FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
---------------------
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 0-7638
FIRST MICHIGAN BANK CORPORATION
(Exact name of registrant as specified in its charter)
MICHIGAN 38-2024376
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
One Financial Plaza, Holland, Michigan 49423
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (616) 355-9200
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [X] No [ ]
The number of shares outstanding of each of the issuers classes of common
stock, as of the latest practicable date: 27,814,229 shares of the Company's
Common Stock ($1 par value) were outstanding as of July 31, 1997.
1
<PAGE>
INDEX
Page
Number
Part I. Financial Information (unaudited):
Item 1.
Financial Statements 3
Notes to Consolidated Financial Statements 4
Item 2.
Management's Discussion and Analysis of
Financial Condition and Results of Operations-
Interim Financial Statements 4
Part II. Other Information
Item 4.
Submission of Matters to a Vote of Security Holders 15
Item 6.
Exhibits and Reports on Form 8-K 15
Signatures 16
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
CONSOLIDATED BALANCE SHEETS
<TABLE>
June 30, December 31, June 30,
1997 1996 1996
(dollars in thousands)
Assets
<S> <C> <C> <C>
Cash and due from banks $ 152,132 $ 155,725 $ 126,942
Federal funds sold 200 12,950 1,450
Total cash and cash equivalents 152,332 168,675 128,392
Interest bearing deposits with banks 2,163 1,713 1,310
Securities:
Available-for-sale 490,042 465,460 418,194
Held-to-maturity (market values $247,584,
$293,593 and $319,723 respectively) 239,191 284,691 312,374
Loans 2,692,453 2,499,038 2,345,385
Allowance for loan losses (35,178) (31,720) (30,183)
Premises and equipment 67,967 68,667 69,489
Other assets 64,185 63,909 59,799
---------- ---------- ----------
Total assets $3,673,155 $3,520,433 $3,304,760
========= ========= =========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 367,301 $ 361,692 $ 332,384
Interest bearing:
Savings and NOW accounts 1,024,757 1,011,153 942,028
Time 1,652,310 1,643,124 1,565,525
--------- --------- ---------
Total deposits 3,044,368 3,015,969 2,839,937
Short-term borrowings 272,268 163,220 168,534
Other liabilities 37,311 37,563 33,532
Long-term debt 29,537 29,537 4,714
---------- ---------- -----------
Total liabilities 3,383,484 3,246,289 3,046,717
--------- --------- ---------
Shareholders' equity:
Preferred stock - no par value; 1,000,000
shares authorized -- -- --
Common stock - $1 par value; 50,000,000
shares authorized; issued and outstanding:
27,812,979, 26,304,157 and 19,736,038
respectively 27,813 26,304 19,736
Surplus 203,673 163,828 170,902
Retained earnings 57,672 83,374 69,951
Securities valuation, net of tax 513 638 (2,546)
----------- ----------- -----------
Total shareholders' equity 289,671 274,144 258,043
--------- --------- ----------
Total liabilities and shareholders' equity $3,673,155 $3,520,433 $3,304,760
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except for per share data)
Interest Income
<S> <C> <C> <C> <C>
Interest and fees on loans $ 62,960 $ 53,984 $122,170 $106,896
Interest on securities:
Taxable 8,705 8,163 17,332 15,494
Tax-exempt 2,985 3,239 6,104 6,497
Other interest income 140 291 537 1,561
Total interest income 74,790 65,677 146,143 130,448
Interest Expense
Interest on deposits 32,245 29,213 64,242 59,039
Interest on short-term borrowings 3,321 1,721 5,484 3,175
Interest on long-term debt 518 122 1,017 255
Total interest expense 36,084 31,056 70,743 62,469
Net Interest Income 38,706 34,621 75,400 67,979
Provision for loan losses 4,449 2,317 7,937 4,689
Net interest income after provision for loan losses 34,257 32,304 67,463 63,290
Non-Interest Income
Service charges on deposits 3,877 3,562 7,447 6,816
Trust income 2,302 1,996 4,576 4,016
Other operating income 4,851 3,275 9,532 6,608
Securities gains (losses) -- (100) 121 (84)
Total non-interest income 11,030 8,733 21,676 17,356
Non-Interest Expense
Salaries and employee benefits 16,067 14,524 31,409 29,182
Occupancy 1,778 1,772 3,679 3,613
Equipment 1,915 1,737 3,755 3,401
Other operating 9,921 8,878 19,763 17,248
Total non-interest expense 29,681 26,911 58,606 53,444
Income Before Income Taxes 15,606 14,126 30,533 27,202
Income taxes 4,549 3,925 8,747 7,422
Net Income $ 11,057 $ 10,201 $ 21,786 $ 19,780
Net income per share $.39 $.36 $.77 $.70
Cash dividends declared per share .18 .15 .35 .29
Average shares outstanding (in thousands) 28,313 28,164 28,270 28,124
</TABLE>
See accompanying notes to financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
Six months ended June 30,
1997 1996
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 21,786 $ 19,780
-------- --------
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses 7,937 4,689
Origination of loans for sale in secondary market (94,484) (125,472)
Proceeds from sale of loans 95,078 126,144
Gain on sale of loans (594) (672)
Origination of mortgage servicing rights (774) --
Realized securities (gains) losses (121) 84
Provision for depreciation, amortization and accretion 4,048 1,236
Deferred income taxes (435) (737)
Increase in interest receivable (643) (193)
Increase (decrease) in interest payable 572 (847)
Other - net 1,111 (539)
-------- --------
Total adjustments 11,695 3,693
------- -------
Net cash provided by operating activities 33,481 23,473
------- -------
Cash Flows From Investing Activities
Net (increase) decrease in interest bearing deposits with banks (450) 4,051
Purchase of securities available-for-sale (92,998) (189,209)
Proceeds from sales of securities available-for-sale 33,681 27,906
Proceeds from maturities and prepayments of securities available-for-sale 32,208 68,137
Purchase of securities held-to-maturity (1,783) (6,959)
Proceeds from maturities and prepayments of securities
held-to-maturity 50,247 43,984
Net increase in loans (197,743) (130,677)
Purchase of premises and equipment and other assets (4,570) (6,139)
-------- --------
Net cash used in investing activities (181,408) (188,906)
------- -------
Cash Flows From Financing Activities
Net increase in non-interest bearing demand, savings and NOW deposit accounts 19,212 43,262
Net increase (decrease) in time deposits 9,187 (17,065)
Net increase in short-term borrowings 109,048 34,211
Repayment of long-term debt -- (964)
Cash dividends and fractional shares (9,528) (7,696)
Proceeds from sales of stock 3,665 2,928
Common stock repurchased -- (6,119)
-----------
Net cash provided by financing activities 131,584 48,557
------- -------
Decrease in Cash and Cash Equivalents (16,343) (116,876)
Cash and Cash Equivalents, beginning of period 168,675 245,268
------- -------
Cash and Cash Equivalents, end of period $152,332 $128,392
======= =======
</TABLE>
See accompanying notes to financial statements.
5
<PAGE>
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
1. In the opinion of management of the Company, the unaudited consolidated
financial statements contained herein include all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
consolidated financial position of the Company as of June 30, 1997, June
30, 1996 and December 31, 1996 and consolidated results of operations for
the three months and six months ended June 30, 1997 and 1996.
2. The results of operations for the three months and six months ended June
30, 1997 are not necessarily indicative of the results to be expected for
the full year.
3. The accompanying unaudited consolidated financial statements should be read
in conjunction with the Notes to Consolidated Financial Statements
contained in the Registrant's Form 10-K for the year ended December 31,
1996.
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The following is a discussion of the Company's results of operations for the
three months and six months ended June 30, 1997 and 1996, and also provides
information relating to the Company's financial condition, focusing on its
liquidity and capital resources.
On May 5, 1997, the Company and Huntington Bancshares Incorporated, a Maryland
corporation and a registered bank holding company ("Huntington"), entered into
an Agreement and Plan of Merger and a Supplemental Agreement (collectively, the
"Merger"). A special meeting is scheduled for September 9, 1997 at which the
Company's shareholders will vote on the proposed Merger. If the Merger is
approved, each outstanding share of the Company's common stock will be converted
into 1.155 shares of Huntington common stock. The Merger is conditioned upon,
among other things, approval by a two-thirds majority vote of the shareholders
of both Huntington and the Company, and receipt of certain regulatory approvals.
Net income of $11,057,000 for the three months ended June 30, 1997 increased
8.4% from the $10,201,000 earned during the three months ended June 30, 1996.
Earnings per share for the second quarter 1997 were $.39 versus $.36 for the
same period in 1996. The increase in earnings is primarily attributable to
improvements in net interest income and non-interest income. Offsetting this, in
part, was an increase in non-interest expense and increased provision for loan
losses. These changes are addressed in the analyses that follow.
<TABLE>
Net Interest Income Second Quarter Year-to-date
(in thousands) 1997 1996 1997 1996
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest income $ 74,790 $ 65,677 $146,143 $130,448
Interest expense 36,084 31,056 70,743 62,469
------- ------- -------- --------
Net interest income $ 38,706 $ 34,621 $ 75,400 $ 67,979
======= ======= ======= =======
</TABLE>
The Company's second quarter 1997 net interest income of $38,706,000 increased
by $4,085,000 (11.8%) when compared with the same period of 1996. As shown in
the following table, in the second quarter of 1997 the rate on interest earning
assets at 9.02% increased 17 basis points from the year-ago
6
<PAGE>
period, while the rate for interest bearing liabilities increased 19 basis
points from 4.71 to 4.90. These changes resulted in a decrease of 2 basis points
in the interest spread for the comparative second quarter. Year-to-date, the
Company's net interest spread declined by only 1 basis point, while its net
interest margin decreased from 4.71% to 4.70%. The following table shows a
comparison of average volumes, effective yields earned, and rates paid during
the comparable periods.
7
<PAGE>
<TABLE>
TABLE 1
INTEREST EARNING ASSETS AND INTEREST BEARING
LIABILITIES BY MAJOR CATEGORIES
June 30, 1997 and 1996
-----------------------Second Quarter Averages----------------------
Volumes In Thousands Yield Earned/
of Dollars Rate Paid
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest Earning Assets
Loans $2,647,250 $2,296,308 9.56% 9.47%
Securities:
Taxable 545,710 531,790 6.35 6.11
Tax-exempt 191,343 205,869 9.30 9.39
Short-term investments 10,504 21,075 5.35 6.11
----------- -----------
Total interest earning assets 3,394,807 3,055,042 9.02 8.85
--------- ---------
Interest Bearing Liabilities
Savings deposits 1,026,956 930,453 3.26 2.84
Time deposits 1,648,251 1,555,454 5.81 5.86
Short-term borrowings 246,505 158,837 5.40 4.35
Long-term debt 29,537 4,959 7.01 9.87
----------- -----------
Total interest bearing liabilities 2,951,249 2,649,703 4.90 4.71
--------- ---------
Interest spread $ 443,558 $ 405,339 4.12% 4.14%
========== ========== ==== ====
Net interest income margin 4.75% 4.77%
==== ====
</TABLE>
<TABLE>
--------------------------Year-to-date Averages-----------------------
Volumes In Thousands Yield Earned/
of Dollars Rate Paid
1997 1996 1997 1996
---- ---- ---- ----
Interest Earning Assets
<S> <C> <C> <C> <C>
Loans $2,595,951 $2,266,706 9.50% 9.50%
Securities:
Taxable 546,144 508,279 6.32 6.07
Tax-exempt 196,413 206,341 9.29 9.38
Short-term investments 20,677 57,276 5.24 5.48
----------- -----------
Total interest earning assets 3,359,185 3,038,602 8.94 8.84
--------- ---------
Interest Bearing Liabilities
Savings deposits 1,016,514 917,190 3.20 2.84
Time deposits 1,671,155 1,570,401 5.80 5.90
Short-term borrowings 210,002 148,417 5.24 4.29
Long-term debt 29,537 5,212 6.89 9.80
----------- -----------
Total interest bearing liabilities 2,927,208 2,641,220 4.87 4.76
--------- ---------
Interest spread $ 431,977 $ 397,382 4.07% 4.08%
========== ========== ==== ====
Net interest income margin 4.70% 4.71%
==== ====
</TABLE>
Average yields in the above table have been adjusted to a tax-equivalent basis,
and are computed using amortized cost for the securities portfolio. Non-accruing
loans are not significant for the periods presented and are included in the
average loan volumes above.
8
<PAGE>
Interest Earning Assets/Interest Income
Interest income for the second quarter of 1997 increased $9,113,000 (13.9%) from
the second quarter of 1996. This is due to an 11.1% increase in average volume
of earning assets during the second quarter 1997 versus 1996 and the 17 basis
point improvement in the average yield on earning assets from the year-ago
quarter as indicated in the previous table. All of the increase in the volume of
average earning assets is due to the growth in the loan portfolios. Average
quarterly volumes in the loan portfolios increased 15.3% from those of the
second quarter 1996. While average mortgage volume remained constant, commercial
and installment loans showed strong average volume percentage increases of 28.4%
and 12.4% respectively versus the prior year period averages. Rates increased in
each loan category resulting in the 9 basis point loan yield improvement and,
with the volume growth confined to loans, drove the overall asset yield up the
17 basis points.
With the above increasing loan demand, the average volume of investment
securities remained relatively unchanged from quarter to quarter. Increases in
the overall taxable portfolio yield between the periods reflect the generally
rising market of investment security yields during the last year as maturing
securities were generally reinvested at slightly higher rates.
For the six months period the overall average yield on the loan portfolios was
unchanged at 9.50%. The ten basis point improvement in the total earning asset
yield through June 30, 1997 is due to an increasing proportion of earning assets
represented by higher yielding loans.
Interest Bearing Liabilities/Interest Expense
The average volume of interest bearing liabilities increased by $301,546,000
when compared to the second quarter 1996. The dollar volume increase was fairly
evenly distributed between savings deposits, time deposits and short-term
borrowed funds, as the total of all categories increased 11.4%. The average
savings deposit and short-term borrowing volume increases, 10.4% and 55.2%,
respectively, coupled with the higher rates paid on these categories are
primarily responsible for the higher overall rate of costing funds. As part of
short-term borrowings, Federal Home Loan Bank advances have been a source of
increased funding for the Company. The impact of the above combined volume and
rate increases was mitigated somewhat by the decline in time deposit rates,
particularly in the twelve month and longer categories. Time deposits in total
increased by only 6.0%. The average rate on long term debt reflects a decrease
with the August 1996 conversion of a stand-by loan to a term loan bearing
interest at seven-tenths of a percent over the daily federal funds rate. The
overall rate on quarterly average interest bearing liabilities increased 19
basis points to 4.90% in this quarter from the second quarter 1996 average rate
of 4.71%.
Asset/Liability Management
The Company maintains an asset/liability management process whereby strategies
are developed and implemented to maintain the proper level of liquidity while
maximizing net interest income and minimizing the impact on earnings from major
interest rate changes. Particular attention is placed on the Company's interest
sensitivity, which is the degree net interest income is affected by a change in
market interest rates. Monitoring the balance of assets and liabilities that are
rate sensitive within 90 days and one year is a continuing aspect of this
process. When a cumulative rate sensitive ratio of 1.00 is maintained, both the
interest income and the interest expense increase or decline in tandem with
changes in market interest rates, with the net interest income of the Company
not changing significantly as a direct result.
Liquidity is monitored in order to meet the needs of customers, such as
depositors withdrawing funds or borrowers requesting funds to meet their credit
needs. The Company's current internal and external sources of funds are adequate
to meet its liquidity needs.
9
<PAGE>
Deposit gathering is a principal source of funds for the Company. Development of
consumer deposits is achieved by paying competitive rates and by maintaining an
active marketing program. Larger certificates of deposit, issued to public
authorities and the private sector, also provide an important source of funds
for the Company. These certificates of deposit are purchased primarily from
within the Company's market areas and are considered a reliable source of funds.
The Company also purchases brokered certificates of deposit (CDs) from time to
time for varying periods of up to three years. Such purchases, when they occur,
are made within established Company guidelines. Current balances amount to less
than $17,000,000.
Another principal source of funds derives from routine payments on loans and the
maturities of loans and securities. Externally, the Company has the ability to
enter the federal funds market as a purchaser to meet daily liquidity needs. In
addition, the Company has the ability to enter into funding arrangements with
other financial institutions.
<TABLE>
Allowance for Loan Losses Second Quarter Year-to-Date
(in thousands) 1997 1996 1997 1996
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, at beginning of period $32,884 $29,253 $31,720 $28,031
Provision for loan losses 4,449 2,317 7,937 4,689
Loans charged-off (2,662) (1,748) (5,427) (3,755)
Recoveries of loans previously charged-off 507 361 948 1,218
-------- ------- ------- ------
Balance, at end of period $35,178 $30,183 $35,178 $30,183
====== ====== ====== ======
</TABLE>
The provision for loan losses increased $2,132,000 for the second quarter versus
the 1996 period. The increased provision in the second quarter 1997 versus 1996
is necessitated by both the growth in the ending loan portfolio balance as well
as the net charge-off experience between the respective quarters. Loan balances
have increased by 14.8% from June 30, 1996 to June 30, 1997.
In assessing the adequacy of the loan loss allowance, management considers many
factors, including changes in the type and volume of the loan portfolio, past
loan loss experience, existing and anticipated economic conditions and other
factors that might be pertinent. The amount actually provided in any period may
be more or less than actual net loan charge-offs for that period. The allowance
for loan losses as a percent of loans at June 30, 1997 is 1.31%, up 4 basis
points from the 1.27% ratio at December 31, 1996.
Net charge-offs in the second quarter 1997 increased by $768,000 compared to the
second quarter 1996. The amount charged-off, while higher than the comparable
prior year quarter, has stabilized or decreased when compared to the most recent
two quarters. Net charge-offs as a percent of average loans outstanding during
the quarter were .33% for the second quarter of 1997 and .24% in the comparable
1996 period. This ratio is within the range of management's expectations and is
considered a reflection of the Company's prudent lending practices. Non-accrual,
past due 90 day and renegotiated loans, along with other real estate, in total
were .56% and .63% of total loans outstanding at June 30, 1997 and June 30,
1996, respectively. The Company compares favorably with the banking industry
nationwide in these credit ratios.
Following are the balances constituting the nonperforming assets and loans 90
days past due and still accruing as of the end of the respective periods.
10
<PAGE>
<TABLE>
June 30,
1997 1996
(in thousands)
<S> <C> <C>
Non-accrual loans $7,560 $6,841
Renegotiated loans 1,243 1,168
Other real estate owned 565 1,493
------ -----
Total nonperforming assets $9,368 $9,502
===== =====
Loans 90 days past due $5,782 $5,235
===== =====
</TABLE>
<TABLE>
Non-interest Income Second Quarter Year-to-date
(in thousands) 1997 1996 1997 1996
------- ------- ------- -----
<S> <C> <C> <C> <C>
Total $11,030 $8,733 $21,676 $17,356
====== ===== ====== ======
</TABLE>
Non-interest income, which includes service charges on deposit accounts, loan
fees, trust and investment management fees, other operating income and
securities transactions, increased $2,297,000 (26.3%) during the three months
ended June 30, 1997 compared to the same period in 1996. Increases were seen in
most major categories of non-interest income. The largest of these increases
included investment products revenues of $505,000, other loan and letter of
credit fees of $397,000, service charges on deposits of $315,000, trust and
investment management fees of $306,000 and title insurance revenues of $219,000.
These improvements can be attributed to factors that include the Company's
emphasis on expanding existing and new customer relationships by offering a
variety of investment alternatives, standardization of service charge fee
schedules and procedures beginning in 1996, and the growth in employee benefit
and personal trust balances under management. Smaller improvements in other
categories offset by a decline in mortgage banking income of $589,000, due to
lower gains on loan sales, resulted in the net overall $1,576,000 increase in
other operating income.
<TABLE>
Non-interest Expense Second Quarter Year-to-date
(in thousands) 1997 1996 1997 1996
------- ------- ------- ------
<S> <C> <C> <C> <C>
Total $29,681 $26,911 $58,606 $53,444
====== ====== ====== ======
</TABLE>
Non-interest expense increased $2,770,000 (10.3%) when comparing the second
quarter of 1997 with 1996. Of the total non-interest expense increase, salaries
and benefits, up by 10.6%, constituted the majority. Full time staffing has
increased with growth in the volume of lending and deposit gathering activities.
Other factors included increases in performance based and incentive compensation
with the increased emphasis on sales of alternative investment products, as well
as the annual merit increases which approximated 4.5% from 1996 compensation
levels. Reduction in the cost of employee insurance and miscellaneous benefits
virtually offset the increase in payroll tax cost associated with the higher
compensation expense.
Other operating expense increases occurred in advertising and promotion,
software support, loan processing, and printing and supplies due, primarily, to
the advancement of the Company's retail strategies.
Equipment expense increases, primarily in depreciation, result from the
investment in data processing systems associated with the Company's enhanced
retail delivery efforts.
<TABLE>
Income Tax Expense Second Quarter Year-to-date
(in thousands) 1997 1996 1997 1996
------ ------ ------ ------
<S> <C> <C> <C> <C>
Total $4,549 $3,925 $8,747 $7,422
===== ===== ===== =====
</TABLE>
11
<PAGE>
Fluctuations in income tax expense result primarily from changes in the level of
profitability and variations in the amount of tax-exempt income. The 10.5%
increase in pre-tax income and the decline in tax-exempt income of approximately
$223,000 account for the increased income tax expense between the two quarters.
Capital
Following is a statement of changes in shareholders' equity, restated for the
acquisition of Arcadia on a pooling of interests basis, for the six month period
ended June 30, 1997 (in thousands):
<TABLE>
<S> <C>
Shareholders' Equity at December 31, 1996 $274,144
Net income 21,786
Shares issued upon exercise of employee stock option plans 824
Shares issued under dividend reinvestment and employee and director
stock purchase plans 2,841
Dividends to shareholders (9,799)
Change in securities valuation, net of tax (125)
---------
Shareholders' Equity at June 30, 1997 $289,671
=======
</TABLE>
The Company issued a 5% stock dividend on May 31, 1997 to shareholders of record
April 30, 1997. Accordingly, the balances that constitute shareholders' equity
as reflected in the June 30, 1997 balance sheet, have been reclassified at
market value to reflect the additional common shares issued, an increase to
surplus and an offsetting reduction to retained earnings.
Shareholder's equity is the Company's principal capital base and it is important
that it increase along with the growth in total assets in order for adequate
capital ratios to be maintained. The ratio of equity to total assets at June 30,
1997 was 7.9%, up slightly from 7.8% at December 31, 1996.
The Federal Reserve Board provides guidelines for the measurement of capital
adequacy of bank holding companies. The Company's capital, as adjusted under
these guidelines, is referred to as risk-based capital. The Company's Tier 1
risk-based capital ratio at June 30, 1997 is 9.59%, and the total risk-based
capital ratio is 10.88%. Minimum regulatory Tier 1 risk-based and total
risk-based capital ratios under the Federal Reserve Board guidelines are 4% and
8% respectively.
These same capital ratios are applied at the subsidiary bank level by the
Federal Deposit Insurance Corporation under which a well-capitalized bank is
defined as one with at least a 10% risk-based capital level. All Company
subsidiary banks met this definition at June 30, 1997 and December 31, 1996.
The capital guidelines also provide for a standard to measure risk-based capital
to total assets. This is referred to as the leverage ratio. The Company's
leverage ratio at June 30, 1997 is 7.80%. The minimum standard leverage ratio is
3%, and virtually all financial institutions subject to these requirements are
expected to maintain a leverage ratio of 1 to 2 percentage points above the 3%
minimum.
In addition to shareholders' equity, the Company had long-term debt of
$29,537,000 at June 30, 1997 and at December 31, 1996.
New Accounting Pronouncements
In February 1997, the FASB issued SFAS No. 128, "Earnings Per Share." This
Statement establishes standards for computing and presenting earnings per share
("EPS") and simplifies the standards
12
<PAGE>
previously found in APB Opinion 15, "Earnings Per Share," which has been
superseded. It replaces the presentation of "primary" and "fully diluted" EPS
with a presentation of "basic" and "diluted" EPS. Basic EPS excludes dilution
and is computed by dividing net income available to common shareholders by
weighted-average number of common shares outstanding for the period. Diluted EPS
is computed similarly to fully diluted EPS pursuant to APB No. 15. SFAS No. 128
is effective for the Company for both interim and annual periods ending after
December 15, 1997, and requires restatement of all prior-period EPS data
presented. Earlier application is not permitted. Had SFAS No. 128 been required
to be implemented for the periods presented, the effect on EPS would have been
insignificant.
13
<PAGE>
PART II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Registrant's annual meeting of shareholders was held on April 15, 1997. The
shareholders voted on the election of directors and on two proposals 1) to
approve the First Michigan Bank Corporation Stock Compensation Plan, and 2) to
approve the First Michigan Bank Corporation 1997 Directors' Stock Option Plan.
Following are the directors elected for terms as indicated and the results of
ballots cast for each.
<TABLE>
Shares voted
Term Shares voted "For" "Withhold Authority"
<S> <C> <C> <C>
Doyle A. Hayes 3 years 21,589,203 161,289
Donald W. Maine 3 years 21,558,009 192,483
Jack H. Miller 3 years 21,587,804 162,688
David M. Ondersma 3 years 21,604,270 146,222
Ronald J. Bieke 3 years 21,512,139 238,353
</TABLE>
The following directors continue in office: Roger A. Andersen, James H. Bloem,
David M. Cassard, Robert J. Kapenga, Meriam B. Leeke, John W. Spoelhof and
Stephen A. Stream.
Following are the results of shares voted on the proposal to approve the First
Michigan Bank Corporation Stock Compensation Plan.
Shares voted for 16,438,369
Shares voted against 1,848,811
Shares abstaining 600,869
Following are the results of the shares voted on the proposal to approve the
First Michigan Bank Corporation 1997 Directors' Stock Option Plan.
Shares voted for 15,938,633
Shares voted against 2,761,020
Shares abstaining 746,307
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits.
See exhibit index on page 16.
(b) Reports on Form 8-K
Report on Form 8-K was filed on May 9, 1997 pursuant to the Company's
definitive agreement to merge with Huntington Bancshares, Incorporated
dated May 5, 1997.
14
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Quarterly Report on Form 10-Q for the quarter
ended June 30, 1997 to be signed on its behalf by the undersigned hereunto duly
authorized.
FIRST MICHIGAN BANK CORPORATION
/s/ Larry D. Fredricks
Larry D. Fredricks
(Executive Vice President and Chief
Financial Officer)
/s/ William F. Anderson
William F. Anderson
(Vice President and Controller)
DATE: August 13, 1997
15
<PAGE>
EXHIBIT INDEX
The following exhibits are filed herewith.
Exhibits Page
(11) Computation of Earnings Per Share 17
(27) Financial Data Schedule 18
16
<PAGE>
EXHIBIT 11 - COMPUTATION OF EARNINGS PER SHARE
<TABLE>
Three Months Six months
ended June 30, ended June 30,
1997 1996 1997 1996
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Average shares outstanding 27,793.1 27,710.6 27,740.5 27,691.6
Net effect of the assumed exercise of
stock options (based on the treasury stock
method using higher of either ending or average) 519.9 453.1 529.9 432.0
---------- ---------- --------- ---------
Total shares 28,313.0 28,163.7 28,270.4 28,123.6
======== ======== ======== ========
Net income $ 11,057 $ 10,201 $ 21,786 $ 19,780
======== ======== ======== =========
Per share amount $ .39 $ .36 $ .77 $ .70
====== ====== ====== ======
</TABLE>
17
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from SEC
10-Q and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1997
<CASH> 152,132
<INT-BEARING-DEPOSITS> 2,163
<FED-FUNDS-SOLD> 200
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 490,042
<INVESTMENTS-CARRYING> 239,191
<INVESTMENTS-MARKET> 247,584
<LOANS> 2,692,453
<ALLOWANCE> 35,178
<TOTAL-ASSETS> 3,673,155
<DEPOSITS> 3,044,368
<SHORT-TERM> 272,268
<LIABILITIES-OTHER> 37,311
<LONG-TERM> 29,537
0
0
<COMMON> 27,813
<OTHER-SE> 261,858
<TOTAL-LIABILITIES-AND-EQUITY> 3,673,155
<INTEREST-LOAN> 122,170
<INTEREST-INVEST> 23,436
<INTEREST-OTHER> 537
<INTEREST-TOTAL> 146,143
<INTEREST-DEPOSIT> 64,242
<INTEREST-EXPENSE> 70,743
<INTEREST-INCOME-NET> 75,400
<LOAN-LOSSES> 7,937
<SECURITIES-GAINS> 121
<EXPENSE-OTHER> 58,606
<INCOME-PRETAX> 30,533
<INCOME-PRE-EXTRAORDINARY> 21,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 21,786
<EPS-PRIMARY> .77
<EPS-DILUTED> .77
<YIELD-ACTUAL> 4.70
<LOANS-NON> 7,560
<LOANS-PAST> 5,782
<LOANS-TROUBLED> 1,243
<LOANS-PROBLEM> 4,321
<ALLOWANCE-OPEN> 31,720
<CHARGE-OFFS> 5,427
<RECOVERIES> 948
<ALLOWANCE-CLOSE> 35,178
<ALLOWANCE-DOMESTIC> 35,178
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
