (145) (116) 23 (93)
Total interest
expense $13,097 $21,638 $34,735 $ 7,690 $102 $ 7,792
Net Interest Income
(fully taxable
equivalent) $12,187 $ (1,258) $10,929 $13,192 $1,658 $14,850
For the purposes of this table, changes in interest due to volume and
average rate were determined as follows:
Volume Variance - change in average balance multiplied by previous
average rate.
Rate Variance - change in average rate multiplied by previous average
balance.
Rate/Volume Variance - change in average balance multiplied by change
in average rate. The rate/volume variances have been allocated to the
change in volume and rate in proportion to the relationship of the
absolute dollar amounts of the change in each.
</TABLE>
As shown in the table above, FMB's net interest income on a fully-taxable
equivalent basis grew by $10,929,000, or 9.0%, in 1995 and by $14,850,000,
or 14.0%, in 1994. The rate of growth in net interest income is affected by
the relative rates of growth in the underlying earning assets and costing
funds and also by fluctuations in the net interest margin. Average earning
assets grew by 11.3% in 1995 and 10.3% in 1994 primarily due to very strong
growth in average loans, which increased by 15.6% during 1995 and 14.6% during
1994. The effect of the growth in higher-yielding loans was significantly
offset in 1995, and to a lesser degree in 1994, by a shift in the mix of
deposits to higher-costing time deposits. Average time deposits grew by 24.7%
in 1995, while increasing 13.5% in 1994.
The net interest margin declined by 10 basis points during 1995 partially
offsetting the positive impact of the growth in earning assets. The decline
can be attributed to increased competition for both loans and deposits. In
addition, customers' preference for longer-term, higher-yielding certificates
of deposits changed FMB's deposit mix and increased the overall cost of funds
by 107 basis points. During 1994, the margin increased 15 basis points
enhancing the growth in net interest income. The main factor in the 1994
margin improvement was the increase of 17 basis points in the rate earned on
assets, resulting from rising interest rates coupled with strong loan demand,
while the overall rate paid on costing funds was relatively stable, 3.72% for
1994 versus 3.69% in 1993.
Maintaining steady growth in net interest income is one of FMB's primary
objectives and is continually monitored through its asset/liability management
process, which is discussed later. FMB has historically achieved this
objective as a result of having the necessary systems, procedures, and
products in place to manage and promote balance sheet growth, maintain a
strong net interest margin and remain competitively priced. Management
believes FMB, as in the past, is well positioned to maintain solid growth
in net interest income.
<TABLE>
Non-Interest Income
Year ended December 31,
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Non-interest income (in thousands):
Service charges on deposits $12,617 7.6% $11,723 11.3% $10,532
Trust and investment management
fees 6,893 5.5 6,533 11.3 5,869
Investment products revenue 1,583 10.4 1,434 (10.4) 1,600
Credit insurance income 2,128 12.3 1,895 15.2 1,645
Fees and gains on sale of
loans 2,139 2.2 2,095 (71.1) 7,249
Mortgage servicing income 1,878 7.2 1,752 11.7 1,568
Other operating income 2,880 (6.9) 3,093 20.6 2,565
Subtotal 30,118 5.6 28,525 (8.1) 31,028
Realized securities gains
(losses) 324 209.1 (297) (333.9) 127
Total $30,442 7.8% $28,228 (9.4)% $31,155
</TABLE>
The table above lists FMB's primary sources of non-interest income. The 1995
non-interest income of $30,442,000 increased $2,214,000, or 7.8%, over the
results of 1994. This compares to a non-interest income decrease in 1994 of
$2,927,000, or 9.4%, from the results of 1993.
Changes in individual categories are impacted by a number of significant
factors that occurred during 1995. The increases in service charges on
deposits in 1995 and 1994 are due to increases in deposit volumes as well as
fees charged.
Trust and investment management fees increased by 5.5% in 1995 and 11.3% in
1994. Investment product sales (brokerage) revenue increased in 1995 by
10.4% after decreasing by 10.4% the previous year. Both of these areas were
positively impacted by the bullish financial markets during 1995. Management
anticipates sales of trust, financial planning and investment services to our
customers to be a growing source of fee income in future periods.
Credit insurance revenue increased 12.3% in 1995 and 15.2% in 1994. The
growth in this area is directly correlated to growth in consumer loans. The
consumer loan portfolio increased by 11.5% in 1995 and 19.8% in 1994.
Management anticipates continued strong growth in the consumer lending
business and related credit insurance revenue.
Fees and gains on sale of loans increased 2.2% during 1995 after declining
71.1% during 1994. The increase in 1995 was due to a strong real estate
market combined with a continuation of refinancing activity as long-term
interest rates declined during the year. The decrease from 1993 to 1994 was
anticipated as both long-term interest rates rose during 1994 and the number
of loans eligible for refinancing dramatically declined.
Mortgage servicing income increased 7.2% during 1995 to $1,878,000. From
1993 to 1994, servicing income increased 11.7%.The increases in servicing
income are reflective of the year to year increase in FMB's servicing
portfolio from the on-going sale of mortgage loans in the secondary market.
At December 31, 1995, the total amount of mortgage loans serviced amounted
to $709,386,000 compared to $645,721,000 at the end of 1994 and $591,211,000
at the end of 1993.
Other operating income includes fees collected from customers for a variety
of bank services, other fees charged in loans, gains and losses on sales of
fixed assets and other real estate, and miscellaneous income. Due to the
variety of income sources in this category, fluctuations in the level of
income occur from year to year. No single component of this category was
significant during 1995 or 1994.
<TABLE>
Non-Interest Expense
Year ended December 31,
1995 Change 1994 Change 1993
<S> <C> <C> <C> <C> <C>
Non-interest expense (in thousands):
Salaries and employee benefits $53,854 9.9% $48,994 8.4% $45,185
Occupancy and equipment 12,292 7.6 11,422 5.6 10,813
Printing and supplies 3,217 16.6 2,758 9.3 2,524
Telecommunications 1,827 23.1 1,484 5.5 1,407
Computer processing 4,128 11.2 3,712 4.7 3,546
Software 1,020 36.2 749 28.7 582
Postage 1,821 16.7 1,560 1.7 1,534
Advertising and promotion 2,436 11.8 2,179 18.4 1,841
Single Business Tax 2,311 13.9 2,029 16.5 1,741
FDIC insurance 2,823 (43.7) 5,014 9.2 4,593
Professional services 2,467 9.0 2,264 (9.0) 2,487
Other operating 10,999 1.4 10,847 2.2. 10,613
Total $99,195 6.6% $93,012 7.1% $86,866
</TABLE>
The table above lists FMB's most significant operating expenses. FMB was
able to hold overall non-interest expense growth for both 1995 and 1994 to
single-digit increases. The 1995 increase over 1994 was 6.6%, which was aided
by the reduction in FDIC insurance expense. Excluding the reduction in FDIC
insurance expense, the increase in operating expenses was 8.7%. The increase
in 1994 over 1993 was 7.1%.
Salaries and employee benefits are the largest component of non-interest
expense. During 1995 salaries and employee benefits increased 9.9% compared
to a 8.4% increase in 1994. FMB is committed to controlling the growth in
non-interest expense and anticipates continued single digit increases in the
area of employee salaries and benefits for the upcoming year.
Printing and supplies increased 16.6% in 1995 and 9.3% during 1994. The
increase in 1995 is primarily due to significant increase in the cost of
copier and computer paper.
During 1995, telecommunication costs increased 23.1%, computer processing
expense increased 11.2%, and software costs increased 36.2%. These increases
are a result of FMB's plan to expand and upgrade its products and electronic
delivery systems. Management foresees additional investment in these areas
as FMB continues to expand its product and service levels to its customers.
Advertising expense increased 11.8% above the 1994 level as FMB introduced
its new debit and credit cards. The increase in 1994 over 1993 of 18.4%
relates primarily to promotions of consumer loan products that helped
increase the consumer loan portfolio by approximately 20% that year.
FDIC insurance expense decreased $2,191,000, or 43.7%, in 1995 compared to
an increase of $421,000, or 9.2%, in 1994. During 1995, the Bank Insurance
Fund exceeded the mandatory balance levels requiring the FDIC to lower
insurance premiums. Effective in June, FMB's FDIC insurance rate was reduced
by over 80%. The FDIC has also announced plans in 1996 to charge only the
minimum allowable amount of $2,000 per bank for those banks that meet the
FDIC criteria of being well-capitalized and well-managed. This FDIC action is
expected to significantly reduce FMB's FDIC insurance expense again in 1996.
Income Taxes
Income tax expense for 1995 was $12,615,000, an increase of $2,505,000, or
24.8%, over the 1994 provision of $10,110,000. This is due to FMB's profit
improvement, virtually all of which is taxable, as the amount of tax-exempt
income declined compared to 1994. A similar effect can be noted in the 1994
income tax increase of 17.4%. The increase results from an 11.6% improvement
in income before income taxes while tax-exempt income increased by only 4.7%
versus 1993 amounts.
Loan Portfolio
While providing full service banking, FMB accepts credit risk as an
essential part of its business. FMB concentrates its lending efforts on its
existing market areas with emphasis on both consumer and commercial credits.
These credit decisions are made as close to the customer as possible by
keeping the evaluation and approval process local with the management of each
affiliate bank. In addition to maintaining a strong lending staff at the
customer level, FMB ensures that a conservative underwriting philosophy and
excellent credit quality are maintained by utilizing an independent,
centralized loan review function. The primary objective of the loan review
function is to assist bank management in the process of monitoring the credit
underwriting function and to ensure lending decisions are made within
established guidelines.
<TABLE>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Components of loan portfolio
Balances (in thousands):
Commercial,
financial and
agricultural $573,587 $ 513,968 $ 435,596 $ 419,307 $ 414,387
Real estate-
construction 152,912 106,753 86,791 64,708 56,128
Real estate-
mortgage 990,359 896,183 781,241 689,792 629,746
Consumer 417,712 374,576 312,641 270,909 260,440
Total $2,134,570 $1,891,480 $1,616,269 $1,444,716 $1,360,701
Percentages:
Commercial,
financial and
agricultural 26.9% 27.2% 27.0% 29.0% 30.5%
Real estate-
construction 7.2 5.6 5.4 4.5 4.1
Real estate-mortgage 46.4 47.4 48.3 47.7 46.3
Consumer 19.5 19.8 19.3 18.8 19.1
Total 100.0% 100.0% 100.0% 100.0% 100.0%
</TABLE>
As noted earlier, average loans increased by 15.6% during 1995, while the
ending balance in the loan portfolio grew by 12.9% over 1994. The mix of the
portfolio, however, has remained constant from year to year. The largest
component of FMB's loan portfolio is real estate-mortgage loans, of which 46%
is comprised of loans secured by commercial real estate. These loans together
with the commercial, financial and agricultural loans amount to 48% of FMB's
total loan portfolio, revealing the balance FMB achieves between commercial
lending, primarily to small and medium-sized businesses, and retail lending
to individuals. FMB's loan portfolio continues to be well-diversified, and
as of December 31, 1995, FMB had no significant concentration of loans to
any group of borrowers engaged in similar activities that would be impacted
by changes in economic or other conditions.
<TABLE>
December 31, 1995
Under 1 to 5 Over Total
1 year years 5 years
<S> <C> <C> <C> <C>
Maturity of selected
loans (in thousands):
Commercial, financial
and agricultural $304,312 $233,342 $35,933 573,587
Real estate-construction 126,335 23,265 3,312 152,912
Total $430,647 $256,607 $39,245 $726,499
Rate sensitivity of above
loans due after one year
(in thousands):
Fixed interest rates $120,091 $ 4,304 $124,395
Variable interest rates 136,516 34,941 171,457
Total $256,607 $39,245 $295,852
</TABLE>
Nonperforming Assets
Nonperforming assets consist of nonperforming loans and other real estate
owned. Nonperforming loans include loans on which interest is not being
accrued, accruing loans contractually past due ninety days or more as to
interest or principal payments, and other loans whose terms have been
renegotiated to provide a reduction or deferral of interest or principal
because of a deterioration in the financial position of the borrower. Other
real estate includes assets acquired through loan foreclosure and
repossession.
<TABLE>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Nonperforming assets
(in thousands):
Non-accrual $ 4,291 $ 5,595 $ 5,253 $ 7,991 $ 8,799
Ninety days past due 3,830 2,774 3,037 5,270 6,244
Renegotiated 522 858 1,312 617 266
Total nonperforming
loans 8,643 9,227 9,602 13,878 15,309
Other real estate 1,572 2,244 3,995 1,996 2,394
Total nonperforming
assets $ 10,215 $ 11,471 $ 13,597 $ 15,874 $ 17,703
As a percent of
total loans .48% .61% .84% 1.10% 1.30%
</TABLE>
FMB's nonperforming asset ratios have historically been very low relative
to other Michigan bank holding companies. As indicated in the schedule above,
nonperforming assets have decreased to .48% of total loans. The steady
improvement since 1991 is primarily attributable to the prevailing strength
of the local economy in the communities in which the subsidiary banks operate
and the banks' timely attention to potential problem credits. Loans are
placed in non-accrual status when, in the opinion of management, the
collectibility of principal and interest is considered doubtful or when the
payment of interest and principal is 90 days past due, unless the loans are
both well secured and in the process of collection. Consumer loans are
generally not placed on non-accrual status as they are normally charged-off
when 120 days past due. Interest in the amount of approximately $164,000 on
loans classified as non-accrual and renegotiated was included in net income
during 1995. Additional interest in the amount of approximately $755,000
would have been earned in 1995 had the loans classified as non-accrual and
renegotiated remained at original terms.
As of December 31, 1995, loans which are not included in the above
nonperforming loan total but which management has serious doubts as to the
ability of the borrowers to comply with present loan repayment terms amount
to $1,073,000. Although these loan customers are having financial difficulties
at the present time and may need adjustments in their repayment terms, no
material losses are anticipated. Payouts are anticipated or collateral or
guarantees are available to reduce any loss incurred.
Allowance for Loan Losses
The following schedule sets forth management's allocation of the allowance
for loan losses by loan type and the resulting ratio of the allowance
allocated to the related outstanding loans. This allowance allocation is
necessarily judgmental and is based primarily upon the risk inherent in each
category of loans as well as past loss experience, estimated loss exposure on
specific loans, current and projected economic conditions and other factors.
The entire allowance is available to absorb any future loan losses and is not
necessarily indicative of the categories in which future charge-offs are to
be classified. The amounts indicated for each loan type include amounts
allocated for specific loans as well as a general allocation.
<TABLE>
December 31,
1995 1994 1993
Alloc Ratio Alloc Ratio Alloc Ratio
<S> <C> <C> <C> <C> <C> <C>
Allowance for loan losses (in thousands):
Commercial,
financial, and
agricultural $13,583 2.37% $12,210 2.38% $10,228 2.35%
Real estate-
construction 885 .58 521 .49 415 .48
Real estate-
mortgage 3,441 .35 3,401 .38 2,894 .33
Consumer 8,915 2.13 7,626 2.04 6,986 2.23
Total $26,824 1.26% $23,758 1.26% $20,523 1.27%
</TABLE>
<TABLE>
December 31,
1992 1991
Alloc Ratio Alloc Ratio
<S> <C> <C> <C> <C>
Allowance for loan losses (in thousands):
Commercial,
financial, and
agricultural $ 9,805 2.34% $ 9,226 2.23%
Real estate-
construction 278 .43 148 .26
Real estate-
mortgage 2,953 .43 2,677 .43
Consumer 5,907 2.18 5,684 2.18
Total $18,943 1.31% $17,735 1.30%
</TABLE>
<TABLE>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Loan loss experience (in thousands)
Loans:
Average daily
balance of loans
outstanding for
the period $2,023,475 $1,749,796 $1,526,724 $1,416,050 $1,303,960
Amount of loans
outstanding at
end of period $2,134,570 $1,891,480 $1,616,269 $1,444,716 $1,360,701
Allowance for
loan losses:
Balance at
beginning of
period $ 23,758 $ 20,523 $ 18,943 $ 17,735 $ 15,998
Allowance of
subsidiary bank
at acquisition - - - - 797
Loans charged-off:
Commercial,
financial and
agricultural 1,529 1,027 1,105 1,620 1,820
Real estate-
construction 1 - 10 - -
Real estate-
mortgage 596 412 1,582 1,588 428
Consumer 4,602 3,927 2,540 3,527 3,901
Total charge-offs 6,728 5,366 5,237 6,735 6,149
Recoveries on loans
previously charged-off:
Commercial,
financial and
agricultural 374 463 339 256 342
Real estate-
construction - - 5 - -
Real estate-
mortgage 324 353 55 166 268
Consumer 1,428 1,326 1,156 1,024 908
Total recoveries 2,126 2,142 1,555 1,446 1,518
Net loans
charged-off 4,602 3,224 3,682 5,289 4,631
Additions to
allowance charged
to operations 7,668 6,459 5,262 6,497 5,571
Balance at end
of period $ 26,824 $ 23,758 $ 20,523 $ 18,943 $ 17,735
Ratios:
Net loans charged-off
to average loans
outstanding for
the period .23% .18% .24% .37% .36%
Allowance for
loan losses to loans
outstanding at end
of period 1.26 1.26 1.27 1.31 1.30
</TABLE>
The provision for loan losses charged to operations increased by $1,209,000
from 1994 to 1995 and $1,197,000 from 1993 to 1994. The increases in both
years were primarily for the maintenance of an adequate allowance given the
significant growth in loans outstanding from period to period. The ratio of
net charge-offs to average loans increased slightly in 1995 compared to 1994,
yet it remains at a very low level historically, reflecting the prevailing
strength of the local economy in the communities in which the subsidiary banks
operate and FMB's attention to underwriting and monitoring standards for its
loan portfolio. It is anticipated that the 1995 results will, as in the past,
compare very favorably to the banking industry as a whole and to other
Michigan bank holding companies. Management rates the overall quality of the
loan portfolio as good and the allowance for loan losses as strong, given
the ratio of the allowance to total loans of 1.26% and the low level of
nonperforming assets.
Securities Portfolio
Securities are purchased with the ability to hold those assets until
maturity. However, FMB has identified as "available-for-sale" certain
securities which may be sold in the future to meet FMB's investment
objectives of quality, liquidity and yield and to avoid significant market
value deterioration.
As allowed by the transition provisions in the guide to implementation of
Statement of Financial Accounting Standards (SFAS) No. 115 issued by the
Financial Accounting Standards Board in November 1995, FMB transferred
securities with an amortized cost of $110,674,000 from the held-to-maturity
to the available-for-sale category on December 27, 1995. The net unrealized
gain on the securities transferred amounted to $421,000.
<TABLE>
December 31,
1995 1994 1993
Available- Held-to- Available- Held-to- Available- Held-to-
for-sale maturity for-sale maturity for-sale maturity
<S> <C> <C> <C> <C> <C> <C>
Securities portfolio (in thousands):
U.S. Treasury
and U.S.
Government
agencies and
corporations $228,698 $77,930 $74,893 $261,922 $ 52,037 $268,231
State and
political
subdivisions 30,312 176,107 26,419 194,686 28,266 191,820
Other securities 64,460 89,400 33,434 122,679 27,713 151,112
Total $323,470 $343,437 $134,746 $579,287 $108,016 $611,163
</TABLE>
Excluding those holdings in the securities portfolio of U.S. Treasury and
U.S. Government agency and corporation securities and various project notes
fully guaranteed by the U.S. Government, FMB held no investments in securities
of any one issuer which exceeded 10% of shareholders' equity at December 31,
1995.
<TABLE>
<CAPTION>
The following schedule sets forth the maturities and weighted average
interest rates of FMB's securities as of December 31, 1995 (in thousands):
U.S. Treasury
and U.S.
Government States and
Agencies and Political Other
and Corporations Subdivision Securities Total
Amount Rate Amount Rate(1) Amount(2) Rate Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Available-for-sale
Under 1 year $ 78,010 5.04% $ 1,625 9.26% $ 2,211 6.89% $ 81,846
1 to 5 years 150,688 6.39 11,570 10.31 45,682 6.36 207,940
5 to 10 years - - 15,173 8.92 8,851 6.64 24,024
Over 10 years - - 1,944 9.31 253 7.75 2,197
Total debt
securities $228,698 5.92% $ 30,312 9.48% 56,997 6.43 316,007
Equity securities 7,463 8.00 7,463
Total $ 64,460 6.61% $323,470
</TABLE>
<TABLE>
U.S. Treasury
and U.S.
Government States and
Agencies and Political Other
Corporations Subdivisions Securities Total
Amount Rate Amount Rate(1) Amount(2) Rate Amount
<S> <C> <C> <C> <C> <C> <C> <C>
Held-to-Maturity
Under 1 year $ 28,595 5.94% $ 11,463 10.23% $ 27,221 6.65% $ 67,279
1 to 5 years 49,335 4.83 64,383 10.25 61,862 6.73 175,580
5 to 10 years - - 82,931 9.90 44 10.24 82,975
Over 10 years - - 17,330 9.10 273 7.69 17,603
Total $ 77,930 5.24% $176,107 9.97% $ 89,400 6.71% $343,437
Deposits and Short-Term Borrowings
Average deposits and short-term borrowings continue to grow each year,
having increased 10.8% in 1995. This compares with a 10.2% overall increase
in 1994. Management expects growth to continue in the future and has targeted
an overall internal growth goal of 10%. A comparison of the average daily
balances of deposits and short-term borrowings and the percentage of average
daily assets that were supported by each category of deposits and short-term
borrowings is reflected in the following schedule (in thousands):
</TABLE>
<TABLE>
Average for the year
1995 1994 1993
% of % of % of
Balance Assets Balance Assets Balance Assets
<S> <C> <C> <C> <C> <C> <C>
Deposits
Non-interest
bearing demand $ 288,120 9.8% $ 265,827 10.0% $ 236,586 9.8%
Savings and NOW
accounts 859,277 29.1 896,940 33.6 852,260 35.2
Time 1,407,316 47.6 1,128,354 42.3 994,251 41.0
Total deposits 2,554,713 86.5 2,291,121 85.9 2,083,097 86.0
Short-term borrowings
Securities sold
under agreements
to repurchase 110,216 3.7 109,029 4.1 98,611 4.1
Other short-term
borrowings 22,169 0.8 24,256 0.9 18,226 0.8
Total $2,687,098 90.0% $2,424,406 90.9% $2,199,934 90.8%
</TABLE>
<TABLE>
<CAPTION>
The maturity distribution of time deposits of $100,000 or more as of
December 31, 1995 is as follows (in thousands):
Under 3 3 to 6 6 months Over 1
months months to 1 year year Total
<S> <C> <C> <C> <C> <C>
Time deposits of
$100,000 or more $264,056 $108,604 $ 96,321 $ 58,390 $527,371
</TABLE>
The banks operate in a competitive environment as to rates paid on most
deposits. Money market savings accounts, coupled with a wide range of options
in the area of time deposits, have given consumers the opportunity to invest
their money at competitive rates for the time period that best fits their
needs. At FMB, these opportunities include regular and money market savings
programs for individuals, certificates of deposit (CD's) of varying maturities
and interest rates for public and private depositors, and Cash Investment
Checking, a one-day retail repurchase agreement for commercial accounts.
Market rates are adjusted from time to time in order to attract additional
funds. During 1995, FMB has also purchased brokered CD's and obtained
advances from the Federal Home Loan Bank (FHLB) to meet lending demand and
liquidity needs. FMB has established guidelines to limit its exposure to
funding from time deposits of $100,000 or more, which includes brokered CD's.
Brokered CD's amount to only 2.7% of total deposits at December 31, 1995.
Asset/Liability Management
Asset/liability management is a vital function in today's banking
environment. At FMB, this process involves developing, implementing and
monitoring strategies to maintain a proper level of liquidity, maximize net
interest income, and minimize the impact on earnings from major interest rate
changes. This process is carried out through corporate and affiliate bank
asset/liability committees. The corporate asset/liability strategy group
establishes policies, analyzes strategies and monitors the effectiveness of
the asset/liability management process on a consolidated basis. Committees
at the subsidiary banks develop and implement strategies to enhance the
profitable management of each bank's sources and uses of funds.
Liquidity is monitored through the asset/liability management process in
order to meet the needs of customers, such as depositors withdrawing funds
or borrowers requesting funds to meet their credit needs, while at the same
time maximizing investment and lending opportunities.
Deposit gathering is a principal source of funds for FMB. Development of
consumer deposits is achieved by paying competitive rates and by maintaining
an active marketing program. Larger CD's, issued to public authorities and
the private sector, are purchased primarily from within FMB's market areas
and are considered a reliable source of funds. FMB also purchases brokered
CD's from time to time for varying periods of up to three years. Another
principal source of funds derives from the routine payments on loans and the
maturities of loans and securities. FMB's securities portfolio is invested
almost exclusively in investment grade issues, and, as discussed previously,
FMB continues to have a high-quality loan portfolio. As a result, payments and
maturities on these assets are also a reliable source of funds. Externally,
FMB has the ability to enter the federal funds market as a purchaser to meet
daily liquidity needs, and, for longer term liquidity needs, FMB has the
ability to enter into funding arrangements with other financial institutions.
Through the asset/liability management process, attention is also placed
on a bank's interest sensitivity, which is the degree net interest income is
affected by a change in market interest rates. One method of estimating
sensitivity is by a gap analysis. Gap is the difference between assets and
liabilities maturing or repricing in the same time period. When the amount of
rate-sensitive assets is greater than rate-sensitive liabilities, an increase
in market interest rates has a positive impact on net interest income while
a decrease in rates has a negative impact. When rate-sensitive liabilities
are greater than assets, the converse is true with falling market rates
impacting net income positively and rising rates impacting it negatively.
Minimizing exposure to changes in market rates is accomplished by keeping
the relationship of the rate-sensitive assets and liabilities in a relatively
balanced position.
FMB continued in 1995 to structure its balance sheet and utilize off-
balance-sheet strategies to respond to interest rate fluctuations. To a very
limited extent, interest rate swap agreements continued to be utilized to
manage the short-term interest sensitivity position. FMB continues to sell
long-term, fixed-rate residential mortgage loans in the secondary market to
minimize its long-term exposure to rate changes. During 1995, FMB's nominal
asset-sensitive position in the short-term, coupled with consumer preference
for higher-yielding, long-term certificates of deposit had a negative impact
on the net interest margin when compared with 1994. However, as demonstrated
in the table below, FMB has maintained a strong and relatively stable net
interest margin over the past five years.
<TABLE>
December 31,
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net interest margin 4.78% 4.88% 4.73% 4.82% 4.68%
</TABLE>
<TABLE>
<CAPTION>
The next table illustrates FMB's static gap position as of December 31, 1995,
with a cumulative 90 day gap position of 1.26 and one year gap of 1.03.
Distribution of non-maturity deposits are based on historical analyses and
management's current assumptions as to the repricing frequency for these
funds. Although the static gap sensitivity varies from time frame to time
frame, management has the ability to adjust rates on deposit accounts
enabling FMB to achieve a neutral interest sensitivity position within the
intermediate-term. Based upon the gap, simulation, and market value analyses,
management believes FMB is well positioned to respond to interest rate
movements in either direction.
Up to 3 4 to 12 1 to 5 5 to 10 After 10
(dollars in Months Months Years Years Years Total
thousands)
<S> <C> <C> <C> <C> <C> <C>
Assets
Loans $1,152,339 $295,402 $621,791 $ 36,910 $ 28,128 $2,134,570
Securities 70,229 130,422 331,135 107,663 27,458 666,907
Federal funds
and time
deposits 115,261 2,500 - - - 117,761
Other assets - - - - 216,885 216,885
Total assets $1,337,829 $428,324 $952,926 $144,573 $272,471 $3,136,123
Liabilities and Equity
NOW accounts $ 359,086 $ - $ 76,262 $ - $ - $ 435,348
Savings accounts 151,644 - 273,117 - - 424,761
Time deposits 440,208 651,585 417,155 22,439 68 1,531,455
Borrowed funds 120,856 445 13,663 4,537 - 139,501
Other liabilities
and equity - - - 325,929 279,129 605,058
Total liabilities
and equity $1,071,794 $652,030 $780,197 $352,905 $279,197 $3,136,123
Interest rate
swaps, net (10,000) - - 10,000 - -
Gap $ 276,035 $(223,706) $172,729 $(218,332) $ (6,726) -
Cumulative gap $ 276,035 $ 52,329 $225,058 $ 6,726 - -
Cumulative rate
sensitive ratio 1.26 1.03 1.09 1.00 1.00 -
</TABLE>
Capital
Regulatory agencies have developed minimum guidelines by which the adequacy
of a financial institution's capital may be evaluated. The Board of Governors
of the Federal Reserve System ("Federal Reserve") has published guidelines on
the adequacy of capital, commonly referred to as "risk-based capital" that
were applied to bank holding companies beginning in 1990. On December 23,
1994, the Federal Reserve issued a final rule regarding risk-based capital
guidelines concerning the net unrealized gains and losses recorded under
SFAS No. 115. The following table illustrates FMB's leverage and risk-based
capital ratios compared to the current regulatory requirements in accordance
with the Federal Reserve's final guidance:
<TABLE>
Minimum Well-
Regulatory Capitalized FMB
Requirements Definition 1995 1994
<S> <C> <C> <C> <C>
Tier 1 Capital 4.0% 6.0% 10.6% 10.5%
Tier 1 and Tier 2 Capital 8.0 10.0 12.0 11.9
Leverage ratio 3.0 5.0 7.6 7.6
</TABLE>
During recent years, FMB has supported its growth in assets with its ability
to generate and retain earnings. Management feels the overall equity position
is very strong as indicated below:
<TABLE>
December 31,
1995 1994 1993
<S> <C> <C> <C>
Shareholders' equity (in thousands) $246,773 $217,870 $204,228
Ratio of equity to total assets 7.9% 7.7% 8.1%
</TABLE>
At the end of 1992, FMB announced a plan to repurchase its shares from time
to time in negotiated transactions. Pursuant to this plan, FMB repurchased
78,000 shares during 1995, 277,000 shares during 1994 and 204,000 shares
during 1993 at costs of $1,911,000, $6,311,000 and $5,427,000, respectively.
FMB reaffirmed its stock repurchase plan in 1995 and intends to continue
repurchasing shares similarly during 1996.
The strength of FMB's capital position has enabled it to increase the
dividend payout to shareholders over the past two years. FMB's cash dividends
amounted to $14,021,000 in 1995 and $11,488,000 in 1994 for dividend payout
ratios of 39% and 38%, respectively. Prior to 1994, the payout ratio had been
approximately 30% from year to year. For the fourth quarter of 1995, FMB
increased the dividend by 10.5% to $0.21 per share.
FMB's ability to pay dividends to its shareholders is limited by its ability
to obtain funds from the subsidiaries, as specified by applicable regulatory
guidelines. However, the amounts currently available for dividends are in
excess of FMB's current annual dividend payout rate.
New Accounting Pronouncements
In May 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights", which is an amendment
to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities". SFAS
No. 122 requires that an asset be recognized for the rights to service
mortgage loans which are sold or securitized with the servicing rights
retained by the originator, including those rights created by the origination
of mortgage loans. The amount of the asset for these originated mortgage
servicing rights (OMSR) is to be determined based upon the relative fair value
of the underlying mortgage loans, without the OMSR, and the OMSR itself. SFAS
No. 122 requires the asset to be amortized against servicing income over the
period of estimated net servicing income. It also requires that OMSRs be
stratified based on one or more of the predominant risk characteristics of
the underlying loans and evaluated for impairment. Any impairment is to be
recognized as a valuation allowance for each impaired stratum. SFAS No. 122
is required to be adopted prospectively beginning January 1, 1996. The
impact of adoption of this new standard in 1996 is expected to be immaterial
to the operating results and financial position of FMB.
In October 1995, the FASB issued SFASNo. 123, "Accounting for Stock-Based
Compensation." Currently, FMB applies Accounting Principles Board (APB)
Opinion 25, "Accounting for Stock Issued to Employees," and related
interpretations in accounting for its fixed-price, stock option plan.
Accordingly, no compensation cost is recognized for options awarded under
the plan. SFAS No. 123 allows companies to continue to account for their
stock option plans in accordance with APB Opinion 25 but encourages the
adoption of a new accounting method which requires the recognition of
compensation expense based on the estimated fair value of employee stock
options. Companies electing not to follow the new fair value based method
are required to provide expanded footnote disclosures, including pro forma
net income and earnings per share, determined as if the company had applied
the new method. SFAS No. 123 is required to be adopted prospectively beginning
January 1, 1996. Management intends to continue to account for its stock
option plans in accordance with APBOpinion 25 and provide supplemental
disclosures as required by SFAS No. 123 beginning in 1996.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The management of First Michigan Bank Corporation (FMB) is responsible for
the preparation and accuracy of the consolidated financial statements and
related financial data contained in this annual report. The financial
statements have been prepared in accordance with generally accepted accounting
principles to reflect, in all material respects, the substance of financial
transactions occurring during the period. Where appropriate, the amounts
reflect management's judgments and estimates.
FMB maintains an effective internal control structure which provides
reasonable assurance that assets are safeguarded and the transactions are
properly recorded and executed in accordance with management's authorization.
Management relies on this internal control structure to ensure that
financial statement information and related financial data are presented
fairly and consistently.
As part of this internal control structure, FMB maintains an internal
audit staff which monitors compliance with established policies, procedures
and control and reports independently to the Audit Committee of the Board
of Directors. The Audit Committee is composed entirely of outside directors
and meets on a regular basis with the internal auditors and independent
certified public accountants. The Committee reviews all matters related to
internal controls, financial reporting and regulatory compliance for FMB.
The consolidated financial statements and notes to the consolidated
financial statements of FMB have been audited by the independent certified
public accounting firm, BDO Seidman, LLP. Their report is contained herein.
/s/David M. Ondersma
David M. Ondersma
Chairman and Chief Executive Officer
/s/ Larry D. Fredricks
Larry D. Fredricks
Executive Vice President and
Chief Financial Officer
<TABLE>
(in thousands, except for per share data)
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Interest Income
Loans and fees on loans $ 194,914 $ 151,440 $ 127,970
Securities:
Taxable 28,769 27,628 29,328
Tax-exempt 13,769 14,267 13,627
Other 2,757 926 870
Total interest income 240,209 194,261 171,795
Interest Expense
Deposits 108,831 75,371 68,488
Short-term borrowings 5,790 4,370 3,368
Long-term debt 642 787 880
Total interest expense 115,263 80,528 72,736
Net Interest Income 124,946 113,733 99,059
Provision for loan losses 7,668 6,459 5,262
Net interest income after
provision for loan losses 117,278 107,274 93,797
Non-Interest Income
Service charges on deposits 12,617 11,723 10,532
Trust and investment management
fees 6,893 6,533 5,869
Other operating 10,608 10,269 14,627
Realized securities gains
(losses) 324 (297) 127
Total non-interest income 30,442 28,228 31,155
Non-Interest Expense
Salaries and employee benefits 53,854 48,994 45,185
Occupancy 6,380 5,820 5,328
Equipment 5,912 5,602 5,485
FDIC insurance 2,823 5,014 4,593
Other operating 30,226 27,582 26,275
Total non-interest expense 99,195 93,012 86,866
Income Before Income Taxes 48,525 42,490 38,086
Income taxes 12,615 10,110 8,609
Net Income $ 35,910 $ 32,380 $ 29,477
Net Income Per Share $1.95 $1.76 $1.59
Average Shares Outstanding
(in thousands) 18,426 18,434 18,502
</TABLE>
<TABLE>
(dollars in thousands)
December 31,
1995 1994
<S> <C> <C>
Assets
Cash and due from banks $ 123,232 $ 122,872
Federal funds sold 112,450 1,150
Total cash and cash equivalents 235,682 124,022
Interest bearing deposits with banks 5,311 3,912
Securities:
Available-for-sale 323,470 134,746
Held-to-maturity (market values of
$356,998 and $569,453) 343,437 579,287
Total securities 666,907 714,033
Loans 2,134,570 1,891,480
Allowance for loan losses (26,824) (23,758)
Net loans 2,107,746 1,867,722
Net premises and equipment 67,894 64,567
Other assets 52,583 53,005
Total assets $3,136,123 $2,827,261
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand $ 325,929 $ 301,884
Interest bearing:
Savings and NOW accounts 860,109 872,360
Time 1,531,455 1,230,425
Total deposits 2,717,493 2,404,669
Short-term borrowings 134,323 172,779
Other liabilities 32,356 24,531
Long-term debt 5,178 7,412
Total liabilities 2,889,350 2,609,391
Shareholders' equity:
Preferred stock - no par value;
1,000,000 shares authorized,
none outstanding - -
Common stock - $1 par value;
24,000,000 shares authorized;
issued and outstanding: 18,236,923
and 17,253,664 18,237 17,254
Surplus 143,951 121,603
Retained earnings 82,789 81,898
Securities valuation, net of tax 1,796 (2,885)
Total shareholders' equity 246,773 217,870
Total liabilities and shareholders' equity $3,136,123 $2,827,261
</TABLE>
<TABLE>
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 35,910 $ 32,380 $ 29,477
Adjustments to reconcile net income to
net cash provided by operating
activities:
Provision for loan losses 7,668 6,459 5,262
Origination of loans held for sale
in secondary market (169,861) (140,356) (305,509)
Proceeds from sale of loans in
secondary market 171,135 141,499 310,029
Gains on sale of loans (1,274) (1,143) (4,520)
Realized securities (gains) losses (324) 297 (127)
Provision for depreciation, amortization
and accretion 7,574 7,969 10,112
Deferred income taxes (779) 132 199
Net (increase) decrease in interest
receivable (1,481) (3,596) 237
Net increase (decrease) in interest
payable 3,786 1,692 (311)
Other-net 4,818 (854) 747
Total adjustments 21,262 12,099 16,119
Net cash provided by operating
activities 57,172 44,479 45,596
Cash Flows From Investing Activities
Net (increase) decrease in interest
bearing deposits with banks (1,399) (1,228) 2,021
Purchase of securities available-for-sale (97,368) (43,461) -
Proceeds from sales of securities
available-for-sale 6,240 16,097 -
Proceeds from maturities and
prepayments of securities
available-for-sale 19,891 11,800 -
Purchase of securities held-to-maturity (2,236) (130,871) (277,919)
Proceeds from sales of securities
held-to-maturity - - 10,808
Proceeds from maturities and prepayments
of securities held-to-maturity 127,261 142,105 209,114
Net increase in loans (247,787) (276,656) (178,068)
Purchase of premises and equipment
and other assets (11,229) (12,643) (8,225)
Net cash used in investing activities (206,627) (294,857) (242,269)
Cash Flows From Financing Activities
Net increase in non-interest
bearing demand and savings and
NOW account deposits 11,794 19,409 79,994
Net increase in time deposits 301,030 212,927 69,155
Net increase (decrease) in short-term
borrowings (38,456) 57,917 4,723
Repayment of long-term debt (2,234) (1,933) (874)
Cash dividends and fractional shares (13,386) (10,845) (8,641)
Proceeds from issuance of common stock 4,278 3,754 2,193
Common stock repurchased (1,911) (6,311) (6,276)
Net cash provided by financing
activities 261,115 274,918 140,274
Increase (Decrease) In Cash and
Cash Equivalents 111,660 24,540 (56,399)
Cash and Cash Equivalents,
At Beginning of Year 124,022 99,482 155,881
Cash and Cash Equivalents,
At End of Year $ 235,682 $ 124,022 $ 99,482
Supplemental Cash Flow Information
Interest paid $ 111,477 $ 78,836 $ 73,047
Income taxes paid 11,357 10,192 8,273
</TABLE>
<TABLE>
Common Retained Securities
Stock Surplus Earnings Valuation
<S> <C> <C> <C> <C>
Balance, January 1, 1993,
as previously reported $11,461 $100,324 $67,185 $ -
Adjustment to record
acquisition of subsidiary
on pooling-of-interests
basis 462 1,215 5,363
Balance, January 1, 1993,
as adjusted 11,923 101,539 72,548 -
Net income 29,477
Cash dividends
$.52 per share (8,897)
Cash dividends paid by
subsidiary prior to
acquisition (136)
Stock issued under terms
of dividend reinvestment
and employee stock
purchase plans 75 1,865
Stock issued upon exercise
of stock options 25 266
Stock issued in payment of
5% stock dividend, at market 594 13,924 (14,552) -
Common stock repurchased (204) (5,223)
Effect of common stock
repurchased by subsidiary
prior to acquisition (43) (94) (712)
Net unrealized gain on
available-for-sale securities,
net of tax effect 1,853
Four-for-three common
stock split 4,123 (4,123)
Balance, December 31, 1993 16,493 108,154 77,728 1,853
Net income 32,380
Cash dividends -
$.66 per share (11,488)
Cash dividends paid by
subsidiary prior to
acquisition (142)
Stock issued under terms
of dividend reinvestment
and employee stock purchase
plans 125 2,597
Stock issued upon exercise
of stock options 87 1,149
Stock issued in payment of 5%
stock dividend, at market 826 15,703 (16,580)
Common stock repurchased (277) (6,034)
Effect of stock issued by
subsidiary under terms of
employee stock ownership plan
prior to acquisition 34
Net unrealized loss on
available-for-sale
securities, net of tax
effect (4,738)
Balance, December 31, 1994 17,254 121,603 81,898 (2,885)
Net income 35,910
Cash dividends -
$.77 per share (14,021)
Stock issued under terms of
dividend reinvestment and
employee stock purchase
plans 152 3,524
Stock issued upon exercise
of stock options 41 466
Stock issued under terms
of directors' current
stock purchase plan 4 91
Stock issued in payment of
5% stock dividend, at market 864 20,100 (20,998)
Common stock repurchased (78) (1,833)
Net unrealized gain on
available-for-sale
securities, net of tax
effect 4,681
Balance, December 31, 1995 $18,237 $143,951 $82,789 $ 1,796
</TABLE>
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Nature of Operations
First Michigan Bank Corporation (FMB) is a bank holding company with 13
subsidiary community banks engaged in the business of commercial banking (the
Banks) and one subsidiary bank primarily engaged in trust services. FMB also
has two non-bank subsidiaries providing brokerage services and credit life
and accident and health insurance to customers of the Banks.
The Banks are engaged in the business of general commercial and retail
banking and, indirectly through the other subsidiaries of FMB, the business
of trust, brokerage, and credit insurance services. The Banks offer a variety
of deposit products including checking accounts, savings accounts, time
deposits and short-term deposits. The Banks conduct lending activities in
the residential and commercial mortgage markets, in the general commercial
market and in the consumer installment marketplace. These financial services
and products are delivered through a network of full-service branches,
specialized offices and automatic teller machines.
The principal markets for the Banks' financial services are the Michigan
communities in which each of the banks is located and the areas immediately
surrounding these communities. The Banks serve these markets through 84 branch
offices in or near these communities.
Principles of Consolidation
The consolidated financial statements include the accounts of FMB and its
subsidiaries. Upon consolidation, all significant intercompany accounts and
transactions have been eliminated. Goodwill is being amortized over periods
up to 20 years. Management periodically reviews goodwill for impairment based
upon the projected, undiscounted net cash flows of the subsidiaries to which
the goodwill relates over the remaining life of the goodwill.
Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at
the date of the financial statements and the reported revenues and expenses
during the reporting period. The amount of those assets actually realized
and liabilities actually settled in future periods could differ from those
estimates. The differences, if any, would be reflected in the reported
amounts of revenues and expenses in future periods.
Cash and Cash Equivalents
For the purposes of reporting cash flows, cash equivalents include amounts
due from banks and federal funds sold. Generally, federal funds are purchased
and sold for one-day periods.
Securities
Management has identified as "available-for-sale" certain securities which
may be sold in the future to meet FMB's investment objectives of quality,
liquidity and yield and to avoid significant market value deterioration.
Securities available-for-sale are adjusted to fair market value each reporting
period with unrealized gains and losses reported as a separate component of
shareholders' equity, net of tax. Securities held-to-maturity are stated at
cost adjusted for amortization of premium and accretion of discount. The
adjusted cost of the specific security sold is used to compute gain or loss
on all securities transactions.
Allowance for Loan Losses
The allowance for loan losses is maintained at a level considered by
management to be adequate to absorb possible future loan losses inherent in
the current portfolio. Management's assessment of the adequacy of the
allowance is based upon type and volume of the loan portfolio, past loan loss
experience, existing and anticipated economic conditions, and other factors
which deserve current recognition in estimating possible future loan losses.
On January 1, 1995, FMB adopted the accounting provisions for impaired loans
promulgated by Statement of Financial Accounting Standards (SFAS) No. 114,
"Accounting by Creditors for Impairment of a Loan", as amended by SFAS
No. 118, "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". Under these new accounting standards, a loan
is considered to be impaired when it is probable that a creditor will be
unable to collect all principal and interest amounts due according to the
contractual terms of the loan agreement. Under this definition, FMB considers
loans that have been placed on non-accrual status or which have been
renegotiated in a troubled debt restructuring to be impaired.
A portion of the total allowance for loan losses is related to impaired
loans. The allowance for loan losses for an impaired loan is recorded at the
amount by which the outstanding recorded principal balance exceeds the fair
value of the collateral on the impaired loan. For a loan that is not
collateral-dependent, the allowance for loan losses is recorded at the amount
by which the outstanding recorded principal balance exceeds the current best
estimate of the future cash flows on the loan, discounted at the loan's
effective interest rate. Prior to 1995, the portion of the total allowance
for loan losses related to loans which would meet this new definition of
impairment was also based, in most cases, on the fair market value of the
collateral on that loan. This new accounting standard and the disclosures
associated therewith have been adopted prospectively, and the implementation
of this new accounting standard has had virtually no impact on the operating
results of FMB.
Net Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method for financial reporting
purposes. Accelerated depreciation methods are used for income tax purposes.
Other Real Estate
Other real estate, which is included in other assets, is comprised of
properties in the possession of the subsidiary banks which are generally
acquired through foreclosure proceedings or deed in lieu of foreclosure.
These properties are held for sale and are carried at the lower of the amount
of the related loan or the fair market value of the property minus estimated
costs to sell the property (net realizable value). Losses which may result
from the acquisition of such properties are charged against the allowance for
loan losses. Losses in net realizable value during the holding period are
expensed immediately, while gains are recognized in other operating income
only upon disposition.
Employee Benefit Plans
FMB has a noncontributory pension plan for the benefit of substantially all
full-time employees. Benefits under the plan are based on the employee's years
of service and compensation during the five consecutive highest paid plan
years of the last ten plan years preceding retirement. FMB's funding policy
is to contribute an actuarially-determined amount that can be deducted for
federal income tax purposes.
FMB also sponsors a defined contribution 401(k) plan for the benefit of all
employees over 21 years old. For those employees who work 1,000 or more hours
per year, FMB matches employee contributions at levels that management
determines to be appropriate.
FMB acts as a self-insurer for employees' medical, dental and accident
insurance whereby it assumes limited liability with the excess liability
assumed by underwriters. Claims for active employees are charged to operations
during the year in which they occur.
FMB has a postretirement benefit plan that provides medical and dental
coverage between the ages of 60 and 65 to any full-time employee who elects
early retirement after 10 or more years of service. The plan contains the
same cost-sharing features of deductibles and copayments that are contained
in the medical and dental insurance plans provided to active employees.
Partial funding of the plan is accomplished through monthly contributions to
a self-insurance trust fund which was established to cover the medical and
dental benefits of both retirees and active participants. The monthly
contribution to the self-insurance trust fund for each retiree is equivalent
to the amount contributed each month for an active participant.
Mortgage Banking Operations
FMB originates mortgage loans which it holds for sale into the secondary
market. Mortgage loans held for sale are generally held less than 15 days,
and book value approximates market value. FMBretains the servicing rights
when it sells the mortgage loans. Servicing income is recognized in other
non-interest income when received and expenses are recognized in operating
expenses when incurred.
In May 1995, the Financial Accounting Standards Board (FASB) issued SFAS
No. 122, "Accounting for Mortgage Servicing Rights", which is an amendment
to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities". SFAS
No. 122 requires that an asset be recognized for the rights to service
mortgage loans which are sold or securitized with the servicing rights
retained by the originator, including those rights created by the origination
of mortgage loans. The amount of the asset for these originated mortgage
servicing rights (OMSR) is to be determined based upon the relative fair
value of the underlying mortgage loans, without the OMSR, and the OMSR itself.
SFAS No. 122 requires the asset to be amortized against servicing income over
the period of estimated net servicing income. It also requires that OMSRs be
stratified based on one or more of the predominant risk characteristics of
the underlying loans and evaluated for impairment. Any impairment is to be
recognized as a valuation allowance for each impaired stratum. SFAS No. 122
is required to be adopted prospectively beginning January 1, 1996. The impact
of adoption of this new standard in 1996 is expected to be immaterial to the
operating results and financial position of FMB.
Stock Options
FMB applies Accounting Principles Board (APB) Opinion 25, "Accounting for
Stock Issued to Employees," and related interpretations in accounting for
its fixed-price, stock option plan. Accordingly, no compensation cost is
recognized as a result of options awarded under the plan.
In October 1995, the FASB issued SFASNo. 123 "Accounting for Stock-Based
Compensation." SFASNo. 123 allows companies to continue to account for their
stock option plans in accordance with APB Opinion 25 but encourages the
adoption of a new accounting method which requires the recognition of
compensation expense based on the estimated fair value of employee stock
options. Companies electing not to follow the new fair value based method are
required to provide expanded footnote disclosures, including pro forma net
income and earnings per share, determined as if the company had applied the
new method. SFASNo. 123 is required to be adopted prospectively beginning
January 1, 1996. Management intends to continue to account for its stock
option plans in accordance with APBOpinion 25 and provide supplemental
disclosures as required by SFASNo. 123 beginning in 1996.
Interest Income and Fees on Loans
Interest on loans is accrued based upon the principal balance outstanding.
The recognition of interest income is discontinued when, in the opinion of
management, there is sufficient doubt that the borrower will be able to meet
the scheduled repayments. When the accrual of interest is discontinued, the
balance of interest accrued but not collected is eliminated from income.
For impaired loans that are on non-accrual status, cash payments received
are generally applied to reduce the outstanding recorded principal balance
of the loans. However, all or a portion of a cash payment received on a non-
accrual loan may be recognized as interest income to the extent allowed by
the loan contract, provided that the borrower's financial condition or the
underlying collateral on the loan support the collection in full of the
remaining outstanding recorded principal balance of the loan. For an impaired
loan that has been renegotiated in a troubled debt restructuring, interest
income is recognized on an accrual basis according to the modified contractual
terms so long as the restructured loan continues to perform in accordance
with the modified contractual terms.
For loans with an initial term exceeding one year, loan origination and
commitment fees and related lending costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over its original term.
The net unamortized amount related to a loan that is subsequently sold is
recognized currently as other operating income. For loans with an initial
term of one year or less, the effect of the deferral of loan fees and costs
is immaterial to the operations of FMB.
Interest Rate Swap Agreements
Interest rate swap agreements are derivative financial instruments FMB has
entered into for the purpose of hedging its short-term interest sensitivity
position against the impact of changes in interest rates. The interest rate
differential to be paid or received is recognized in interest income over the
life of the agreements.
Advertising Costs
All advertising costs incurred by FMB and its subsidiaries are expensed in
the period in which they are incurred.
Income Taxes
FMB and its subsidiaries file a consolidated federal income tax return. The
parent company and its subsidiaries each report current income tax expense
as allocated under a consolidated tax sharing agreement. Deferred tax assets
and liabilities are computed by each member of the consolidated group based
on the difference between the financial statement and income tax basis of
assets and liabilities using enacted tax rates. The reversal of these
temporary differences will result in taxable or deductible amounts in future
years when the related asset or liability is recovered or settled within each
entity.
Trust Assets and Income
Property, other than cash deposits, held by subsidiary banks in fiduciary
or agency capacities for their customers is not included in the accompanying
consolidated balance sheets since such property is not an asset of FMB. Trust
income is reported on an accrual basis.
Income Per Share
Income per share is computed based on the average number of shares
outstanding during each period including the assumed exercise of dilutive
stock options, and is retroactively adjusted for stock dividends and stock
splits.
NOTE 2. ACQUISITIONS
On December 22, 1995, FMB signed a definitive agreement to acquire all of
the outstanding stock of Arcadia Financial Corporation (Arcadia), a one-bank
holding company with $105,000,000 in assets located in Kalamazoo, Michigan.
Arcadia is primarily a commercial lending bank with a loan portfolio of
$82,000,000 at December 31, 1995. This acquisition will be a stock-for-stock
exchange of 1.648 shares of FMB for each Arcadia share. It is anticipated to
be consummated during the second quarter of 1996 and will be accounted for
using the pooling-of-interests method of accounting. Approximately 654,000
shares of FMB stock will be exchanged to effect this acquisition.
On March 10, 1995, FMB acquired Superior Financial Corporation (Superior)
and its wholly-owned subsidiary, which was subsequently renamed FMB-Sault
Bank. The acquisition was effected through the exchange of 22.931 shares of
FMB common stock (616,699 shares in total) for each outstanding share of
Superior. The acquisition was 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 Superior prior
to the acquisition.
Separate pro forma results of operations of the combined entities for the
periods prior to their respective acquisition dates are as follows (in
thousands, except for per share data):
<TABLE>
Three
Year ended months Year ended
December 31, ended December 31,
1995 March 31, 1994 1993
1995
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Total interest income
and non-interest income:
FMB $270,651* $60,265 $211,019 $191,274
Superior - 2,967 11,470 11,676
Arcadia 9,101 2,071 7,898 5,389
Combined $279,752 $65,303 $230,387 $208,339
Net income:
FMB $ 35,910* $ 7,622 $ 31,183 $ 28,027
Superior - 482 1,197 1,450
Arcadia 1,402 324 1,347 535
Combined $ 37,312 $ 8,428 $ 33,727 $ 30,012
Net income per share:
FMB $1.95 $0.43 $1.75 $1.57
Combined 1.96 0.44 1.77 1.57
*Includes the results of Superior for the year ended December 31, 1995.
</TABLE>
NOTE 3. SECURITIES
<TABLE>
<CAPTION>
The amortized cost and carrying value, which is estimated market value, of
securities available-for-sale are as follows(in thousands):
December 31, 1995
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $227,333 $ 1,877 $512 $228,698
Obligations of states and
political subdivisions 28,895 1,426 9 30,312
Corporate securities - - - -
Mortgage-backed securities 57,016 420 439 56,997
Other debt securities - - - -
Equity securities 7,463 - - 7,463
Total $320,707 $ 3,723 $960 $323,470
</TABLE>
<TABLE>
December 31, 1994
Gross Gross
Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 78,954 $ 8 $4,069 $ 74,893
Obligations of states and
political subdivisions 26,143 811 535 26,419
Corporate securities 655 - - 655
Mortgage-backed securities 26,700 17 675 26,042
Other debt securities 499 4 - 503
Equity securities 6,234 - - 6,234
Total $139,185 $ 840 $5,279 $134,746
</TABLE>
<TABLE>
<CAPTION>
The carrying value and estimated market value of securities held-to-maturity
are as follows (in thousands):
December 31, 1995
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies $ 77,930 $ 590 $ 117 $ 78,403
Obligations of states and
political subdivisions 176,107 12,456 97 188,466
Corporate securities 2,530 23 - 2,553
Mortgage-backed securities 86,870 931 225 87,576
Total $343,437 $14,000 $439 $356,998
</TABLE>
<TABLE>
<CAPTION>
The carrying value and estimated market value of securities held-to-maturity
are as follows (in thousands):
December 31, 1994
Gross Gross Estimated
Carrying Unrealized Unrealized Market
Value Gains Losses Value
<S> <C> <C> <C> <C>
U.S. Treasury securities
and obligations of U.S.
government corporations
and agencies $261,922 $1,896 $10,807 $253,011
Obligations of states
and political subdivisions 194,686 7,493 2,926 199,253
Corporate securities 4,258 9 28 4,239
Mortgage-backed securities 118,421 94 5,565 112,950
Total $579,287 $9,492 $19,326 $569,453
</TABLE>
As allowed by the transition provisions in the guide to implementation of
SFAS No. 115 issued by the FASB in November 1995, FMB transferred securities
with an amortized cost of $110,674,000 from the held-to-maturity to the
available-for-sale category on December 27, 1995. The net unrealized gain
on the securities transferred amounted to $421,000.
As of December 31, 1995, all holdings of debt securities were of investment
grade with over 95% of the holdings rated A or better by either Moody's or
Standard and Poor's. Securities not rated by a nationally recognized
organization represent smaller local issues which in management's opinion,
if rated, would qualify as A or better. Securities with a carrying value of
$195,283,000 at December 31, 1995 were pledged for various purposes as
required or permitted by law.
The carrying value and estimated market value of debt securities, by
contractual maturity, are shown in the table below. Expected maturities will
differ from contractual maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties. For
the purposes of this table, the maturities of mortgage-backed securities have
been determined using weighted-average expected lives, taking into account
anticipated future prepayments. Maturities of investments in debt securities
as of December 31, 1995 are as follows (in thousands):
<TABLE>
Available-for-sale Held-to-maturity
Estimated
Amortized Carrying Carrying Market
Cost Value Value Value
<S> <C> <C> <C> <C>
Due in one year or less $ 81,989 $ 81,846 $ 67,279 $ 67,797
Due after one year through
five years 205,668 207,940 175,580 180,559
Due after five years
through ten years 23,502 24,024 82,975 89,907
Due after ten years 2,085 2,197 17,603 18,735
Total debt securities 313,244 316,007 $343,437 $356,998
Equity securities 7,463 7,463
Total $320,707 $323,470
</TABLE>
Proceeds from sales of securities during 1995, 1994 and 1993 were $6,240,000,
$16,097,000 and $10,808,000, respectively. Gross gains of $339,000, $45,000
and $145,000 and gross losses of $15,000, $342,000 and $18,000 were realized
on those sales for 1995, 1994 and 1993, respectively.
NOTE 4. LOANS
<TABLE>
<CAPTION>
The composition of the loan portfolio is as follows (in thousands):
December 31,
1995 1994
<S> <C> <C>
Commercial, financial and agricultural $ 573,587 $ 513,968
Real estate:
Commercial 453,255 410,204
Construction 152,912 106,753
Residential 528,478 483,863
Held-for-sale 8,626 2,116
Consumer 417,712 374,576
Total $2,134,570 $1,891,480
</TABLE>
The Banks have granted loans to directors and executive officers of FMB
and its significant subsidiaries and to their associates. These related party
loans are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of these loans was $31,797,000 and $33,529,000 at
December 31, 1995 and 1994, respectively. During 1995, $11,352,000 of new
loans were made, repayments amounted to $10,495,000 and changes in persons
included, decreased the aggregate loans to related parties by $2,589,000.
NOTE 5. ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
A summary of the activity in the allowance for loan losses (ALL) is as follows
(in thousands):
December 31,
1995 1994 1993
<S> <C> <C> <C>
Balance, at beginning of year $23,758 $20,523 $18,943
Provision charged to operations 7,668 6,459 5,262
Loan losses (6,728) (5,366) (5,237)
Loan loss recoveries 2,126 2,142 1,555
Balance, at end of year $26,824 $23,758 $20,523
</TABLE>
<TABLE>
<CAPTION>
Information about FMB's impaired loans is as follows as of and for the year
ended (in thousands):
December 31, 1995
<S> <C>
Recorded balance of impaired loans at end of year:
With related ALL $ 1,684
With no related ALL 2,969
Total $ 4,653
Average balance of impaired loans for the year $ 6,586
ALL related to impaired loans $ 461
Interest income on impaired loans:
Recorded on a cash basis $ 46
Recorded on an accrual basis 118
Foregone due to impairment 755
</TABLE>
NOTE 6. PREMISES AND EQUIPMENT
<TABLE>
<CAPTION>
Premises and equipment consists of the following (in thousands):
December 31,
1995 1994
<S> <C> <C>
Land and improvements $ 15,967 $ 16,348
Building and improvements 47,383 42,827
Furniture and equipment 43,823 41,432
Total 107,173 100,607
Accumulated depreciation (39,279) (36,040)
Net premises and equipment $ 67,894 $ 64,567
</TABLE>
NOTE 7. SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
Short-term borrowings consist of the following (in thousands):
December 31,
1995 1994
<S> <C> <C>
Securities sold under agreements to repurchase $108,110 $122,758
Other 26,213 50,021
Total $134,323 $172,779
</TABLE>
FMB has an unsecured $25,000,000 standby loan agreement with another
financial institution. Advances on the agreement bear interest at seven-
tenths of a percent over the daily federal funds rate. This replaces the
previous $10,000,000 line of credit. At both December 31, 1995 and 1994,
$10,000,000 had been advanced under the respective agreements. The current
agreement provides for conversion to a term loan of all amounts advanced
on the standby loan as of August 15, 1996. Repayment of the term loan is
anticipated to occur from future operating revenues.
During 1995, various of the Banks obtained advances from the Federal Home
Loan Bank (FHLB) of which they are members.
<TABLE>
<CAPTION>
FHLB advances consist of the following at December 31, 1995 (in thousands):
Maturity Date Interest Rate Balance
<S> <C> <C>
October 27, 1997 5.95% $ 3,000
December 1, 1997 5.42 1,000
October 7, 1998 5.86 2,500
November 30, 1998 5.53 6,000
December 15, 2000 5.86 1,000
$13,500
</TABLE>
FMB's only significant category of short-term borrowings during the year
is securities sold under agreements to repurchase, of which over 95% are one-
day retail repurchase agreements. The amounts and interest rates for this
category for the applicable periods are as follows (in thousands):
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
End of period:
Balance $108,110 $122,758 $100,866
Weighted average rate 3.47% 3.51% 2.11%
Daily average:
Balance $110,216 $109,029 $ 98,611
Rate 3.84% 2.88% 2.47%
Maximum amount outstanding
at any month-end $114,630 $122,758 $112,845
</TABLE>
NOTE 8. LONG-TERM DEBT
<TABLE>
<CAPTION>
Long-term debt consists of the following (in thousands):
December 31,
1995 1994
<S> <C> <C>
8% Installment notes $ 346 $ 944
10% Subordinated debentures 4,537 4,537
Prime Rate (8.50% at December 31, 1995)
promissory note 295 431
Prime Rate bank note - 1,500
Total $ 5,178 $ 7,412
</TABLE>
The 8% installment notes are payable to a former shareholder of Oceana State
Bank. Principal and interest payments are due semiannually on June 30 and
December 31 through December 31, 1996.
The 10% subordinated debentures are payable to former shareholders of
Northwestern Bank Corporation. Interest is payable semiannually on January 30
and July 30 of each year. The debentures are scheduled to mature on May 31,
2001. The debentures may not be called for redemption by FMB prior to May 31,
1998.
The prime rate promissory note is payable to a former shareholder of
Superior. Monthly principal payments of $11,333, plus interest, continue
through January 1998.
The prime rate bank note was a demand note obligation of Superior to an
unaffiliated bank. The note was repaid in December 1995.
FMB will have long-term debt of $494,000 maturing in 1996, $136,000 in 1997,
and $11,000 in 1998.
NOTE 9. SHAREHOLDERS' EQUITY
Common stock consists of 24,000,000 shares authorized, at $1 par value, of
which 18,236,923 and 17,253,664 were outstanding at December 31, 1995 and
1994, respectively. On January 13, 1994, the Board of Directors declared a
four-for-three stock split to shareholders of record on January 31,1994,
payable February 28, 1994. The stock split is reflected in the consolidated
statements of shareholders' equity at December 31, 1993. There are 1,558,715
common shares reserved for issuance under the dividend reinvestment, employee
stock purchase and stock option plans, and the deferred compensation, deferred
stock and current stock purchase plan for non-employee directors.
Preferred stock consists of 1,000,000 shares authorized, at no par value,
none of which are issued. There are 120,000 shares reserved for issuance under
the Shareholder Protection Rights Plan (Plan).
Under the Plan, one preferred share right (Right) was distributed as a
dividend on each outstanding share of common stock. The Plan is designed to
protect shareholders against unsolicited attempts to acquire control of FMB
in a manner that does not offer a fair price to all shareholders.
Each Right will entitle shareholders to buy one one-hundredth of a share of
preferred stock from FMB at an exercise price of $29.38. The Rights will be
exercisable only if a person or group acquires 15 percent or more of the
common stock. If any person or group does acquire 15 percent or more of FMB
common stock, each Right will entitle its holder to purchase, for the exercise
price, shares of FMB's common stock having a market value of twice the
exercise price. Also, if any person or group acquires between 15 percent and
50 percent of FMB's common stock, the Board of Directors may elect to exchange
one share of FMB's common stock or one one-hundredth of a share of preferred
stock for each Right. FMB will be entitled to redeem the Rights at one cent
per Right at any time before a 15 percent position has been acquired.
NOTE 10. STOCK OPTION PLANS
At December 31, 1995, 810,874 shares of common stock were reserved for
issuance in connection with FMB's stock option plan. Options may be granted
to certain executives and key employees at the fair market value of the stock
on the date of grant. The plan provides that 100% of the shares become
exercisable one year following the date granted.
At December 31, 1995, options were outstanding for 583,288 shares, 470,791
of which were exercisable, with option prices ranging from $6.29 to $22.86
per share and expiration dates from January 17, 1996 to January 13, 2005.
Options for 44,733 shares were exercised during the year ended December 31,
1995 at prices ranging from $6.29 to $18.54 per share.
NOTE 11. INCOME TAXES
<TABLE>
<CAPTION>
Income tax components are as follows (in thousands):
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income tax expense:
Current $13,394 $ 9,978 $ 8,410
Deferred (779) 132 199
Total $12,615 $10,110 $ 8,609
Income tax expense (credit)
included above which relates
to security transactions $ 114 $ (87) $ 43
</TABLE>
<TABLE>
<CAPTION>
The tax effect of temporary differences which give rise to a significant
portion of FMB's deferred tax assets (liabilities) are as follows (in
thousands):
December 31,
1995 1994
<S> <C> <C>
Allowance for loan losses $ 9,165 $ 8,002
Accumulated depreciation (3,564) (3,104)
Retirement plans (2,043) (1,863)
Loan fees (394) (316)
Deferred compensation 1,229 1,001
Available-for-sale securities
valuation (966) 1,554
Other 169 63
Net deferred tax assets included
in other assets $ 3,596 $ 5,337
</TABLE>
<TABLE>
<CAPTION>
The amounts shown for income tax expense on the consolidated statements of
income are less than amounts computed by applying the statutory federal income
tax rate to income before taxes. A reconciliation of such amounts is as
follows (in thousands):
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income taxes at statutory rate $16,984 $14,872 $13,330
Tax-exempt interest income (4,714) (4,907) (4,792)
Goodwill amortization 103 103 103
Statutory rate increase on net
deferred tax benefit items - - (106)
Other 242 42 74
Income tax expense $12,615 $10,110 $ 8,609
Effective income tax rate 26.0% 23.8% 22.6%
Statutory income tax rate 35.0 35.0 35.0
</TABLE>
NOTE 12. EMPLOYEES' BENEFIT PLANS
<TABLE>
<CAPTION>
The cost of FMB's noncontributory pension plan was $1,715,000 for 1995,
$1,509,000 for 1994 and $1,285,000 for 1993. Net pension cost includes the
following components (in thousands):
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 1,535 $ 1,558 $ 1,283
Interest cost 2,152 1,959 1,779
Actual return on plan assets (2,339) (2,260) (2,202)
Net amortization and deferral 367 252 425
Net periodic pension cost $ 1,715 $ 1,509 $ 1,285
Major actuarial assumptions:
Weighted-average discount rate 7.5% 7.5% 8.0%
Rate of increase in future
compensation levels 5.0 5.0 5.0
Expected long-term rate of
return on plan assets 9.0 9.0 9.0
</TABLE>
<TABLE>
<CAPTION>
The pension plan's funded status and amounts recognized in FMB's
consolidated balance sheets are as follows (in thousands):
December 31,
1995 1994
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$23,120,000 and $20,342,000,
respectively $25,054 $22,227
Projected benefit obligation
for service rendered to date $31,671 $29,050
Plan assets at fair value,
primarily corporate and
governmental obligations and
mutual funds 32,046 25,833
Projected benefit obligation
(in excess of) less than plan assets 375 (3,217)
Unrecognized prior service cost (2,152) (95)
Unrecognized net loss 7,630 8,634
Unrecognized net transition obligation 40 55
Prepaid pension cost included in other
assets $ 5,893 $ 5,377
</TABLE>
<TABLE>
<CAPTION>
The matching contributions to FMB's defined contribution 401(k) plan
amounted to $747,000 for 1995, $552,000 for 1994, and $499,000 for 1993.
The cost of FMB's postretirement benefit plan was $112,000 for 1995,
$249,000 for 1994 and $261,000 for 1993. Net periodic postretirement benefit
cost includes the following components (in thousands):
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Service cost $ 18 $ 114 $ 105
Interest cost 60 76 87
Return on plan assets (2) (2) -
Net amortization and deferral 36 61 69
Net periodic postretirement
benefit cost $ 112 $ 249 $ 261
Major actuarial assumptions:
Weighted-average discount rate 7.5% 7.5% 8.0%
Health care cost trend rate 10.5 12.5 13.0
</TABLE>
<TABLE>
<CAPTION>
The postretirement benefit plan's funded status and amounts recognized in
FMB's consolidated balance sheet are as follows (in thousands):
December 31,
1995 1994
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ 168 $ 65
Fully eligible active plan participants 562 207
Other active plan participants 115 902
Total 845 1,174
Plan assets at fair value, primarily cash 26 37
Accumulated postretirement benefit obligation
in excess of plan assets 819 1,137
Unrecognized transition obligation (908) (978)
Unrecognized gain 539 230
Accrued other postretirement benefit cost
included in other liabilities $ 450 $ 389
</TABLE>
The health care cost trend rate is assumed to decrease 0.5% annually through
the year 1997 and 1.0% annually through the year 2002 to a rate of 5.0% and
remain at that level thereafter. The health care cost trend rate assumption
has a significant effect on the amounts reported. An increase of 1.0% each
year in the assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation at December 31, 1995 by $38,000 and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for 1995 by $4,000.
NOTE 13. DATA PROCESSING COMMITMENTS
FMB is a party to an agreement with a service company under which the latter
furnishes data processing services and equipment to FMB and certain of its
subsidiaries. FMB is required to pay minimum charges under the agreement and
additional service fees depending on the volume of accounts. FMB furnishes the
facilities to house the service center and is responsible for utilities,
maintenance and other related costs.
Total expense for data processing services under this agreement was
$3,888,000 for 1995, $3,503,000 for 1994 and $3,338,000 for 1993, including
charges for services and amortization of software costs.
<TABLE>
<CAPTION>
The remaining minimum charges are payable as follows (in thousands):
<S> <C>
1996 $ 4,388
1997 $ 4,385
1998 $ 4,374
1999 $ 1,287
Total $14,434
</TABLE>
NOTE 14. SUPPLEMENTAL INCOME STATEMENT INFORMATION
<TABLE>
<CAPTION>
The components of other operating income and other operating expenses that
are detailed pursuant to various generally accepted accounting principles are
as follows (in thousands):
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Other operating income:
Fees and gains on sale of loans $ 2,139 $ 2,095 $ 7,249
Other operating expenses:
Printing and supplies 3,217 2,758 2,524
Computer processing 4,128 3,712 3,546
Professional services 2,467 2,264 2,487
Advertising and promotion 2,436 2,179 1,841
</TABLE>
NOTE 15. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
FMB is party to financial instruments with off-balance-sheet risk, all of
which are entered into for purposes other than trading. These instruments are
used in the normal course of business to meet the financing needs of its
customers and reduce its own exposure to fluctuations in interest rates and
include commitments to extend credit, letters of credit, and interest rate
swaps. To varying degrees, they involve elements of credit and interest rate
risk in excess of the amounts recognized in the consolidated balance sheets.
The contract or notional amounts of these instruments reflect the extent of
involvement FMB has in these particular categories of financial instruments.
Commitments to extend credit are agreements to lend to customers as long as
there are no violations of any conditions established in the contracts.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected
to expire without being drawn upon, the total commitment amounts do not
necessarily represent future cash requirements.
Letters of credit are conditional commitments issued by the Banks to
guarantee the performance of customers to third parties. Letters of credit
are written for a fixed period of time, usually one year or less, and
generally require payment of a fee. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending loan
facilities to customers.
For both commitments to extend credit and letters of credit, the Banks
evaluate each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Banks upon extension of
credit, is based on management's credit evaluation. Collateral held varies
but may include accounts receivable, inventory, property, plant and equipment,
and income-producing commercial properties.
FMB and its subsidiaries enter into interest rate swap agreements as a part
of the asset/liability management process to hedge its short-term interest
sensitivity position against the impact of changes in interest rates. Interest
rate swap agreements generally involve the exchange of fixed and floating rate
interest payment obligations without the exchange of the underlying principal
amounts. The interest rate differential to be paid or received is recognized
in interest income over the life of the agreements.
FMB's exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and
letters of credit written is represented by the contractual amount of those
instruments. The Banks use the same credit policies in making commitments and
conditional obligations as they do for on-balance-sheet instruments. For
interest rate swap agreements, the notional amounts do not represent exposure
to credit loss. FMB controls the credit risk for interest rate swap agreements
through credit approvals, limits and monitoring procedures.
<TABLE>
<CAPTION>
The contract or notional amounts of financial instruments with off-balance-
sheet risk, held for purposes other than trading, are as follows (in
thousands):
December 31,
1995 1994
<S> <C> <C>
Financial instruments whose
contract amounts represent
credit risk:
Commitments to extend credit $572,313 $493,206
Standby letters of credit 36,677 34,306
Other letters of credit 880 1,654
Financial instruments whose
notional or contract amounts
exceed the amount of credit risk:
Interest rate swap agreements 20,000 20,000
</TABLE>
Substantially all of FMB's business during the years presented is with
customers in the State of Michigan with no group concentrations of credit.
NOTE 16. DISCLOSURES ABOUT ESTIMATED FAIR VALUE OF FINANCIAL
INSTRUMENTS
Most of FMB's assets and liabilities are considered financial instruments.
Many of FMB's financial instruments lack an available trading market, and it
is the intent and general practice of FMB to hold its financial instruments
to maturity. As a result, significant assumptions and present value
calculations were used in determining estimated fair values.
For financial instruments bearing a variable interest rate, it is presumed
that recorded book values are reasonable estimates of fair value. For all
other financial instruments, the following methods and assumptions were used
to estimate fair values:
Cash and cash equivalents
Recorded book value of cash and due from banks and federal funds sold is a
reasonable estimate of fair value.
Interest bearing deposits with banks
The present value of future cash flows from interest bearing deposits with
banks is used to determine estimated fair value. The discount rates used are
the current rates that FMB would receive for similar deposits.
Securities
Quoted market prices for the specific instruments owned, or for similar
securities, are used to determine estimated fair value.
Loans
FMB holds in its portfolio few loans of the type that are readily salable in
the secondary market, or that are commonly used to collateralize investment
securities. Therefore, the present value of estimated future cash flows from
the loan portfolio is used to determine fair value. The discount rates used
are the current rates at which loans with similar terms would be made to
borrowers with similar credit ratings.
Deposits without stated maturities
Recorded book value of non-interest bearing demand deposits and savings and
NOW account deposits, representing the amount payable on demand at the
reporting date, is a reasonable estimate of fair value.
The relationship value of these instruments, commonly referred to as the
core deposit intangible, is not considered a financial instrument and is not
included in the fair value disclosure. The value of the core deposit
intangible would significantly increase the estimated fair value of FMB's
financial assets.
Deposits with stated maturities
The present value of future cash flows for time deposits is used to
determine estimated fair value. The discount rates used are the current rates
offered for time deposits with similar maturities.
Short-term borrowings
Recorded book value is a reasonable estimate of fair value due to the
relatively short period between origination and expected repayment of these
instruments.
Long-term debt
The present value of future cash flows for long-term debt issues is used to
determine estimated fair value. The discount rate used is the average of
quoted yields to maturity on trades of similarly-rated financial institution
debt issues.
Off-balance-sheet financial instruments held for purposes other than trading
For interest rate swap agreements, dealer quotes for the specific
instruments owned are used to determine estimated fair value. These values
represent the estimated amount FMB would pay to terminate the agreements,
taking into account the current interest rates. For commitments to extend
credit and letters of credit, the fees currently charged for similar
agreements are used to determine estimated fair value. Given the market
in which it operates, FMB seldom charges fees on commitments to extend credit.
Accrued interest
Accrued interest receivable and payable on financial instruments is included
in the reported values of the underlying instruments. For accrued interest
receivable and payable, the recorded book values are reasonable estimates of
fair value.
The remaining assets and liabilities of FMB are not considered financial
instruments and have not been valued differently than is customary under
historical cost accounting. Since assets and liabilities that are not
financial instruments are excluded below, the difference between total
financial assets and financial liabilities does not, nor is it intended to,
represent the market value of FMB. Furthermore, the estimated fair value
information may not be comparable between financial institutions due to the
wide range of valuation techniques permitted, and assumptions necessitated,
in the absence of an available trading market.
<TABLE>
<CAPTION>
The estimated fair values of FMB's financial instruments are as follows
(in thousands):
December 31, 1995 December 31, 1994
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 235,682 $ 235,682 $ 124,022 $ 124,022
Interest bearing deposits
with banks 5,319 5,348 4,001 3,917
Securities 676,581 690,143 724,625 685,119
Loans, net of allowance 2,121,545 2,140,931 1,879,041 $1,870,970
Total financial assets $3,039,127 $3,072,104 $2,731,689 $2,684,028
Financial Liabilities
Deposits without stated
maturities $1,186,555 $1,186,555 $1,174,770 $1,174,770
Deposits with stated
maturities 1,540,961 1,549,526 1,236,219 1,215,851
Short-term borrowings 134,412 134,412 172,824 172,824
Long-term debt 5,369 5,728 7,611 7,842
Total financial
liabilities $2,867,297 $2,876,221 $2,591,424 $2,571,287
Off-Balance-Sheet Financial
Instruments Held For
Purposes Other Than
Trading
Interest rate swap
agreements $(4) $(290) $45 $(207)
Commitments to extend credit n/a - n/a -
Letters of credit n/a (213) n/a (173)
Total off-balance-sheet
financial instruments $(4) $(503) $45 $(380)
</TABLE>
NOTE 17. FIRST MICHIGAN BANK CORPORATION (PARENT COMPANY
ONLY) FINANCIAL
INFORMATION
<TABLE>
Balance Sheets (in thousands)
December 31,
1995 1994
<S> <C> <C>
Assets
Cash and cash equivalents $ 811 $ 770
Interest bearing deposits with banks 15,200 7,000
Investment in subsidiaries 225,675 203,747
Premises and equipment 18,684 18,985
Other assets 11,600 11,328
Total assets $271,970 $241,830
Liabilities and Shareholders' Equity
Liabilities:
Short-term borrowings $ 10,011 $ 10,011
Long-term debt 4,883 5,481
Other liabilities 10,303 8,468
Total liabilities 25,197 23,960
Shareholders' equity 246,773 217,870
Total liabilities and shareholders'
equity $271,970 $241,830
</TABLE>
<TABLE>
Statements of Income (in thousands, except per share data)
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Income
From subsidiaries:
Dividends $27,600 $16,550 $15,000
Centralized support service fees 15,696 12,093 11,497
Interest on notes receivable - 17 49
Investment interest 451 534 581
Other 15 (6) 5
Total income 43,762 29,188 27,132
Expense
Salaries and employee benefits 13,325 10,576 10,050
Interest on long-term debt 508 643 734
Other 9,241 6,927 6,532
Total expense 23,074 18,146 17,316
Income before applicable income
tax benefit and equity in
undistributed net income of
subsidiaries 20,688 11,042 9,816
Income tax benefit 2,225 1,723 1,617
Income before equity in
undistributed net income
of subsidiaries 22,913 12,765 11,433
Equity in undistributed
net income of subsidiaries 12,997 19,615 18,044
Net Income $35,910 $32,380 $29,477
Net Income Per Share $1.95 $1.76 $1.59
</TABLE>
<TABLE>
Statements of Cash Flows (in thousands)
Year ended December 31,
1995 1994 1993
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income $ 35,910 $ 32,380 $ 29,477
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for depreciation,
amortization and accretion 2,378 1,914 1,970
Deferred income taxes (53) 428 541
Other net 2,102 (536) (88)
Equity in undistributed net
income of subsidiaries (12,997) (19,615) (18,044)
Total adjustments (8,570) (17,809) (15,621)
Net cash provided by operating
activities 27,340 14,571 13,856
Cash Flows From Investing Activities
Net (increase) decrease in interest
bearing deposits with banks (8,200) 8,000 (54)
Proceeds from maturities of
securities - - 1,000
Purchase of premises and equipment
and other assets (3,946) (959) (425)
Proceeds from sale of premises and
equipment 714 2,034 -
Contribution to capital of
subsidiaries (4,250) (8,900) (1,850)
Net cash provided by (used in)
investing activities (15,682) 175 (1,329)
Cash Flows From Financing Activities
Decrease in short-term borrowings - (3) -
Repayment of long-term debt (598) (1,497) (741)
Cash dividends and fractional shares (13,386) (10,703) (8,505)
Proceeds from issuance of common stock 4,278 3,641 2,193
Common stock repurchased (1,911) (6,311) (5,427)
Net cash used in financing activities (11,617) (14,873) (12,480)
Increase (decrease) In Cash and
Cash Equivalents 41 (127) 47
Cash and Cash Equivalents, At
Beginning of Year 770 897 850
Cash and Cash Equivalents, At End of
Year $ 811 $ 770 $ 897
</TABLE>
NOTE 18. REGULATORY RESTRICTIONS
The Banks may, from time to time, be required to maintain certain average
reserve balances with the Federal Reserve Bank. During 1995 and 1994, these
reserves were $6,891,000 and $7,481,000, respectively.
Federal and state banking laws and regulations place certain restrictions on
the amount of dividends and loans that a bank may pay to its parent company.
Of the $223,778,000 in net assets of the Banks, $45,461,000 is available for
dividends to the parent company in 1996 (before considering 1996 net income),
and the remaining $178,317,000 is restricted based on minimum risk-based
capital requirements now in effect.
We have audited the accompanying consolidated balance sheets of First
Michigan Bank Corporation and subsidiaries as of December 31, 1995 and 1994,
and the related consolidated statements of income, shareholders' equity and
cash flows for each of the three years in the period ended December 31, 1995.
these financial statements are the responsibility of FMB's management. Our
responsibility is to express an opinion on these financial statements based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material aspects, the financial position of First
Michigan Bank Corporation and subsidiaries at December 31, 1995 and 1994,
and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1995 in conformity with generally
accepted accounting principles.
/s/BDO Seidman, LLP
BDO Seidman, LLP
January 18, 1996
Grand Rapids, Michigan
<TABLE>
Quarterly Financial Information (in thousands, except per share data)
1995
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Results of operations
Interest income $56,253 $59,663 $61,234 $63,059
Interest expense 26,482 28,948 29,535 30,298
Net interest income 29,771 30,715 31,699 32,761
Provision for loan losses 1,748 1,880 1,986 2,054
Non-interest income 6,979 7,272 7,789 8,402
Non-interest expense 24,318 24,586 24,836 25,455
Income before income taxes 10,684 11,521 12,666 13,654
Income tax expense 2,580 2,916 3,333 3,786
Net income $ 8,104 $ 8,605 $ 9,333 $ 9,868
Total cash dividends $ 3,284 $ 3,452 $ 3,456 $ 3,829
Per common share information
Net income $ .44 $ .47 $ .51 $ .53
Cash dividends declared* .18 .19 .19 .21
Book value 12.41 12.79 13.12 13.53
*Cash dividends declared per share have been adjusted to reflect the four-
for-three stock split paid in February, 1994 and 5% stock dividends paid in
May, 1995 and 1994.
</TABLE>
<TABLE>
Quarterly Financial Information (in thousands, except per share data)
1994
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
Results of operations
Interest income $43,479 $46,970 $50,460 $53,352
Interest expense 17,430 18,765 21,050 23,283
Net interest income 26,049 28,205 29,410 30,069
Provision for loan losses 1,563 1,529 1,530 1,837
Non-interest income 7,476 6,555 7,212 6,985
Non-interest expense 22,511 22,700 23,709 24,092
Income before income taxes 9,451 10,531 11,383 11,125
Income tax expense 2,016 2,579 2,809 2,706
Net income $ 7,435 $ 7,952 $ 8,574 $ 8,419
Total cash dividends $ 2,642 $ 2,845 $ 2,840 $ 3,161
Per common share information
Net income $ .40 $ .43 $ .47 $ .46
Cash dividends declared* .15 .16 .17 .18
Book value 11.41 11.59 11.84 12.03
Per share market price of stock
High bid $ 20 1/8 $ 22 5/8 $ 22 1/8 $ 22 3/8
Low bid 18 1/2 19 5/8 21 1/8 19 3/4
Ending bid 19 3/4 21 3/8 21 5/8 22 3/8
*Cash dividends declared per share have been adjusted to reflect the four-
for-three stock split paid in February, 1994 and 5% stock dividends paid in
May, 1995 and 1994.
</TABLE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND
FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Directors of Registrant
Information relating to directors and director nominees of the Registrant
and compliance with Section 16(a) of the Exchange Act is contained under
the caption "Information About Directors and Director Nominees" in the
Registrant's definitive Proxy Statement, dated March 14, 1996, for the
Annual Meeting of Shareholders to be held on April 18, 1996, as filed with
the Commission, which information is incorporated by reference in this
Form 10-K Annual Report.
Executive Officers of Registrant
Information relating to Executive Officers of the Registrant is included in
Part I of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Information relating to compensation of the Registrant's executive officers
is contained under the caption "Compensation of Executive Officers" in the
Registrant's definitive Proxy Statement, dated March 14, 1996, for the Annual
Meeting of Shareholders to be held on April 18, 1996 as filed with the
Commission, which information is incorporated by reference in this Form 10-K
Annual Report, excluding the information included under the captions
"Committee Report on Executive Compensation" and "Shareholder Return
Performance Graph".
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information concerning security ownership of certain beneficial owners and
management is contained under the captions "Voting Securities and Beneficial
Ownership of Management" and "Information about Directors and Director
Nominees" in the definitive proxy statement dated March 14, 1996 for the
Annual Meeting of Shareholders to be held April 18, 1996 as filed with the
Commission, which information is incorporated herein by reference in this
Form 10-K Annual Report.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information relating to management transactions with the Registrant is
contained under the caption "Other Transactions" in the Registrant's
definitive Proxy Statement, dated March 14, 1996, for the Annual Meeting of
Shareholders to be held on April 18, 1996, as filed with the Commission,
which information is incorporated by reference in this Form 10-K Annual
Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS
ON FORM 8-K
(a) 1. Financial Statements
The following financial statements of First Michigan Bank Corporation
are filed as part of Item 8 of this Form 10-K Annual Report. Financial
Statements and Supplementary Data.
Consolidated Balance Sheets as of December 31, 1995 and 1994.
Consolidated Statements of Income for the years ended December 31, 1995,
1994 and 1993.
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993.
Consolidated Statements of Cash Flows for the years ended December 31,
1995, 1994 and 1993.
Notes to Consolidated Financial Statements
Independent Auditors' Report
The above listed financial statements are included under Item 8.
Financial Statements and Supplementary Data of this document.
(a) 2. Financial Statement Schedules
All financial statement schedules have been included in the consolidated
financial statements or are either not applicable or not significant.
(a) 3. Exhibits
Reference is made to the Exhibit Index which is found in this Form 10-K
Annual Report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended December 31,
1995.
For purposes of complying with the amendments to the rules governing Form S-8
under the Securities Act of 1933, the undersigned Registrant hereby undertakes
as follows, which undertaking shall be incorporated by reference into
Registrant's Registration Statements on Form S-8 Nos.: 2-73711; 33-24591;
and 33-34461:
Insofar as indemnification for liabilities arising under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a director, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the Act
and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FIRST MICHIGAN BANK CORPORATION
/s/ David M. Ondersma
By: David M. Ondersma
(Chairman of the Board and Chief
Executive Officer)
/s/ Larry D. Fredricks
By: Larry D. Fredricks
(Principal Financial Officer)
(Principal Accounting Officer)
Date: March 14, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below on March 14, 1996 by the following persons on
behalf of the registrant in the capacities indicated. Each Director of the
Registrant, whose signature appears below hereby appoints David M. Ondersma
as his or her attorney-in-fact, to sign in his or her name and on his on her
behalf, as a Director of the Registrant, and to file with the Commission
any and all amendments to this Report on Form 10-K.
/s/ Roger A. Andersen
Roger A. Andersen, Director Donald W. Maine, Director
/s/ James H. Bloem /s/ Jack H. Miller
James H. Bloem, Director Jack H. Miller, Director
/s/ David M. Cassard /s/ David M. Ondersma
David M. Cassard, Director David M. Ondersma, Director
/s/ Doyle A. Hayes /s/ Merle J. Prins
Doyle A. Hayes, Director Merle J. Prins, Director
/s/ Robert J. Kapenga /s/ John W. Spoelhof
Robert J. Kapenga, Director John W. Spoelhof, Director
/s/ Meriam B. Leeke /s/ Stephen A. Stream
Meriam B. Leeke, Director Stephen A. Stream, Director
EXHIBIT INDEX
The following exhibits are filed herewith, indexed according to the applicable
assigned number:
Exhibit
Number Page
* (10) First Michigan Bank Corporation Pension Benefit
Restoration Plan
(21) Subsidiaries of the Registrant.
(23)(a) Consent of Independent Certified
Public Accountants, dated March 27, 1996.
(23)(b) Consent of Independent Certified
Public Accountants, dated March 27, 1996,
regarding the Registrant's Cash Option Plan.
(27) Financial data schedule.
(29) Financial statements, financial statement
schedules and report of independent accountants
for the Registrant's Cash Option Plan.
The following exhibits, indexed according to the applicable assigned number,
were previously filed by the Registrant and are incorporated by reference in
this Form 10-K Annual Report.
Exhibit
Number Original Filing Form and Date
(3)(a) Article III of the Articles of Exhibit (3) of Form 10-K for
Incorporation of the Registrant the year ended December 31, 1991.
as amended, approved by a vote of
shareholders on April 16, 1991.
(b) Article VI of the Articles of Exhibit 3(a) of Form 10-K for
Incorporation of the Registrant the year ended December 31, 1988.
as amended, approved by a vote of
the shareholders on April 12, 1988.
(c) Articles of Incorporation of Exhibit 3(a) of Form 10-K for
the Registrant except for the the year ended December 31, 1987.
amendments to the Articles of
Incorporation referenced above.
(d) Bylaws of the Registrant Exhibit 3(b) of Form 10-K for
the year ended December 31, 1987.
(4) Instruments defining the rights
of security holders, including
indentures:
(a) Automatic Dividend Reinvestment Exhibit 4(a) of Form S-3,
and Stock Purchase Plan of the dated February 13, 1985,
Registrant. File #2-95898.
(10) Material Contracts:
*(a) First Michigan Bank Corporation Exhibit 10(d) of Form 10-K
Employee Benefit Trust, dated for the year ended December 31,
August 14, 1980. 1980.
*(b) First Michigan Bank Corporation Appendix A of the definitive
1987 Stock Option Plan, approved Proxy Statement, dated on
by the Registrant's Board of March 20, 1987.
Directors March 12, 1987, approved
by the shareholders and effective
April 14, 1987.
*(c) Form of Management Continuity Exhibit 10 of Registration
Agreement entered into between Statement on Form S-4 dated
the Registrant and certain January 10, 1996.
executive officers of the (Reg. No. 333-00131)
Registrant.
*(d) Deferred Compensation, Deferred Appendix A of the definitive
Stock, and Current Stock Purchase proxy statement, dated March 9,
Plan for Non-Employee Directors, 1995.
approved by the Registrant's Board
of Directors December 8, 1994,
approved by the shareholders and
effective April 13, 1995.
* Indicates a compensatory arrangement.
EXHIBIT 10
FIRST MICHIGAN BANK CORPORATION
PENSION BENEFIT RESTORATION PLAN
VARNUM, RIDDERING, SCHMIDT & HOWLETTLLP
Bridgewater Place
333 Bridge Street, N.W.
Grand Rapids, MI 49504
(616) 336-6000
TABLE OF CONTENTS
Page
ARTICLE I -- PURPOSE 1
ARTICLE II -- DEFINITIONS AND CONSTRUCTION 1
2.1 Definitions 1
2.2 Construction 4
ARTICLE III -- PARTICIPATION AND SERVICE 4
3.1 Participation 4
3.2 Vesting Service 4
3.3 Benefit Service 4
ARTICLE IV -- NORMAL RETIREMENT BENEFIT 5
4.1 Eligibility 5
4.2 Amount of Benefit 5
4.3 Effect of Postponed Retirement 8
4.4 Commencement of Benefits 8
ARTICLE V -- EARLY RETIREMENT BENEFIT 8
5.1 Eligibility 8
5.2 Amount of Benefit 8
5.3 Commencement of Benefits 9
ARTICLE VI -- DEFERRED VESTED BENEFIT 9
6.1 Eligibility 9
6.2 Amount of Benefit 9
6.3 Commencement, Duration, and Form of Payment 9
ARTICLE VII -- PRE-RETIREMENT SURVIVING SPOUSE BENEFIT 10
7.1 Eligibility 10
7.2 Amount of Benefit 10
7.3 Commencement, Duration, and Form of Payment 10
ARTICLE VIII -- DISABILITY BENEFIT 10
8.1 Eligibility 10
8.2 Disability Benefit 10
8.3 Commencement, Duration and Form of Payment 11
Page
ARTICLE IX -- PAYMENT OF RETIREMENT BENEFITS 11
9.1 Standard Benefit 11
9.2 Post-Retirement Surviving Spouse Benefit 12
9.3 Optional Forms of Benefit 12
9.4 Commencement of Payment 13
9.5 Reduction of Benefits for Previous Payments 13
9.6 Payment Pursuant to Qualified Domestic Relations
Orders 13
9.7 Benefits Upon Reemployment 13
ARTICLE X -- FUNDING OF PLAN 13
ARTICLE XI -- ADMINISTRATION 13
11.1 Plan Administrator 13
11.2 Indemnification 13
11.3 Records and Reports 14
11.4 Appointment of Committee 14
11.5 Claims Procedure 14
11.6 Rules and Decisions 15
11.7 Committee Procedures 15
11.8 Authorization of Benefit Payments 15
11.9 Application and Forms for Benefits 15
11.10 Facility of Payment 15
ARTICLE XII -- AMENDMENT OF PLAN 16
ARTICLE XIII -- NONALIENATION OF BENEFITS AND DOMESTIC
RELATIONS ORDERS 16
13.1 Nonalienation of Benefits 16
13.2 Procedure for Domestic Relations Orders 16
ARTICLE XIV -- MISCELLANEOUS 17
14.1 Status of Participants 17
14.2 No Interest in Company Affairs 17
14.3 Litigation 18
14.4 Governing Law 18
14.5 Severability of Provisions 18
FIRST MICHIGAN BANK CORPORATION
PENSION BENEFIT RESTORATION PLAN
This Nonqualified Deferred Compensation Plan is adopted by First Michigan
Bank Corporation, a Michigan corporation (the "Company") for itself and its
subsidiaries.
ARTICLE I
PURPOSE
The Company is adopting the First Michigan Bank Corporation Pension
Benefit Restoration Plan (the "Plan") to provide additional retirement
benefits for a select group of management and highly compensated employees.
The benefits provided under this Plan will be in addition to those provided
by the First Michigan Bank Corporation Defined Benefit Pension Plan and the
First Michigan Bank Corporation Deferred Compensation Agreement for Larry B.
Fredericks. This Plan will supersede the Supplemental Retirement Agreements
between First Michigan Bank Corporation and David M. Ondersma, Stephen A.
Stream, and Merle B. Prins.
This Plan will not be funded and benefits under the Plan will be payable
by the Company. This Plan is intended to be exempt from the requirements of
Parts 2, 3 and 4 of Subtitle B of Title I of ERISA, and is not intended to
satisfy the requirements of Section 401(a) of the Code. The provisions of
this Plan will apply only to persons who are employed by the Company on or
after the date on which this Plan is adopted.
ARTICLE II
DEFINITIONS AND CONSTRUCTION
2.1 Definitions: The following words or phrases, when used in this
Agreement, will have the following meanings:
(a) Accrued benefit: The portion of a normal retirement benefit
earned as of the date of the computation. It is a monthly benefit
commencing at normal retirement date and computed in accordance with the
normal retirement benefit formula in Section 4.2, using the participant's
average monthly compensation and benefit service on the date of
computation.
(b) Actuarial equivalent: Equivalence in the present value of
various forms of payment. Present values will be determined by the
actuaries chosen by the Company based on the mortality table prescribed
from time to time by the Secretary of the Treasury of the United States
(currently the GAM '83 mortality table applied on a unisex basis) and
the following interest rates:
(A) For purposes of determining the value of lump sum
distributions, the annual interest rate on 30-year treasury
securities as published by the Board of Governors of the Federal
Reserve System for the month of December of the year prior to
the year in which the distribution is made;
(B) For all other purposes, 7% per annum.
(c) Authorized leave of absence: Any absence authorized by the
Company under its standard personnel policies from which the employee
returns to active employment with the Company within the period
authorized for the leave. An absence due to service in the armed forces
of the United States will be considered an authorized leave of absence
provided that the employee qualifies for reemployment rights under
federal law, 38 USC Sections 2021 or 2024 or other statute of similar
import, and returns to employment with the Company within the period
provided by law. If an employee fails to return to active employment
from any approved leave of absence within the time authorized for the
leave, the employee will not be credited with any service for the period
of the leave.
(d) Average monthly compensation: The result obtained by dividing
by 60 the total compensation of a participant during the five (5)
consecutive calendar years in which the participant's compensation was
highest during the last 10 calendar years of employment with the Company.
(e) Benefit service: The period of a participant's employment
considered in determining the amount of benefits payable to or on behalf
of the participant and computed in accordance with Section 3.3.
(f) Break in service: A participant incurs a break in service
whenever employment with the Company terminates and the participant is
credited with less than 501 hours of employment in the plan year of
termination or in any subsequent plan year.
(g) Code: The Internal Revenue Code of 1986, as amended from time
to time.
(h) Committee: The persons appointed to assist the Company in
administering the Plan.
(I) Company: First Michigan Bank Corporation, a Michigan
corporation, or its successor.
(j) Compensation: The smaller of 400% of the limit on compensation
in Code Section 401(a)(17), as indexed, or the applicable amount from the
following:
(I) The sum of the participant's gross salary for the year
and 50% of any bonuses paid to the participant during the year;
or
(ii) If the participant's gross salary for the year is less
than the limit on compensation under Code Section 401(a)(17), the
sum of the participant's salary plus 100% of any bonuses paid during
the year, but minus 50% of the amount by which the sum of the
salary plus bonuses exceeds the limit on compensation under Code
Section 401(a)(17). The limit on compensation is $150,000 for
1995 and will be adjusted for changes in the cost of living in the
future.
(k) Covered Compensation: One-twelfth (1/12th) of the average for
each participant of the social security taxable wage bases in effect for
each calendar year during the 35-year period ending with the last day of
the year in which the participant attains or will attain social security
retirement age. The taxable wage base for the current year and each
subsequent year will be assumed to be the same as the taxable wage base
in effect as of the beginning of the plan year for which the
determination is being made. If a participant continues working during
the plan year in which the participant attains social security retirement
age and thereafter, covered compensation will be the amount determined
for the year in which the participant attains social security retirement
age. For plan years prior to the 35-year period described in the first
sentence, a participant's covered compensation will be equal to the
taxable wage base for the plan year. Each participant's covered
compensation will be redetermined for each plan year.
(l) Controlled group: The group consisting of each corporation
that is a member of a controlled group of corporations, as defined in
Code Section 414(b), of which the Company is a member, each trade or
business, whether or not incorporated, under common control, as defined
in Code Section 414(c), of or with the Company; and each member of an
affiliated service group, as defined in Code Section 414(m), of which
the Company is a member.
(m) ERISA: Public Law No. 93-406, the Employee Retirement Income
Security Act of 1974, as amended from time to time.
(n) Former participant: A person whose employment with the Company
has terminated but who has an interest in the Plan.
(o) FMBC Pension Plan: The First Michigan Bank Corporation Defined
Benefit Pension Plan, as amended from time to time.
(p) Normal retirement date: The later of the participant's 65th
birthday or the 5th anniversary of the date of participation in the FMBC
Pension Plan.
(q) Participant: A person participating in the Plan in accordance
with the provisions of Article III and employed by the Company or another
member of the controlled group.
(r) Plan: The First Michigan Bank Corporation Pension Benefit
Restoration Plan as set forth in this document and any later amendments.
(s) Plan year: The "fiscal year" of the Plan which will be the
period of 12 consecutive months ending on December 31 of every year.
(t) Vesting service: The period of participant's employment with
the Company computed in accordance with Section 3.2 and used to determine
eligibility for benefits under this Plan.
2.2 Construction. The masculine gender is used throughout the Plan for
purpose of simplicity only and is intended to include the feminine gender.
ARTICLE III
PARTICIPATION AND SERVICE
3.1 Participation. Participation in this Plan will be limited to
employees of the controlled group who are eligible to participate in the FMBC
Pension Plan and whose benefit under that plan is limited by the maximum
compensation limit of Code Section 401(a)(17) or the maximum benefit limit
of Code Section 415. An eligible employee will become a participant in this
Plan as of the first day of the plan year in which the employee's benefit
under the FMBC Pension Plan is limited by either Code Section 401(a)(17) or
415.
3.2 Vesting Service. A participant's eligibility for benefits under
the Plan will be determined by the participant's vesting service. A
participant will be credited with a year of vesting service under this Plan
for each year for which the participant is credited with a year of vesting
service under the FMBC Pension Plan.
3.3 Benefit Service. The amount of the benefit payable to or on behalf
of a participant will be determined on the basis of the participant's benefit
service. Each participant will be credited with a year of benefit service
under this Plan for each year for which the participant is credited with a
year of benefit service under the FMBC Pension Plan and will be credited with
such additional years of benefit service as may be required under any other
agreements between the participant and the Company.
ARTICLE IV
NORMAL RETIREMENT BENEFIT
4.1 Eligibility. A normal retirement benefit will be paid to each
participant who:
(a) Has reached normal retirement date; and
(b) Thereafter has terminated employment with the Company.
4.2 Amount of Benefit. The normal retirement benefit will be monthly
payments for the life of the participant equal to the amount determined from
the following minus the amount of the benefit the participant will receive
from the FMBC Pension Plan:
(a) Employees eligible for the FMBC Pension Plan on or before
April 30, 1995. For participants who were eligible to participate in
the FMBC Pension Plan on or before April 30, 1995, the amount equal to
the greater of the following:
(I) The sum of 0.45% of the participant's average monthly
compensation that is in excess of the participant's covered
compensation multiplied by the participant's years of benefit
service, the participant's accrued benefit, if any, under the
Northwestern State Bank pension plan as of May 31, 1991, and the
applicable amount from the following:
(A) For participants who were born prior to
1935, 1.7% of the participant's average monthly
compensation multiplied by the participant's benefit
service;
(B) For participants born during 1935, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
through April 30, 1995, plus 1.66% of average
monthly compensation multiplied by benefit service
earned after April 30, 1995;
(C) For participants born during 1936, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
through April 30, 1995 plus 1.62% of average
monthly compensation multiplied by benefit service
earned after April 30, 1995;
(D) For participants born during 1937, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
through April 30, 1995, plus 1.58% of average
monthly compensation multiplied by benefit service
earned after April 30, 1995;
(E) For participants born during 1938, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service
earned through April 30, 1995 plus 1.54% of average
monthly compensation multiplied by benefit
service earned after April 30, 1995; and
(F) For participants born after 1938, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
through April 30, 1995 plus 1.5% of average
monthly compensation multiplied by benefit service
earned after April 30, 1995.
Inasmuch as years of benefit service are limited to 30, the
limitation will apply first to years of benefit service earned after
April 30, 1995, and then to years of benefit service earned through
April 30, 1995; or
(ii) The sum of the participant's accrued benefit as of
December 31, 1993, plus 0.45% of the participant's average
monthly compensation that is in excess of the participant's covered
compensation multiplied by years of benefit service earned after
1993, plus the applicable amount from the following:
(A) For participants born prior to 1935,
1.7% of the participant's average monthly
compensation multiplied by the participant's benefit
service earned after 1993;
(B) For participants born during 1935, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
after 1993 and prior to May 1, 1995, and 1.66% of
average monthly compensation multiplied by benefit
service earned after April 30, 1995;
(C) For participants born during 1936, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
after 1993 and prior to May 1, 1995, and 1.62% of
average monthly compensation multiplied by benefit
service earned after April 30, 1995;
(D) For participants born during 1937, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
after 1993 and prior to May 1, 1995, and 1.58% of
average monthly compensation multiplied by benefit
service earned after April 30, 1995;
(E) For participants born during 1938, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service
earned after 1993 and prior to May 1, 1995, and
1.54% of average monthly compensation multiplied
by benefit service earned after April 30, 1995; or
(F) For participants born after 1938, 1.7%
of the participant's average monthly compensation
multiplied by the participant's benefit service earned
after 1993 and prior to May 1, 1995, and 1.5% of
average monthly compensation multiplied by benefit
service earned after April 30, 1995.
Inasmuch as years of benefit service are limited to more than 30,
the limitation will apply first to benefit service earned after
April 30, 1995, then to benefit service earned after 1993 and prior to
May 1, 1995, and finally to benefit service earned prior to 1994.
(b) Employees who become eligible for the FMBC Pension Plan after
April 30, 1995. For employees who become eligible to participate in
the FMBC Pension Plan after April 30, 1995, the amount equal to the
participant's years of benefit service multiplied by the sum of 1.5% of
the participant's average monthly compensation plus 0.45% of the
participant's average monthly compensation that is in excess of the
participant's covered compensation.
Participants who receive benefits in the form of a joint and survivor
annuity or other optional form of payment will have their benefits adjusted
by the amount necessary to make the optional form of payment the actuarial
equivalent of the benefit provided in this section.
4.3 Effect of Postponed Retirement. A participant who continues
employment beyond normal retirement date will have a fully vested right to a
normal retirement benefit, but will not receive any retirement benefit
payments until the first day of the month after employment terminates. When
payments begin, the amount of the monthly retirement benefit will be
equal to the greater of the following:
(a) The actuarial equivalent of the monthly benefit to which the
participant was entitled at normal retirement date; or
(b) The monthly retirement benefit based on years of benefit
service and average monthly compensation at retirement.
4.4 Commencement of Benefits. Payment will begin on the first day of
the month after the participant meets all requirements for eligibility and
be made in accordance with Article IX.
ARTICLE V
EARLY RETIREMENT BENEFIT
5.1 Eligibility. A participant who has attained age 55, completed five
(5) or more years of benefit service, and thereafter terminates employment
with the Company will be entitled to receive an early retirement benefit.
5.2 Amount of Benefit. The early retirement benefit will be equal to
the participant's accrued benefit. If payment of benefits is to commence
prior to normal retirement date, the monthly benefit will be reduced as
follows:
(a) For participants who were born prior to 1940, the monthly
benefit will be reduced by 0.4166% per month for each month that the
commencement of benefits precedes the month of the participant's 62nd
birthday during the period from the participant's 60th birthday to the
participant's 62nd birthday, and by 0.5% for each month by which
commencement of benefits precedes the participant's 60th birthday; and
(b) For participants born after 1939, the monthly benefit will be
reduced by 0.2% per month for each month that the commencement of
benefits precedes the month of the participant's 65th birthday during
the period from the participant's 62nd birthday to the participant's 65th
birthday and by 0.4% per month for each month by which commencement of
benefit precedes the participant's 62nd birthday. If, however, the
participant's monthly benefit would be greater if based on the
participant's accrued benefit as of April 30, 1995 and the reduction
factors in subsection (a), the participant will be entitled to the
larger monthly benefit.
5.3 Commencement of Benefits. Payment of the early retirement benefit
will begin on the first day of the month after the participant meets the
requirements and requests payment, and will be payable in accordance with
Article IX.
ARTICLE VI
DEFERRED VESTED BENEFIT
6.1 Eligibility. A participant will be fully vested in an accrued
benefit after completing five (5) years of vesting service with the Company.
A participant will be eligible for a deferred vested benefit if the
participant:
(a) has completed at least five (5) years of vesting service with
the Company; and
(b) has terminated employment for reasons other than death or
disability.
6.2 Amount of Benefit. A participant's deferred vested benefit will be
equal to the participant's accrued benefit.
6.3 Commencement, Duration, and Form of Payment. Payment of the
deferred vested benefit will begin on the first day of any month after the
former participant has attained age 55 and filed an application for payment.
If benefit payments begin before the participant's 65th birthday, the monthly
payments will be reduced in accordance with Section 5.2. Payment will be
made in accordance with Article IX.
ARTICLE VII
PRE-RETIREMENT SURVIVING SPOUSE BENEFIT
7.1 Eligibility. The spouse of a participant will receive a survivor's
benefit if the participant:
(a) dies while employed by the Company after becoming eligible for
an early or normal retirement benefit, or a deferred vested benefit.
(b) is survived by a spouse to whom the participant was married
for at least one (1) year at the time of death.
7.2 Amount of Benefit. The survivor's benefit will be computed as if
the deceased participant had retired in the manner for which the participant
was eligible on the day before death and elected payment of retirement
benefits in the form of a joint and 66 2/3% survivor annuity with the spouse.
7.3 Commencement, Duration, and Form of Payment. The survivor's benefit
will be payable in the form of a monthly pension commencing on the first day
of the month following the participant's death or the date on which the
participant would have been eligible to begin receiving early retirement
benefits, whichever date is later, and continuing every month thereafter to
and including the month in which the surviving spouse dies.
ARTICLE VIII
DISABILITY BENEFIT
8.1 Eligibility. A participant who has at least five (5) years of
benefit service and whose employment terminates because of disability before
the participant is eligible for a normal retirement benefit will be eligible
for a disability benefit. For purposes of this article, the term "disability"
means a physical or mental condition that qualifies the participant for
disability benefits under the federal Social Security Act and, in the
judgment of the committee, permanently prevents the participant from
satisfactorily performing the participant's usual duties for the Company or
the duties of any other position or job offered to the participant by the
Company and for which the participant is qualified by reason of training,
education, or experience.
8.2 Disability Benefit. A participant who is eligible for a disability
benefit will continue to be credited with years of benefit service on the
basis of the participant's normal work schedule for the period from the date
employment terminated until the participant attains age 65, dies, or recovers
from the disability, whichever occurs first. When the disabled participant
attains age 65, dies, or recovers from the disability, whichever occurs first,
the disabled participant or surviving spouse will be eligible for the benefits
for which they would have been eligible if employment had terminated on that
date.
8.3 Commencement, Duration and Form of Payment. The disability benefit
will be payable in the form of a monthly pension commencing on the first day
of the month following the date on which the participant or surviving spouse
would have been eligible for normal retirement, early retirement, deferred
vested or surviving spouse benefits if employment had continued until the
participant attained age 65, died, or recovered from the disability, whichever
occurs first, and will be payable in accordance with Article IX.
ARTICLE IX
PAYMENT OF RETIREMENT BENEFITS
9.1 Standard Benefit. Benefits will be paid as follows unless an
optional form of benefit is elected:
(a) If the participant is not married at the time benefit payments
begin, the benefit will be payable in monthly installments from the
commencement date to and including the month in which the participant
dies; and
(b) If the participant is married at the time payments begin,
benefits will be paid in the form of a joint and 50% survivor annuity
with the spouse. Payment in this form may be waived only by the
participant and the spouse during the period beginning 90 days prior to
the benefit commencement date.
A joint and 50% survivor annuity is an annuity commencing immediately
that will provide monthly payments to the participant from the commencement
date to and including the month in which the participant dies and, thereafter,
monthly payments to the spouse, if surviving, for the balance of the spouse's
life in an amount equal to 50% of the monthly payments to the participant.
The amount of the monthly payments under the joint and 50% survivor annuity
will be adjusted so that the payments to the participant and the spouse will
be the actuarial equivalent of payments for the life of the participant only.
The Company will furnish each participant at least 90 days prior to
benefit commencement date, with a written explanation of the terms and
conditions of the joint and survivor annuity and the other optional forms
of payment provided under this Article. The explanation will advise the
participant of the right to elect a form of payment other than the joint
and 50% survivor annuity and the requirement that the participant's spouse
consent to the election of an optional form. The explanation will advise
the participant that any elections concerning benefits can be changed or
revoked by the participant and, where necessary, the spouse at any time prior
to the date on which benefit payments commence.
If the participant is married on the date the benefit payments commence,
then the participant's spouse must consent in writing to the payment of the
retirement benefit in any form other than a joint and 50% survivor annuity
with the spouse. An election to have benefits paid in any form other than
joint and 50% survivor annuity can be made by the participant and spouse only
during the period of 90 days prior to the date on which benefits are to
commence. The spouse's consent must acknowledge that the spouse understands
the effect of electing another form of benefit, and must be signed in the
presence of a representative of the Company or witnessed by a notary public.
9.2 Post-Retirement Surviving Spouse Benefit. The surviving spouse of
a former participant will be entitled to a benefit if:
(a) the former participant's employment with the Company terminated
after completing the requirements for normal retirement, early
retirement, or deferred vested benefits under the Plan;
(b) the former participant died before payment of benefits under
the Plan; and
(c) the former participant had been married to the spouse for a
period of at least one (1) year on the date of death.
The post-retirement surviving spouse benefit will be computed as if the
former participant had elected payment of retirement benefits in the form of
a joint and 50% survivor annuity with the spouse. Payment will commence as
of the first day of the month following the participant's death or the date
on which the participant would have been eligible to begin receiving early
retirement benefits, whichever date is later, and will continue every month
thereafter to and including the month in which the surviving spouse dies.
9.3 Optional Forms of Benefit. At any time during the election period
described above, a participant and spouse, if any, may elect payment in one
of the optional forms described below by filing a written application with
the committee. Upon receipt of a proper application, the committee will
authorize payment in accordance with the application and in any of the
following methods:
(a) Monthly payments for a period of 5, 10, or 15 years, or the
participant's lifetime, whichever period is longer;
(b) Monthly payments during the lifetime of the participant only;
(c) Monthly payments in the form of a joint and 66 2/3% or 100%
survivor annuity with the participant's spouse; or
(d) If the actuarially equivalent present value of the benefit is
$50,000 or less, then a single lump sum payment of the present value of
the benefit.
9.4 Commencement of Payment. Benefits payable under the Plan will
commence as soon as administratively practical after the participant or
surviving spouse is eligible for payment and has filed an application for
benefits.
9.5 Reduction of Benefits for Previous Payments. If a participant
receives a lump sum payment of any benefits under the Plan and thereafter is
employed by the Company, the benefits payable upon any subsequent retirement
will be reduced by the actuarial equivalent of the earlier payments.
9.6 Payment Pursuant to Qualified Domestic Relations Orders. Benefits
payable pursuant to a qualified domestic relations order will be made in
accordance with the order and upon proper application by the alternate payee.
Payment to the alternate payee may begin anytime after the earlier of the
following:
(a) The date on which the participant is entitled to payment of
benefits under the Plan; or
(b) The date the participant attains age 55.
9.7 Benefits Upon Reemployment. A participant will not be entitled to
any benefits under this Plan for any month in which the participant returns to
active service with the Company and works more than 40 hours. When a former
retiree's employment terminates again, retirement benefit will be recomputed
on the basis of the participant's age and accrued benefit at the time of
termination of employment.
ARTICLE X
FUNDING OF PLAN
This Plan is intended to be unfunded. Benefits under the Plan are
payable from the general assets of the Company. The Company may designate
certain assets as assets of the Plan, but these assets will still be subject
to the claims of creditors of the Company. The Company may establish a trust
and fund it with the assets designated for the Plan, but the assets of the
trust will still be subject to the claims of the creditors of the Company.
ARTICLE XI
ADMINISTRATION
11.1 Plan Administrator. The Company will be the plan administrator
and will be responsible for the proper administration of the Plan.
11.2 Indemnification. The Company will indemnify the members of the
committee and any other employees of the Company who are deemed fiduciaries
under ERISA, and hold them harmless against any and all liabilities, including
legal fees and expenses, arising out of any act or omission made or suffered
in good faith pursuant to the provisions this Plan, or arising out of any
failure to discharge any fiduciary obligation other than a willful failure to
discharge an obligation of which the person was aware.
11.3 Records and Reports. The Company will exercise such authority and
responsibility as it deems appropriate in order to comply with ERISA with
regard to records of participant's vesting service and benefit service,
notices and reports to participants, and annual reports to the Internal
Revenue Service, the Department of Labor, and the Pension Benefit Guaranty
Corporation.
11.4 Appointment of Committee. The Company may appoint a committee to
assist in the administration of the Plan. The committee will consist of as
many persons as may be appointed by the Company and will serve at the pleasure
of the Company. All usual and reasonable expenses of the committee will be
paid by the Company. If a committee is not appointed, all duties assigned
to the committee in this Plan will be performed by the Company.
11.5 Claims Procedure. The committee will make all determinations
concerning benefits based on its interpretation of the terms of the Plan.
Any denial of benefits by the committee will be stated in writing by the
committee and delivered or mailed by certified mail, return receipt requested,
to the participant or beneficiary within 90 days after the receipt of the
request for benefits. The notice will set forth the reasons for the denial
in language that may be understood by the participant and will specify the
Plan provisions upon which the denial was based. If the denial is based on
the failure of the participant or beneficiary to supply certain materials or
information, the notice will so state. The notice will advise that the denial
may be appealed to the committee and will include an explanation of the appeal
procedure.
The committee will adopt a procedure for reviewing appeals of denials of
claim benefits. The procedure will include the following:
(a) The claimant or a duly authorized representative may initiate
an appeal by written request for review delivered to the committee not
later than sixty (60) days after receipt by the claimant of the notice
of denial;
(b) The claimant or a duly authorized representative may review
documents pertinent to the appeal and may submit written statements of
issues and arguments relevant to the appeal to the committee;
(c) The committee will return its decision on the appeal not later
than sixty (60) days after receipt of the request for review; and
(d) The claimant will be advised in writing of the decision on the
appeal including the reasons for the decision in language that may be
understood by the claimant with references to the Plan provisions upon
which the decision is based.
11.6 Rules and Decisions. The committee may adopt such rules as it
deems necessary and appropriate. All rules and decisions of the committee
will be consistently applied to all participants in similar circumstances.
When making a determination or calculation, the committee may rely upon its
interpretation of the terms of the Plan and information furnished by a
participant or beneficiary, the Company, the legal counsel of the Company
and the trustee.
11.7 Committee Procedures. The committee may act at a meeting or in
writing without a meeting. The committee may elect one of its members as
chairman, appoint a secretary who need not be a committee member, and advise
the trustee of such actions in writing. The secretary will keep a record of
all meetings and forward all necessary communications to the Company and the
trustee. The committee may adopt such bylaws and regulations as it deems
desirable for the conduct of its affairs. All decisions of the committee
will be made by the vote of the majority including actions in writing taken
without a meeting.
11.8 Authorization of Benefit Payments. The committee will issue
directions to the Company concerning all benefits which are to be paid
pursuant to the Plan.
11.9 Application and Forms for Benefits. The committee may require a
participant to complete and file an application for a benefit and all other
forms approved by the committee and to furnish all pertinent information
requested by the committee. The committee may rely upon all such information
including the participant's current mailing address.
11.10 Facility of Payment. Whenever, in the committee's opinion, a
person entitled to receive any benefit is under a legal disability or is
incapacitated in any way so as to be unable to manage financial affairs, the
committee may direct the trustee to make payments to such person or to a
legal representative, or to a relative or friend for the person's benefit, or
the committee may direct the trustee to apply the payment for the benefit of
such person in such manner as the committee considers advisable. If a person
entitled to receive benefits is a minor and the value of the benefit exceeds
$5,000, the Company may either delay payment of the benefit until the minor
has attained the age of majority or pay the benefit to a person who has
been named by a court of competent jurisdiction as conservator of the estate
of the minor or to another similar court-appointed fiduciary. Any payment
of a benefit in accordance with the provisions of this section will discharge
all liability for such benefit under the provisions of the Plan.
ARTICLE XII
AMENDMENT OF PLAN
The Company reserves the right at any time to amend or revoke any or
all of the provisions of this Plan. No amendment, however, will be effective
unless the Plan, as so amended, will be for the exclusive benefit of
employees. No amendment may reduce the accrued benefit of any participant.
The president of the Company or such other officers as may be designated
by the board of directors of the Company may amend the Plan by executing a
document that expressly provides that it is an amendment to the Plan. The
amendment may apply prospectively or retroactively as permitted by law and
the effective date of the amendment must be stated in the document.
ARTICLE XIII
NONALIENATION OF BENEFITS AND
DOMESTIC RELATIONS ORDERS
13.1 Nonalienation of Benefits. No interest, right, or claim in or
to any part of the trust or any benefit payable from the trust will be
assignable, transferable, or subject to sale, assignment, hypothecation,
anticipation, garnishment, attachment, execution, or levy of any kind
and the Trustee will not recognize any attempt to so transfer, assign,
sell, hypothecate, or anticipate the same except to the extent required
by law. This provision will not apply to any "qualified domestic relations
order," as defined in Code Section 414(p).
13.2 Procedure for Domestic Relations Orders. Whenever the Company is
served with a domestic relations order from a court of competent jurisdiction,
the Company will follow the following procedure in determining whether the
order constitutes a "qualified domestic relations order" that would be exempt
from the general spendthrift protection of this Article:
(a) The Company will notify the participant and any "alternate
payees" named in the order that the order was served on the Company and
that objections concerning the order must be submitted in writing within
15 days;
(b) The Company will determine whether the order is a "qualified
domestic relations order" as defined in Code Section 414(p) and notify
the participant and each alternate payee of its determination. If the
Company determines that the order is a qualified domestic relations
order, the Company will make payment in accordance with the order except
that payment will not be made until the participant has attained the age
and service requirements for early retirement benefits under Section 5.1;
(c) During the period in which the Company is determining the
status of the order, payment of any benefits in dispute will be deferred
and the amount of the disputed payments will be segregated in a separate
account in the Plan. If the order is determined to be a qualified
domestic relations order within 18 months after segregation of the
benefits in dispute, the Company will pay the segregated amount, plus
earnings, to the persons entitled to receive them in accordance with
the order;
(d) If the Company determines that the order is not a qualified
domestic relations order, or if the 18 month period described in (c) has
expired and the qualification issue has not been resolved, the Company
will pay the segregated funds to the person or persons who would have
received them if the order had not been served on the Company. If the
Company determines that the order is a qualified domestic relations order
after expiration of the 18 month period, the order will be applied
prospectively only;
(e) If the order is determined not to be a qualified domestic
relations order, any amounts segregated pursuant to this procedure will
be restored to the account of the participant or distributed to the
participant if eligible for distribution; and
(f) The Company will notify the participant and all other alternate
payees named in the order of its decision concerning the qualified status
of the order. Payments pursuant to the order will be made as soon as
practicable after the status of the order has been determined or as soon
as the amounts become payable pursuant to this Plan.
ARTICLE XIV
MISCELLANEOUS
14.1 Status of Participants. No participant will have any right or
claim to any benefits under the Plan except in accordance with the provisions
of the Plan. The adoption of the Plan will not be construed as creating any
contract of employment between the Company and any participant or to otherwise
confer upon any participant or other person any legal right to continuation of
employment, nor as limiting or qualifying the right of the Company to
discharge any participant without regard to any effect the discharge might
have upon rights under the Plan.
14.2 No Interest in Company Affairs. Nothing contained in this Plan
will be construed as giving any participant, employee, or beneficiary an
equity or other interest in the assets, business, or affairs of the Company
or the right to examine any of the books and records of the Company.
14.3 Litigation. In any application to or proceeding or action in the
courts, only the Company and the trustee will be necessary parties and no
participant or other person having an interest in the trust will be entitled
to any notice or service of process. Any judgment entered in such a
proceeding or action will be conclusive upon all persons claiming under this
trust.
14.4 Governing Law. This Plan will be interpreted, construed, and
enforced in accordance with the laws of the State of Michigan, except where
the state law is preempted by ERISA or the Code.
14.5 Severability of Provisions. If any provisions of the Plan will at
any time be declared void and unenforceable, the other provisions will be
severable and will not be affected thereby.
IN WITNESS WHEREOF, the Company has adopted this Plan on the _____ day of
_____________, 1995.
FIRST MICHIGAN BANK CORPORATION
By
Stephen A. Stream
Its President
EXHIBIT (21)
SUBSIDIARIES OF THE REGISTRANT
FMB-First Michigan Bank Superior Financial Corporation
Zeeland, Michigan Sault Ste. Marie, Michigan
100% Owned 100% Owned
FMB-First Michigan Bank-Grand Rapids FMB-Trust
Grand Rapids, Michigan Holland, Michigan
100% Owned 100% Owned
FMB-Community Bank First Michigan Life Insurance
Dowagiac, Michigan Company, Holland, Michigan
100% Owned 100% Owned
FMB-Lumberman's Bank FMB-Brokerage Services, Inc.
Muskegon, Michigan Holland, Michigan
100% Owned 100% Owned
FMB-Oceana Bank FMB-Insurance Agency, Inc.
Hart, Michigan Boyne City, Michigan
100% Owned 100% Owned
FMB-State Savings Bank
Lowell, Michigan
100% Owned
FMB-Reed City Bank
Reed City, Michigan
100% Owned
FMB-Commercial Bank
Greenville, Michigan
100% Owned
FMB-Security Bank
Manistee, Michigan
100% Owned
FMB-Maynard Allen Bank
Portland, Michigan
100% Owned
FMB-Northwestern Bank
Boyne City, Michigan
100% Owned
FMB-Old State Bank
Fremont, Michigan
100% owned
FMB-Sault Bank
Sault Ste. Marie, Michigan
100% Owned
Exhibit 23(a)
Consent of Independent Certified Public Accountants
First Michigan Bank Corporation
Holland, Michigan
We hereby consent to the incorporation by reference and use of our report
dated January 18, 1996, which appears on page 41 of First Michigan Bank
Corporation's Annual Report to Shareholders for 1995, in that Corporation's
previously filed Form S-3 Registration Statement for that Corporation's
Dividend Reinvestment and Stock Purchase Plan (Registration No. 33-34457) and
Form S-8 Registration Statements for that Corporation's 1981 Stock Option
Plan (Registration No. 2-73711), Employees' Stock Purchase Plan (Registration
No. 33-34461), 1987 Stock Option Plan (Registration No. 33-24591) and Cash
Option Plan (Registration No. 33-54414).
BDO SEIDMAN, LLP
March 27, 1996
Exhibit 23(b)
Consent of Independent Certified Public Accountants
First Michigan Bank Corporation
Holland, Michigan
We hereby consent to the incorporation by reference and use of our report
dated March 18, 1996, which appears on pages 3 and 4 of First Michigan Bank
Corporation Cash Option Plan financial statements included in the Form 10-K
Annual Report for First Michigan Bank Corporation for the year ended
December 31, 1995, in First Michigan Bank Corporation's previously filed
Form S-8 Registration Statement for First Michigan Bank Corporation Cash
Option Plan (Registration No. 33-54414).
BDO SEIDMAN LLP
March 27, 1996
Grand Rapids, Michigan
EXHIBIT 27 - FINANCIAL DATA SCHEDULE
(Exhibit 27 follows Exhibit 29)
Exhibit 29
First Michigan Bank Corporation
Cash Option Plan
Financial Statements and Schedules
Years Ended December 31, 1995 and 1994
Contents
Independent Auditors' Report 3-4
Financial Statements
Statements of Net Assets Available for Benefits -
December 31, 1995 and 1994 5-6
Statements of Changes in Net Assets Available for Benefits -
Years Ended December 31, 1995 and 1994 7-8
Notes to Financial Statements 9-13
Supplemental Schedules
Assets Held for Investment Purposes - December 31, 1995 14
Reportable Transactions - Year Ended December 31, 1995 15
Independent Auditors' Report
Administrative Committee
First Michigan Bank Corporation
Cash Option Plan
Holland, Michigan
We have audited the accompanying statements of net assets available for
benefits of First Michigan Bank Corporation Cash Option Plan as of
December 31, 1995 and 1994, and the related statements of changes in
net assets available for benefits for the years then ended. These financial
statements are the responsibility of the Plan's administrative committee.
Our responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
As described in Note 3, these financial statements and supplemental schedules
were prepared on the modified cash basis of accounting, which is a
comprehensive basis of accounting other than generally accepted accounting
principles.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the net assets available for benefits of First Michigan
Bank Corporation Cash Option Plan as of December 31, 1995 and 1994, and changes
in net assets available for benefits for the years then ended on the basis of
accounting described in Note 3.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The supplemental schedules of assets
held for investment purposes as of December 31, 1995, and reportable
transactions for the year then ended, are presented for the purpose of
additional analysis and are not a required part of the basic financial
statements, but are supplementary information required by the Department
of Labor Rules and Regulations for Reporting and Disclosure under the
Employee Retirement Income Security Act of 1974. The fund information
in the statements of net assets available for benefits and the statements
of changes in net assets available for benefits is presented for purposes of
additional analysis rather than to present the net assets available for plan
benefits and changes in net assets available for plan benefits of each fund.
The supplemental schedules and fund information have been subjected to the
auditing procedures applied in the audits of the basic financial statements
and, in our opinion, are fairly stated in all material respects in relation
to the basic financial statements taken as a whole.
BDO Seidman, LLP
Grand Rapids, Michigan
March 13, 1996
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Net Assets Available for Benefits
December 31, 1995
FMB FMB
Money FMB Intermediate Special
Market Diversified Government Quantitative Growth
Fund Equity Fund Income Fund Equity Fund Fund
<S> <C> <C> <C> <C> <C>
Investments,
at fair value
(Notes 2, 3 and 4):
FMB Money Market
Fund $1,286,219 $- $- $- $-
Mutual funds:
FMB Diversified
Equity Fund - 2,826,647 - - -
FMB Intermediate
Government
Income Fund - - 1,842,389 - -
Quantitative
Equity Fund - - - 2,260,687 -
Special
Growth Fund - - - - 1,908,749
Diversified
Bond Fund - - - - -
First Michigan Bank
Corporation
Common Stock - - - - -
Participant loans - - - - -
Total investments 1,286,219 2,826,647 1,842,389 2,260,687 1,908,749
Accrued investment
income 6,053 5,757 9,128 - -
Net Assets Available
for Benefits $1,292,272 $2,832,404 $1,851,517 $2,260,687 $1,908,749
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Net Assets Available for Benefits
December 31, 1995
FMBC
Diversified Common Participant
Bond Fund Stock Fund Loan Fund Total
<S> <C> <C> <C> <C>
Investments,
at fair value
(Notes 2, 3 and 4):
FMB Money Market
Fund $- $ 92,811 $- $ 1,379,030
Mutual funds:
FMB Diversified
Equity Fund - - - 2,826,647
FMB Intermediate
Government
Income Fund - - - 1,842,389
Quantitative
Equity Fund - - - 2,260,687
Special
Growth Fund - - - 1,908,749
Diversified
Bond Fund 985,906 - - 985,906
First Michigan Bank
Corporation
Common Stock - 10,508,592 - 10,508,592
Participant loans - - 505,488 505,488
Total investments 985,906 10,601,403 505,488 22,217,488
Accrued investment - 79,524 3,387 103,849
income
Net Assets Available $985,906 $10,680,927 $508,875 $22,321,337
for Benefits
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Net Assets Available for Benefits
December 31, 1994
FMB FMB
Money FMB Intermediate Special
Market Diversified Government Quantitative Growth
Fund Equity Fund Income Fund Equity Fund Fund
<S> <C> <C> <C> <C> <C>
Investments,
at fair value
(Notes 2, 3 and 4):
FMB Money
Market Fund $990,007 $- $- $- $-
Mutual funds:
FMB Diversified
Equity Fund - 1,872,223 - - -
FMB Intermediate
Government
Income Fund - - 1,710,246 - -
Quantitative
Equity Fund - - - 1,356,068 -
Special Growth
Fund - - - - 1,239,963
Diversified Bond
Fund - - - - -
First Michigan
Bank Corporation
Common Stock - - - - -
Participant loans - - - - -
Total investments 990,007 1,872,223 1,710,246 1,356,068 1,239,963
Cash (overdraft) - - - - -
Accrued investment
income - - - - -
Net Assets
Available
for Benefits $990,007 $1,872,223 $1,710,246 $1,356,068 $1,239,963
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Net Assets Available for Benefits
December 31, 1994
FMBC
Diversified Common Participant
Bond Fund Stock Fund Loan Fund Totals
<S> <C> <C> <C> <C>
Investments,
at fair value
(Notes 2, 3 and 4):
FMB Money
Market Fund $- $ 81,431 $- $ 1,071,438
Mutual funds:
FMB Diversified
Equity Fund - - - 1,872,223
FMB Intermediate
Government
Income Fund - - - 1,710,246
Quantitative
Equity Fund - - - 1,356,068
Special Growth
Fund - - - 1,239,963
Diversified
Bond Fund 793,533 - - 793,533
First Michigan
Bank Corporation
Common Stock - 6,828,748 - 6,828,748
Participant loans - - 538,427 538,427
Total investments 793,533 6,910,179 538,427 15,410,646
Cash (overdraft) - (42) - (42)
Accrued investment
income - 55,569 2,872 58,441
Net Assets
Available
for Benefits $ 793,533 $6,965,706 $541,299 $15,469,045
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 1995
FMB FMB FMB
Money Diversified Intermediate Special
Market Equity Government Quantitative Growth
Fund Fund Income Fund Equity Fund Fund
<S> <C> <C> <C> <C> <C>
Additions
Employee
contributions $ 332,367 $ 472,709 $ 225,320 $ 276,702 $ 300,967
Company
contributions 43,993 87,995 54,060 69,299 77,017
Investment income:
Net appreciation
in fair value of
investments - 579,314 106,585 349,940 214,494
Interest and
dividends 67,282 31,326 104,733 220,422 167,583
Total additions 443,642 1,171,344 490,698 916,363 760,061
Deduction -
benefits paid
to participants 271,635 134,870 190,329 40,687 58,697
Net increase
(decrease) 172,007 1,036,474 300,369 875,676 701,364
Interfund
Transfers 130,258 (76,293) (159,098) 28,943 (32,578)
Net Assets
Available for
Benefits,
beginning of
year 990,007 1,872,223 1,710,246 1,356,068 1,239,963
Net Assets
Available for
Benefits,
end of year $1,292,272 $2,832,404 $1,851,517 $2,260,687 $1,908,749
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 1995
FMBC
Diversified Common Participant
Bond Fund Stock Fund Loan Fund Totals
<S> <C> <C> <C> <C>
Additions
Employee
contributions $159,901 $1,362,813 $ - $3,130,779
Company
contributions 36,997 333,820 - 703,181
Investment income:
Net appreciation
in fair value of
investments 81,705 1,844,776 - 3,176,814
Interest and
dividends 60,572 304,005 515 956,438
Total additions 339,175 3,845,414 515 7,967,212
Deduction -
benefits paid
to participants 18,609 374,602 25,491 1,114,920
Net increase
(decrease) 320,566 3,470,812 (24,976) 6,852,292
Interfund
Transfers (128,193) 244,409 (7,448) -
Net Assets
Available for
Benefits,
beginning of
year 793,533 6,965,706 541,299 15,469,045
Net Assets
Available for
Benefits,
end of year $985,906 $10,680,927 $508,875 $22,321,337
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 1994
FMB FMB FMB
Money Diversified Intermediate Special
Market Equity Government Quantitative Growth
Fund Fund Income Fund Equity Fund Fund
<S> <C> <C> <C> <C> <C>
Additions
Employee
contributions $ 120,088 $ 264,404 $ 213,688 $ 199,318 $ 220,606
Company
contributions 31,278 67,408 52,080 46,587 53,910
Investment income:
Net appreciation
(depreciation)
in fair value
of investments - 3,562 (130,511) (69,882) (46,656)
Interest and
dividends 31,489 11,346 98,522 82,410 29,703
Total additions 182,855 346,720 233,779 258,433 257,563
Deduction -
benefits paid
to participants 81,073 67,321 92,226 31,140 69,953
Net increase 101,782 279,399 141,553 227,293 187,610
Interfund
Transfers (254,606) (341,869) (404,560) 219 147,196
Net Assets
Available for
Benefits,
beginning
of year 1,142,831 1,934,693 1,973,253 1,128,556 905,157
Net Assets
Available for
Benefits,
end of year $ 990,007 $1,872,223 $1,710,246 $1,356,068 $1,239,963
See accompanying notes to financial statements.
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Statements of Changes in Net Assets Available for Benefits
Year ended December 31, 1994
FMBC
Diversified Common Participant
Bond Fund Stock Fund Loan Fund Totals
<S> <C> <C> <C> <C>
Additions
Employee
contributions $ 129,109 $1,075,008 $- $2,222,221
Company
contributions 29,348 197,481 - 478,092
Investment income:
Net appreciation
(depreciation)
in fair value
of investments (86,430) 815,844 - 485,927
Interest and
dividends 53,982 166,676 30,647 504,775
Total additions 126,009 2,255,009 30,647 3,691,015
Deduction -
benefits paid
to participants 24,165 154,415 8,264 528,557
Net increase 101,844 2,100,594 22,383 3,162,458
Interfund Transfers (115,765) 818,625 150,760 -
Net Assets Available
for Benefits
beginning of year 807,454 4,046,487 368,156 12,306,587
Net Assets Available
for Benefits,
end of year $ 793,533 $6,965,706 $ 541,299 $15,469,045
See accompanying notes to financial statements.
</TABLE>
1. Plan Description
The following brief description of First Michigan Bank Corporation (Company)
Cash Option Plan (Plan) provides only general information. Participants
should refer to the plan agreement for a more complete description of the
Plan's provisions.
General
The Plan was established by the Company to provide a tax deferred retirement
savings program for its full-time employees.
The Company established the Plan by executing a Plan and Trust Agreement.
This document specifies the terms of the Plan and establishes a trust fund
that is administered by the Trustee appointed by the Company. The Company
is responsible for the administration of the Plan in accordance with the
terms of the trust document and pays all administrative expenses incurred
by the Plan. The Plan is subject to the provisions of the Employee Retirement
Income Security Act of 1974 (ERISA).
Participation
All employees of the Company are eligible to participate in the Plan beginning
on the entry dates of January 1, April 1, July 1 and October 1 of each year
after completing 6 months of service and attaining the age of 21.
Contributions
The Plan allows eligible employees to contribute a percentage of their salary
to the trust fund through a salary contribution agreement with the Company.
The amount contributed is not currently included in the employee's taxable
income and is not reported on the employee's W-2 form (except for social
security purposes). For those employees with 1,000 hours or more of annual
service, the Company makes a matching contribution to the employee's account
based on the amount elected to be contributed up to 6% of the employee's
annual salary. Effective July 1, 1995, the Company's matching contribution
increased from 35% to 50%. All contributions are immediately vested.
Participant Accounts
Each participant's account is credited with the participant's contributions,
the Company's matching contribution and the earnings or losses resulting from
the participant's investment selections. Participants' accounts are valued
every business day and reflect transactions through the previous business day.
Benefit Distributions
Benefits under the Plan depend upon prior employee contributions, the amount
of the Company's matching contributions and the trustee's investment
performance.
An employee is eligible for Plan distributions after age 59 1/2 or upon
termination of employment with the Company. The employee is required to
begin withdrawing money from the Plan by April 1 of the year following the
year in which the employee attains the age of 70 1/2. The employee may elect
to receive the benefit in a lump sum payment or periodic installments for a
period not longer than the joint life expectancy of the employee and his
designated beneficiary. If the vested portion of the account does not exceed
$3,500, a lump sum distribution may be made by the Administrative Committee
without consent.
Hardship Distributions
An employee may, with the consent of the Administrative Committee, receive
a distribution in order to meet a financial hardship (as defined in the Plan).
Death Benefit
Upon death of the employee, the balance in his or her account will be
distributed to the designated beneficiary.
Loans
An employee may, with the consent of the Administrative Committee, borrow an
amount up to 50% of his or her account balance or $50,000, whichever is
smaller. The amount must be at least $1,000. Each loan will bear interest
at a rate determined by the Administrative Committee to be representative of
rates charged by local commercial lending institutions for comparable loans.
The loan must be repaid over a period not to exceed five years unless the
loan proceeds were used to acquire or reconstruct a principal dwelling unit.
The repayment must be in the form of a payroll deduction.
Termination
Although it has not expressed any intent to do so, the Company has the right
under the Plan to terminate it at any time. If the Plan is terminated, the
trust would continue for the benefit of the participants and its assets would
not be returned to the Company. The Plan is not eligible for termination
insurance coverage through the Pension Benefit Guarantee Corporation.
2. Participant Investment Options
Participants may direct the investment of their account balance in various
investment funds established by the Administrative Committee. Investment
options may be added or eliminated periodically to meet the changing needs
of the participants.
In addition to investing in First Michigan Bank Corporation common stock,
participants may direct the investment of their account balance in one of
the following investment programs, or a combination thereof.
FMB Money Market Fund
The FMB Money Market Fund aims to preserve capital. Risk is low, relative
to other funds, because the fund invests only in short-term, high-quality
money market instruments. The objectives of the fund are to provide current
income, preservation of capital and high liquidity.
FMB Diversified Equity Fund
The FMB Diversified Equity Fund is a common stock fund comprised of primarily
"blue chip" stocks and is well diversified throughout many established
industries. These stocks have proven track records of earnings and have a
history of solid growth. The objective of the fund is to provide above-
average total return over market cycles within reasonable limits of risk.
FMB Intermediate Government Income Fund
The FMB Intermediate Government Income Fund is a diversified portfolio
invested primarily in obligations issued or guaranteed by the U.S. government,
its agencies or instrumentalities, in the form of U.S. Treasury bills, notes,
bonds, mortgage-backed securities and collateralized mortgage obligations.
The fund selects short-term to medium-term bonds because they are less
volatile than long-term bonds. The objective of the fund is to provide
current income with low volatility of net asset value (principal).
Quantitative Equity Fund
The Quantitative Equity Fund primarily invests in large, well-known companies.
Stocks are chosen from companies that have financial strength, occupy a solid
position in their industry and show a history of consistent profit and
dividend growth. The objective of the fund is to provide long-term growth
and capital appreciation through investment in common stocks.
Special Growth Fund
The Special Growth Fund is primarily made up of stocks of smaller companies.
Many of these are companies whose greatest growth potential is over the long-
term, where historically small stocks have outperformed all other asset
classes. The objective of this fund is to maximize total return through
capital appreciation, by assuming a higher level of volatility than is
ordinarily expected from a core equity fund.
Diversified Bond Fund
The Diversified Bond Fund is made up of government and corporate bonds that
mature in the intermediate to long-term (5-20 years). The portfolio is
diversified over many individual issues to reduce risk. The fund fluctuates
in value with the movement of interest rates. The objective of the fund is
to provide a high level of current income through investment in fixed income
securities and to provide effective diversification against equities.
3. Significant Accounting Policies
Basis of Preparing Financial Statements
The financial statements have been prepared on the modified cash basis
of accounting. Contributions are recognized when received and benefit
distributions are recognized when paid.
Investments
Investments are stated at fair value as determined by FMB-Trust, the trustee
of the Plan based on quoted market prices. Participant loans are stated at
their outstanding balances, which approximates fair value.
Use of Estimates
The preparation of financial statements in conformity with the modified cash
basis of accounting requires the Plan's administrative committee to make
estimates and assumptions that affect the reported amounts of assets and
liabilities at the date of the financial statements and the reported amounts
and deductions during the reporting period. Actual results could differ from
those estimates.
4. Investments
<TABLE>
<CAPTION>
The following investments, stated at fair value, were in excess of 5% of net
assets available for benefits:
December 31, 1995 1994
<S> <C> <C>
FMB Market Fund $ 1,379,030 $1,071,438
Mutual Funds:
FMB Diversified Equity Fund 2,826,647 1,872,223
FMB Intermediate Government
Income Fund 1,842,389 1,710,246
Quantitative Equity Fund 2,260,687 1,356,068
Special Growth Fund 1,908,749 1,239,963
Diversifieid Bond Fund - 793,533
First Michigan Bank:
Corporate Common Stock 10,508,592 6,828,748
</TABLE>
5. Income Tax Status
The Internal Revenue Service has determined, and informed the Administrative
Committee in a letter dated July 17, 1990, that the Plan is qualified and the
trust established under the Plan is tax-exempt under the appropriate sections
of the Internal Revenue Code.
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Line 27a - Schedule of Assets Held for Investment Purposes
EIN: 38-2024376
Plan Number: 003
December 31, 1995
Number of
units or Current
Identity share Cost value
<S> <C> <C> <C>
FMB Money Market Fund 1,379,030 $1,379,030 $1,379,030
Mutual Funds
FMB Diversified Equity Fund 191,897 2,264,634 2,826,647
FMB Intermediate Government
Income Fund 179,570 1,859,146 1,842,389
Quantitative Equity Fund 73,494 2,036,354 2,260,687
Special Growth Fund 48,730 1,817,858 1,908,749
Diversified Bond Fund 41,617 981,806 985,906
Total mutual funds 8,959,798 9,824,378
First Michigan Bank Corporation
Common Stock 378,688 8,157,512 10,508,592
Participant Loans, 7% to 11% - - 505,488
</TABLE>
<TABLE>
<CAPTION>
First Michigan Bank Corporation
Cash Option Plan
Line 27d - Schedule of Reportable Transactions
EIN: 38-2024376
Plan Number: 003
Year ended December 31, 1995
Purchases Sales
# of # of
trans- Purchase trans- Selling Net
actions price (a) actions price (a) Cost gain
<S> <C> <C> <C> <C> <C> <C>
FMB Money
Market Fund - $3,271,988 - $2,941,196 $2,941,196 $ -
Mutual Funds:
FMB Diversified
Equity Fund 99 807,795 50 432,684 383,689 48,995
FMB Intermediate
Government
Income Fund 77 477,399 46 449,992 449,508 484
Quantitative
Equity Fund 78 716,235 46 161,556 147,377 14,179
Special Growth
Fund 93 681,304 50 227,011 213,471 13,540
Diversified
Bond Fund 79 362,115 39 251,447 249,525 1,922
First Michigan
Bank Corporation
Common Stock 15 1,880,778 3 151,012 57,300 93,712
(a) Equivalent to current value at date of transaction.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from
SEC Form 10-K and is qualified in its entirety by reference to such
financial statements
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 123,232
<INT-BEARING-DEPOSITS> 5,311
<FED-FUNDS-SOLD> 112,450
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 323,470
<INVESTMENTS-CARRYING> 343,437
<INVESTMENTS-MARKET> 356,998
<LOANS> 2,134,570
<ALLOWANCE> 26,824
<TOTAL-ASSETS> 3,136,123
<DEPOSITS> 2,717,493
<SHORT-TERM> 134,323
<LIABILITIES-OTHER> 32,356
<LONG-TERM> 5,178
18,237
0
<COMMON> 0
<OTHER-SE> 228,536
<TOTAL-LIABILITIES-AND-EQUITY> 3,136,123
<INTEREST-LOAN> 194,914
<INTEREST-INVEST> 42,538
<INTEREST-OTHER> 2,757
<INTEREST-TOTAL> 240,209
<INTEREST-DEPOSIT> 108,831
<INTEREST-EXPENSE> 115,263
<INTEREST-INCOME-NET> 124,946
<LOAN-LOSSES> 7,668
<SECURITIES-GAINS> 324
<EXPENSE-OTHER> 99,195
<INCOME-PRETAX> 48,525
<INCOME-PRE-EXTRAORDINARY> 35,910
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,910
<EPS-PRIMARY> 1.95
<EPS-DILUTED> 1.95
<YIELD-ACTUAL> 4.78
<LOANS-NON> 4,291
<LOANS-PAST> 3,830
<LOANS-TROUBLED> 522
<LOANS-PROBLEM> 1,073
<ALLOWANCE-OPEN> 23,758
<CHARGE-OFFS> 6,728
<RECOVERIES> 2,216
<ALLOWANCE-CLOSE> 26,824
<ALLOWANCE-DOMESTIC> 26,824
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
