SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
June 30, 1994 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of Registrant as specified in its Charter)
Michigan 38-1971791
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
211 South Rose St., Kalamazoo, Michigan 49007
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including
area code 616-376-9000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Class Outstanding at July 31, 1994
Common Stock, $10 Par Value 58,612,956
<PAGE>
<TABLE> FIRST OF AMERICA BANK CORPORATION Consolidated Balance Sheet
<CAPTION>
June 30, December 31,
1994 1993 ($ in thousands)
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 889,900 903,517
Federal funds sold and other short term investments 59,985 74,909
Securities:
Held to maturity, market value of $3,031,608 at
June 30, 1994 and $1,872,326 at December 31, 1993 3,113,702 1,856,623
Available for sale, amortized cost of $2,977,836 at
June 30, 1994 and $3,212,687 at December 31, 1993 2,950,705 3,261,481
Loans (net of unearned income):
Consumer 5,572,862 5,062,173
Commercial 2,226,142 2,148,663
Commercial real estate 3,143,184 2,902,549
Residential real estate 4,206,142 3,914,914
Loans held for sale, market value of $70,850 at
June 30, 1994 and $368,846 at December 31, 1993 70,837 365,856
------------ ------------
Total loans 15,219,167 14,394,155
Less: Allowance for loan losses 204,465 188,664
------------ ------------
Net loans 15,014,702 14,205,491
Premises and equipment, net 454,449 432,256
Other assets 594,033 496,194
------------ ------------
Total assets $23,077,476 21,230,471
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 2,690,516 2,682,621
Interest bearing 16,431,732 15,561,082
------------ ------------
Total deposits 19,122,248 18,243,703
Securities sold under repurchase agreements 1,070,496 664,531 Short term borrowings
Short term borrowings 742,373 330,047
Long term debt 410,689 254,193
Other liabilities 210,129 214,560
------------ ------------
Total liabilities 21,555,935 19,707,034
------------ ------------
SHAREHOLDERS' EQUITY
Common equity 1,521,541 1,523,437
------------ ------------
Total liabilities and shareholders' equity $23,077,476 21,230,471
============ ============
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> FIRST OF AMERICA BANK CORPORATION
Consolidated Statements of Income
(Unaudited)
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- --------------------
($ in thousands) 1994 1993 1994 1993
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $306,190 305,904 600,889 609,532
Investment securities 80,987 75,979 148,019 148,248
Other interest income 487 373 1,196 1,574
--------- --------- --------- ---------
Total interest income 387,664 382,256 750,104 759,354
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 133,434 144,417 258,088 293,184
Short term borrowings 13,477 5,113 19,651 7,754
Long term debt 5,963 5,031 10,594 10,265
--------- --------- --------- ---------
Total interest expense 152,874 154,561 288,333 311,203
--------- --------- --------- ---------
NET INTEREST INCOME 234,790 227,695 461,771 448,151
Provision for loan losses 22,501 20,029 43,109 43,802
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 212,289 207,666 418,662 404,349
--------- --------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts 22,292 21,687 42,600 41,780
Trust and financial services income 20,657 19,637 40,970 38,239
Investment securities transactions, net 1,216 2,470 8,715 9,692
Other operating income 25,650 25,644 54,131 51,494
--------- --------- --------- ---------
Total non-interest income 69,815 69,438 146,416 141,205
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Personnel 108,873 101,915 213,495 200,605
Occupancy, net 14,504 13,023 29,840 27,244
Equipment 13,758 13,138 26,763 26,636
Outside data processing 4,691 3,844 8,950 7,425
Amortization of intangibles 4,049 2,051 6,610 4,098
Other operating expense 58,525 57,128 116,600 110,504
Total non-interest expense 204,400 191,099 402,258 376,512
--------- --------- ---------
INCOME BEFORE TAXES 77,704 86,005 162,820 169,042
Income tax expense 24,500 26,383 51,296 50,822
--------- --------- --------- ---------
NET INCOME $ 53,204 59,622 111,524 118,220
========= ========= ========= =========
PER COMMON AND COMMON
EQUIVALENT SHARE
Primary 0.88 1.01 1.86 2.00
Fully Diluted 0.88 1.00 1.86 1.98
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
<TABLE> FIRST OF AMERICA BANK CORPORATION Statements of Cash F
<CAPTION>
Six Months Ended
June 30,
---------------------
($ in thousands) 1994 1993
---------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 111,524 118,220
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 22,078 18,825
Provision for loan losses 43,109 43,802
Provision for deferred taxes (962) (858)
Amortization of intangibles 6,610 4,098
(Gain) loss on the sale of securities available for sale (8,715) --
(Gain) loss on securities held for sale -- (9,692)
(Gain) loss on the sale of mortgage loans held for sale (8,036) (12,134)
(Gain) loss on the sale of other assets (100) (246)
Proceeds from the sales of mortgage loans held for sale 764,448 --
Net other decrease (increase) in mortgage loans held for sale (461,393) (184,968)
Net decrease (increase) in securities held for sale -- 900,660
Proceeds from the sale of securities available for sale 1,256,745 --
Proceeds from the maturities of securities available for sale 600,761 --
Purchases of securities available for sale (1,426,457) --
Change in assets and liabilities net of acquisitions:
(Increase)decrease in interest and other
income receivable 25,919 (22,159)
(Increase)decrease in other assets 26,085 175,574
Increase(decrease) in taxes payable (7,866) 10,779
Increase(decrease) in interest and
other expense payable (10,940) 44,881
Increase(decrease) in other liabilities (47,669) (59,269)
---------- ---------
NET CASH FROM OPERATING ACTIVITIES 885,141 1,027,513
---------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities -- --
Proceeds from maturities of investment securities 258,041 337,548
Purchases of investment securities (1,533,748) (1,636,479)
Proceeds from sales of loans -- --
Net other (increase) decrease in loans & leases (922,462) 37,531
Premises and equipment purchased (42,638) (31,466)
Proceeds from the sale of premises and equipment 2,071 491
(Acquisition)/Sale of affiliates, net of cash acquired 319,316 1,039
---------- ---------
NET CASH PROVIDED BY INVESTING ACTIVITIES (1,919,420) (1,291,336)
---------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase(decrease) in short term deposits 134,108 (128,913)
Net increase(decrease) in time deposits 35,105 (57,618)
Net increase(decrease) in short term borrowings 818,291 401,424
Proceeds from issuance of long term debt 231,000 102,475
Repayments of long term debt (74,504) (64,925)
Proceeds from issuance of common stock 177 542
Payments for purchase and retirement of common stock (75,896) (112)
Dividends paid (47,619) (42,851)
---------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 1,020,662 210,022
---------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (13,617) (53,801)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 903,517 918,960
---------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 889,900 (865,159)
========== =========
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1: General
The accompanying interim financial statements are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements have been
included. Certain amounts included in the prior period financial
statements have been reclassified to conform with the current
financial statement presentation.
Note 2: Non-Performing Assets
<TABLE>
<CAPTION>
June 30,
---------------------------
(in thousands) 1994 1993
----------- ----------
<S> <C> <C>
Non-accrual loans $ 116,103 107,576
Restructured loans 9,686 12,037
Other real estate owned 42,467 53,950
------------ ---------
Non-performing assets $ 168,256 173,563
============= ==========
</TABLE>
Note 3: Allowance for Loan Losses <TABLE> <CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
--------------------- --------------------
(in thousands) 1994 1993 1994 1993 ______________
------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $194,745 177,511 188,664 176,793
Provision charged against income 22,501 20,029 43,109 43,802
Recoveries 9,632 10,170 18,305 17,965
Loans charged off (24,607) (26,234) (47,807) (57,084)
Allowance of acquired banks 2,194 253 2,194 253
------- ------- ------- --------
Balance, end of period $204,465 181,729 204,465 181,729
======== ======== ======== ========
</TABLE>
Note 4: Borrowings
First of America entered into 364-Day and Three-Year Competitive
Advance and Revolving Credit Facility Agreements on March 25,
1994 with several lenders. Each of the agreements allows First
of America to borrow on a standby revolving credit basis and
uncommitted competitive advance basis up to $150,000,000,
totalling $300,000,000. The proceeds of all such borrowings will
be used to provide working capital and to support other general
corporate purposes.
Note 5: Common Stock and Calculation of Earnings Per Share
At June 30, 1994 and 1993, there were 59,171,456 and 57,134,965
common shares outstanding, respectively. At the same dates,
there were 100,000,000 authorized shares of $10 par value common
stock. Common and common equivalent earnings per share amounts
were calculated by dividing net income applicable to common stock
by the weighted average number of common shares outstanding
during the respective periods adjusted for outstanding stock
options. The fully diluted earnings per share calculation for
June 30, 1993 was based on the assumption that all outstanding
preferred stock was converted into common stock and the preferred
dividends on these shares were eliminated.
<TABLE> <CAPTION> Three Months Ended Six Months Ended
------------------------ -------------------------
1994 1993 1994 1993
--------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average Shares Outstanding
Common and common equivalents 60,141,900 57,448,318 59,957,182 57,393,456
Fully diluted 60,141,900 59,738,075 59,957,182 59,751,111
</TABLE>
Note 6: Mergers and Acquisitions
<TABLE>
<CAPTION>
($ in thousands) Date of Total Assets Financial
Acquisition Acquired Reporting Value
---------------- ----------- --------------
<S> <C> <C> <C>
LGF Bancorp, Inc. May 1, 1994 $410,000 61,902
Goldome Federal Savings Bank April 15, 1994 377,000 58,380
(Florida offices)
Citizens Federal Bank August 26, 1993 498,000 19,902
(Illinois offices)
Kewanee Investing Company, Inc. April 1, 1993 28,700 3,982
</TABLE>
Note 7: Pending Acquisitions
On April 15, 1994, First of America entered into a definitive
agreement to acquire First Park Ridge Corporation, a $323 million
in assets bank holding company based in Park Ridge, Illinois.
First Park Ridge's 65,139 common shares will be exchanged tax-
free for shares of First of America Common Stock. The exchange
ratio and the number of shares issued will be based on the
average price of First of America Common Stock over the period of
20 consecutive trading days ending on the tenth day prior to the
effective date, with the transaction having an indicated value of
$80 million. First of America intends to account for the
acquisition as a purchase and repurchase a substantial portion of
the shares to be issued in the transaction. The acquisition,
subject to approval by First Park Ridge's shareholders and
regulatory authorities, is expected to be completed by October 1,
1994, with the merger of First Park Ridge's subsidiary banks into
First of America Bank - Northeast Illinois, N.A.
On June 14, 1994, First of America entered into a definitive
agreement to acquire F&C Bancshares, Inc., a $406 million in
assets savings and loan holding company based in Port Charlotte,
Florida. F&C Bancshares' 3,242,209 common shares will be
exchanged tax-free for shares of First of America Common Stock.
The exchange ratio will equal $23.25 divided by the average
closing price of First of America Common Stock during the last 15
trading days immediately prior to, but not including, the third
business day before the completion of the transaction. However,
the exchange ratio will not exceed .6436 and will not be less
than .5519. Based on the current market price of First of
America Common Stock, the transaction has an indicated value of
$75 million. First of America intends to account for the
acquisition as a pooling of interests. The acquisition, subject
to approval by F&C Bancshares' shareholders and regulatory
authorities, is expected to be completed by the end of 1994, and
will include the merger of F&C Bancshare's subsidiary, First
Federal Savings Bank of Charlotte County, into First of America
bank - Florida, FSB. Concurrently with the execution of the
definitive agreement, First of America and F&C Bancshares
executed a Warrant Agreement pursuant to which F&C Bancshares
issued a Warrant to First of America entitling First of America
to purchase up to 648,400 shares of F&C Bancshares common stock
upon the occurence of certain events set forth in the Warrant
Agreement.
Effective on June 28, 1994, First of America entered into a
definitive agreement to acquire Presidential Holding Company, a
$224 million in assets savings and loan holding company based in
Sarasota, Florida. Presidential's 716,188 common shares will be
exchanged tax-free for shares of First of America Common Stock.
The exchange ratio will equal $33.25 divided by the average
closing price of First of America Common Stock during the last 15
trading days immediately prior to, but not including, the third
business day before the completion of the transaction. However,
the exchange ratio will not exceed .9837 and will not be less
than .8735. Based on the current market price of First of
America Common Stock, the transaction has an indicated value of
$24 million. First of America intends to account for the
acquisition as a pooling of interests. The acquisition, subject
to approval by regulatory authorities, is currently expected to
be completed by year-end 1994 or early in 1995, with the merger
of Presidential's subsidiary, Presidential Bank, F.S.B., into
First of America Bank - Florida, F.S.B.
Note 8: Subsequent Events
On July 26, 1994, First of America issued $200 million in 7-3/4%
Subordinated Notes. The Subordinated Notes are not subject to
redemption prior to maturity and qualify as Tier II capital under
the Federal Reserve Board's Capital Guidelines.
<TABLE> MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESU
The following table sets forth the period to period changes in the principal items
included in the consolidated statement of income for the three months and six
months ended June 30, 1994 compared to the corresponding 1993 periods. The
bracketed amounts represent decreases.
<CAPTION>
Three Months Ended Six Months Ended
-------------------- --------------------
June 30, June 30,
($ in thousands) 1994 vs 1993 1994 vs 1993
-------------------- --------------------
Change Percent Change Percent
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and fee income on loans $ 286 0.1 % $ (8,643) (1.4) %
Interest income on investments 5,008 6.6 (229) (0.2)
Interest income on federal funds sold and
other short term investments 114 30.6 (378) (24.0)
--------- --------- --------- ---------
Total interest income 5,408 0.1 (9,250) (1.2)
--------- --------- --------- ---------
Interest expense on deposits (10,983) (7.6) (35,096) (12.0)
Interest expense on borrowed funds 9,296 91.6 12,226 67.9
--------- --------- --------- ---------
Total interest expense (1,687) (1.1) (22,870) (7.3)
--------- --------- --------- ---------
Net interest income 7,095 (18.8) 13,620 3.0
Provision for loan losses 4,623 12.3 (693) (1.6)
Non-interest income 377 0.5 5,211 3.7
Non-interest expense 13,301 7.0 25,746 6.8
--------- --------- --------- ---------
Income before tax expense (8,301) (9.7) (6,222) (3.7)
Applicable income tax expense (1,883) (7.1) 474 0.9
--------- --------- --------- ---------
Net income $ (6,418) (10.8)% $ (6,696) (5.7) %
========= ========= ========= =========
</TABLE>
On April 15, 1994, First of America acquired the 36 Florida
offices and $375 million in deposits of Goldome Federal Savings
Bank ("Goldome") from the Resolution Trust Corporation. First of
America also completed the acquisition of LGF Bancorp, Inc.
("LGF"), a $410 million in asset thrift holding company on May 1,
1994. Because both acquisitions were accounted for as purchases,
the following information and the accompanying financial
statements, included elsewhere in this report, include their
operations from the date of acquisition. Additional information
concerning First of America's acquisitions which occurred during
1993 and 1994 is presented in Note 6 of the Notes to Consolidated
Financial Statements, included elsewhere in this report.
HIGHLIGHTS
Net income for the second quarter was $53.2 million, or $0.88 per
fully diluted share, compared with $59.6 million, or $1.00 per
fully diluted share a year ago. Affecting net income were a
lower net interest margin (4.65 percent versus 4.92 percent),
$3.9 million of costs for business line development and $5.7
million of costs related to the operations of recent
acquisitions. Net income was also negatively impacted for the
quarter by lower gains on sales of securities and loans.
Return on average assets for the quarter was 0.96 percent versus
1.17 percent a year ago. Return on average equity, also lower
for the quarter-to-quarter comparison, was 13.92 percent versus
17.16 percent in the second quarter of 1993.
Total assets were $23.1 billion, up 12.7 percent from a year ago.
Total loans increased 9.6 percent from the year ago quarter with
asset quality measures continuing to improve. Total deposits
also increased over a year ago, up 7.0 percent. These year over
year increases were in part due to the acquisitions of Goldome
deposits and LGF. Excluding acquisitions, loans and deposits
increased 8.5 percent and 3.0 percent, respectively.
INCOME ANALYSIS
SECOND QUARTER AND YEAR-TO-DATE COMPARISON
Net interest income (FTE) increased 2.5 percent over the second
quarter and year-to-date periods a year ago. The increase was
primarily the result of a higher level of average earning assets,
up 8.3 percent quarter-to-quarter and 6.5 percent year-to-year.
The increased earning assets offset the lower net interest margin
recorded for both periods. The net interest margin for the
second quarter of 1994 was 4.65 percent versus 4.92 percent a
year ago, also down from the 4.81 percent reported for the first
quarter of 1994. The acquisitions mentioned previously added
approximately $750 million in higher priced thrift deposits to
the balance sheet, lowering the current quarter's margin by 7
basis points and the year-to-date margin by 4 basis points. Also
impacting the current net interest margin was the repricing of a
substantial portion of the credit card portfolio. The year-to-
date margin was 4.73 percent versus 4.92 percent last year.
Tables 1 and 2 summarize the yields on earning assets and rates
paid on interest-bearing liabilities and the impact that changes
in rates and volumes have had on net interest income for the
second quarter of 1994 versus the second quarter of 1993 and the
first quarter of 1994.
The provision for loan losses was up 12.3 percent compared with
the 1993 quarter in support of the higher level of loans on the
balance sheet. Even with the higher level of loans, First of
America's net charge-offs were lower than both the quarterly and
year-to-date totals reported in 1993. Net charge-offs as a
percent of average loans were 0.41 percent compared with 0.47
percent reported in the year ago quarter. This ratio also
improved in the year-to-date comparison, decreasing to 0.41
percent from 0.58 percent. Charge-offs and recoveries by type
are detailed in Table 3.
Total non-interest income increased slightly in the quarter-to-
quarter comparison and increased 3.7 percent in the year-to-year
comparison. The current periods included lower levels of gains
on the sales of securities and loans. Excluding the combined
impact of these gains, which totalled $3.2 million and $16.8
million for the quarter and year-to-date periods of 1994 versus
$8.2 million and $21.8 million a year ago, non-interest income
would have increased 8.9 percent and 8.6 percent for the
respective periods.
Trust and financial services income increased 5.2 percent, to
$20.7 million versus $ 19.6 million a year ago. Year-to-date,
trust and financial services income was up 7.1 percent to $41.0
million. The increase in traditional trust income of 8.7 percent
for the quarter over quarter comparison offset the 2.2 percent
decline in other financial services income. Year-to-date,
however, both components of trust income were up, increasing 7.4
percent and 6.5 percent, respectively.
Service charges on deposit accounts increased 2.8 percent for the
quarter-to-quarter comparison and were up 2.0 percent for the
year-to-date comparison. Credit card fees increased 9.1 percent
and 10.2 percent, respectively, for the same period comparisons.
Growth in credit card fees continued to follow the increased
outstandings in the portfolio, which were up 24.9 percent to $1.2
billion from a year ago. Mortgage banking revenue was down 42.3
percent and 19.9 percent for the comparable periods. The primary
reason for this decrease was the reduction in residential
mortgage loan sale gains, which totalled $1.9 million and $8.0
million for the 1994 quarter and year-to-date periods versus $5.8
million and $12.1 million a year ago, respectively. Mortgage
servicing income, however, increased 40.4 percent and 27.8
percent over the 1993 comparable periods. This trend follows the
growth in the servicing portfolio, which reached $6.8 billion at
June 30, 1994 versus $5.6 billion at June 30, 1993.
Total non-interest expense increased from both the 1993 quarter
and year-to-date periods, up 7.0 percent and 6.8 percent,
respectively. The primary reasons for these increases are new
initiatives and developmental costs incurred to promote long term
growth in fee income and the added operations from acquisitions.
As a percent of average assets for the quarter, non-interest
expense was 3.69 percent compared with 3.75 percent for the
second quarter of 1993.
The burden and efficiency ratios increased over both the 1993
periods. Lower reported gains on the sales of securities and
loans plus the growth in non-interest expenses contributed to the
deterioration of these ratios. The burden ratio was 2.43 percent
and 2.39 percent for the quarter and year-to-date periods versus
2.39 percent and 2.35 percent a year ago, respectively. The
efficiency ratio over the same periods was 66.23 percent and
65.22 percent versus 63.19 percent and 62.76 percent,
respectively.
ASSET QUALITY AND CREDIT RISK PROFILE
First of America's loan portfolio has no significant industry
concentrations of credit, thereby minimizing credit risk
exposure. Also minimizing credit risk are First of America's
conservative lending policies and stringent loan review process.
In addition, First of America's loan customers are largely
individual homeowners and small to mid-sized businesses. At June
30, 1994, the loan portfolio was made up of residential mortgages
(28.1 percent), consumer loans (36.6 percent), commercial
mortgages (20.7 percent) and commercial loans (14.6 percent).
Investor/developer loans, defined as loans for non-owner occupied
real estate, were $1.5 billion, slightly less than 10 percent of
total gross loans.
Total non-performing assets, which include non-accrual loans,
renegotiated loans and other real estate owned decreased $5.3
million from a year ago and $14.4 million from year end (see
Table 4). Total non-performing assets as a percent of total
assets was 0.73 percent, the lowest quarter-end ratio reported
since December 31, 1990. The allowance coverage of non-
performing loans increased to 163 percent at June 30, 1994 from
152 percent a year ago.
FUNDING, LIQUIDITY AND INTEREST RATE RISK
First of America continues to monitor interest rate risk, provide
liquidity and moderate changes in the market value of the
investment securities portfolio through a centralized funds
management division.
Liquidity is measured by a financial institution's ability to
raise funds through deposits, borrowed funds, capital and the
sale of assets. First of America relies primarily upon core
deposits for its liquidity. At June 30, 1994, core deposits
equalled 94.7 percent of total deposits.
First of America entered into 364-Day and Three-Year Competitive
Advance and Revolving Credit Facility Agreements on March 25,
1994 with several lenders. Each of the agreements allows First
of America to borrow on a standby revolving credit basis and an
uncommitted competitive advance basis up to $150,000,000,
totalling $300,000,000. The proceeds of all such borrowings will
be used to provide working capital and for other general
corporate purposes. At June 30, 1994, the balance outstanding on
these two lines of credit aggregated $187 million.
First of America's interest rate risk policy is to minimize the
effect on net income resulting from a change in interest rates
through asset/liability management at all levels in the company.
Each banking affiliate completes an interest analysis every month
using an asset/liability model, and a consolidated analysis is
then completed using the affiliates' data. The Asset and
Liability Committees, which exist at each banking affiliate and
at the consolidated level, review the analysis and as necessary,
take appropriate action to minimize changes in the net interest
spread.
Interest rate swap transactions generally involve the exchange of
fixed and floating rate interest payment obligations without the
exchange of the underlying financial instrument. The company
becomes a principal in the exchange of interest payments with
other parties and, therefore, is exposed to the loss of future
interest payments should the counterparty default. The company
minimizes this risk by performing normal credit reviews of its
counterparties and collateralizing its exposure when it exceeds a
predetermined limit. First of America had outstanding interest
rate swap agreements at June 30, 1994, totalling $830 million in
notional amounts. This total included amounts of $150 million as
a hedge against long term debt, $10 million as a hedge against an
FHLB Advance and the remainder as a hedge against certain
deposits. First of America had no outstanding interest rate swap
agreements at June 30, 1993. At December 31, 1993, First of
America had interest swap agreements totalling $291.6 million in
notional amounts, of which $125 million was a hedge against long
term debt and the remainder against certain deposits.
The difference between rate sensitive assets and liabilities is
presented in Table 5. The GAP reports' reliability in measuring
the risk to income from a change in interest rates is tested
through the use of simulation models. The most recent simulation
models show that less than two percent of First of America's
annual net income is at risk if interest rates were to move up or
down an immediate one percent. Management has determined that
these simulation models provide a more accurate measurement of
the company's interest rate risk positions than the GAP tables.
CAPITAL STRENGTH
Total shareholders' equity increased 7.8 percent to $1.5 billion
at June 30, 1994. The increased capital was the result of
earnings retention and capital issued in acquisitions, more than
offsetting a reduction in capital of $20.1 million due to a
market value adjustment made to the company's available for sale
investment portfolio as required by Financial Accounting
Statement No. 115, "Accounting for Certain Investments in Debt
and Equity Securities," and the repurchase of approximately 2.4
million shares of First of America Common Stock on the open
market. The fully diluted book value per share rose to $25.71
from $23.73 reported last year.
First of America continues to maintain, both on a consolidated
level and an affiliate basis, capital levels within the
parameters of "well capitalized" as defined by regulatory
guidelines. The consolidated total capital to risk adjusted
assets ratio at June 30, 1994 was 10.77 percent, the tier I ratio
was 8.49 percent and the tier I leverage ratio was 5.76 percent.
As appropriate, the market value adjustment was excluded from the
risk based ratios. On February 7, 1994, First of America
exercised the right to prepay its 9.25% Senior Notes totalling
$21.4 million. The prepayment of this debt, which had previously
qualified as Tier II capital contributed to the decreased total
capital ratio from a year ago.
On July 26, 1994, the company issued $200 million of 7-3/4%
Subordinated Notes Due July 15, 2004, which are not subject to
redemption prior to maturity and which qualify as Tier II capital
(See Note 8, Notes to Consolidated Financial Statements appearing
elsewhere in this report). Had the Subordinated Notes been
issued in the second quarter, the total capital ratio would have
been 12.05 percent.
IN CONCLUSION
Management's long term goals for the company remain a return on
assets of 1.25 percent or higher, an efficiency ratio of 60
percent or lower and a return on equity between 17 percent and 18
percent. For this year, however, assuming current year trends
(including loan growth and an improving net interest margin),
full year results are expected to be level with 1993's $4.14
earnings per share or slightly higher.
First of America is pursuing the consolidation of its 20
affiliate financial institutions into four state-wide financial
institutions located in Michigan, Illinois, Indiana and Florida
by year-end 1994. The consolidation is being undertaken in order
to enhance operating efficiencies and to better serve its
customers.
<PAGE>
<TABLE> TABLE 1 CONSOLIDATED YIELD ANALYSIS (a) <CAPTION>
1994 1993
---------------- ----------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2ndQtr. 1stQtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June30 Mar.31
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Average Prime Rate (b) 6.9 % 6.0 6.0 6.0 6.0 6.0
EARNING ASSETS
Money Market Investments 2.83 2.95 3.37 2.94 2.88 3.09
U.S. Government and agencies securities 5.61 5.45 5.40 5.68 5.83 6.12
State and municipal securities 8.43 7.56 6.62 8.74 8.72 8.74
Other securities 6.00 6.40 8.29 8.29 8.04 6.82
------- ------- ------- ------- ------- -------
Total securities 5.79 5.67 5.60 6.05 6.12 6.39
------- ------- ------- ------- ------- -------
Consumer loans 8.98 9.29 9.50 10.11 10.45 10.71
Commercial loans 7.99 7.48 7.66 7.46 7.49 7.84
Commercial real estate loans 8.47 8.24 8.37 8.46 8.54 8.59
Residential real estate loans 7.66 7.79 8.00 8.20 8.45 8.48
------- ------- ------- ------- ------- -------
Total loans 8.36 8.39 8.53 8.88 9.04 9.11
------- ------- ------- ------- ------- -------
Total earning assets 7.63 % 7.66 7.75 7.99 8.18 8.36
======= ======= ======= ======= ======= =======
INTEREST-BEARING LIABILITIES
Time deposits:
CD's - less than 12 months 4.29 % 4.28 4.53 4.63 4.68 4.72
CD's - 12 months or more 4.43 4.56 4.69 4.91 5.23 5.56
CD's - $100,000 or more 3.71 3.30 3.30 3.33 3.39 3.55
Other time deposits 5.07 5.02 5.10 5.32 5.35 5.62
Other core deposits:
Savings deposits and NOW 1.49 1.55 1.76 2.09 2.23 2.38
Money market savings and checking 2.50 2.17 2.28 2.44 2.53 2.66
------- ------- ------- ------- ------- -------
Total deposits 3.31 3.24 3.41 3.58 3.72 3.90
------- ------- ------- ------- ------- -------
Short term borrowings 4.13 3.38 3.22 3.25 3.14 3.42
Long term debt 6.86 7.02 6.78 6.81 7.37 8.42
------- ------- ------- ------- ------- -------
Total borrowed funds 4.70 4.35 4.14 4.50 4.39 5.65
------- ------- ------- ------- ------- -------
Total interest-bearing liabilities 3.44 % 3.31 3.46 3.62 3.76 3.97
======= ======= ======= ======= ======= =======
NET INTEREST MARGIN
Interest income to average earning assets 7.63 % 7.66 7.75 7.99 8.18 8.36
Interest expense to average earning assets 2.98 2.85 2.98 3.13 3.26 3.44
Net interest margin 4.65 4.81 4.77 4.86 4.92 4.92
(a) Fully taxable equivalent, based on a marginal federal income tax rate of 35%.
(b) The First National Bank of Chicago Corporate Base Rate.
</TABLE>
<PAGE>
<TABLE> TABLE 2 ANALYSIS OF NET INTEREST INCOME <captio
Second Quarter 1994 Versus Second Quarter 1994 Versus
Second Quarter 1993 First Quarter 1994
($ in thousands) ---------------------------- ----------------------------
CHANGES IN RATE AND VOLUME Total Change Due To Total Change Due To
INCREASE (DECREASE) Change Volume Rate Change Volume Rate
-------- --------- --------- -------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans (FTE) $ 348 22,019 (21,671) 11,608 10,101 1,507
Taxable securities 7,104 9,852 (2,748) 15,220 13,148 2,072
Tax exempt securities (FTE) (3,447) (3,143) (304) (1,977) (2,818) 841
Money market investments 114 122 (8) (222) (207) (15)
-------- -------- -------- -------- -------- --------
Total Interest Income $ 4,119 28,850 (24,731) 24,629 20,224 4,405
-------- -------- -------- -------- -------- --------
Interest Expense
Interest-bearing deposits $(10,983) 5,748 (16,731) 8,780 4,823 3,957
Short term borrowings 8,364 6,370 1,994 7,303 5,618 1,685
Long term borrowings 932 1,299 (367) 1,332 1,389 (57)
-------- -------- -------- -------- -------- --------
Total Interest Expense $ (1,687) 13,417 (15,104) 17,415 11,830 5,585
-------- -------- -------- -------- -------- --------
Change in net interest income (FTE) $ 5,806 15,433 (9,627) 7,214 8,394 (1,180)
======== ======== ======== ======== ======== ========
NOTE: The change in income attributable to volume is calculated by multiplying the change in volume
times the prior year's rate. The change in income attributable to rate is calculated by multiplying the
change in rate times the prior year's volume. Any variance attributable jointly to volume and rate
changes is allocated to volume and rate in proportion to the relationship of the absolute dollar amount
of the change in each. Fully taxable equivalent income on certain tax exempt loans and securities is
calculated using a 35% tax rate.
</TABLE>
<PAGE>
<TABLE> TABLE 3 SUMMARY OF LOAN LOSS EXPERIENCE <CAPTION>
1994 1993
-------------------- ------------------------------------------
($ in thousands) 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1stQtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar.31
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES
Balance, at beginning of period $ 194,745 188,664 186,579 181,729 177,511 176,793
Provision charged against income 22,501 20,608 20,386 20,526 20,029 23,773
Allowance of acquired (sold) banks 2,194 -- -- (203) 253 --
Recoveries:
Commercial $ 2,265 1,213 1,707 2,762 2,209 2,014
Commercial mortgage 480 862 744 379 635 465
Residential mortgage 75 75 126 92 105 69
Consumer installment 4,803 4,804 4,521 4,235 5,283 4,048
Consumer revolving 2,009 1,719 1,592 1,740 1,938 1,199
--------- --------- --------- --------- --------- ---------
Total recoveries $ 9,632 8,673 8,690 9,208 10,170 7,795
--------- --------- --------- --------- --------- ---------
Charge-offs:
Commercial $ 3,449 3,938 3,690 2,933 4,646 8,495
Commercial mortgage 2,619 1,199 2,584 2,620 2,101 1,760
Residential mortgage 254 245 275 233 287 679
Consumer installment 8,831 8,410 9,922 8,534 9,182 10,138
Consumer revolving 9,454 9,408 10,520 10,361 10,018 9,778
--------- --------- --------- --------- --------- ---------
Total charge-offs $ 24,607 23,200 26,991 24,681 26,234 30,850
--------- --------- --------- --------- --------- ---------
Net charge-offs $ 14,975 14,527 18,301 15,473 16,064 23,055
--------- --------- --------- --------- --------- ---------
Balance, at end of period $ 204,465 194,745 188,664 186,579 181,729 177,511
========= ========= ========= ========= ========= =========
Average loans outstanding (net of
unearned income) $14,777,048 14,292,647 14,252,372 13,924,461 13,757,416 13,558,214
========= ========= ========= ========= ========= =========
CHARGE-OFFS AND RECOVERIES RATIOS
Net charge-offs to average loans (a) 0.41 % 0.41 0.51 0.44 0.47 0.69
Net charge-offs to period end allowance (a) 29.38 30.25 38.48 32.90 35.45 52.67
Earnings coverage of net charge-offs 6.69 x 7.28 6.07 6.90 6.60 4.63
Recoveries to total charge-offs 39.14 % 37.38 32.20 37.31 38.77 25.27
Provision to average loans (a) 0.61 0.58 0.57 0.58 0.58 0.71
Allowance to total period end loans 1.34 1.35 1.31 1.32 1.31 1.31
(a) Annualized
</TABLE>
<PAGE>
<TABLE> TABLE 4 MEASUREMENT OF ASSET QUALITY <CAPTION>
1994 1993
--------------------- -------------------------------------------------
($ in thousands) 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1stQtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar.31
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 24,584 26,486 28,483 22,340 24,356 19,613
Commercial mortgage 75,316 76,911 76,129 70,581 65,086 73,697
Residential mortgage 14,739 13,469 15,727 15,678 17,242 18,642
Revolving mortgage 333 331 71 99 88 257
Consumer installment 1,131 1,120 776 1,533 804 588
Consumer revolving -- -- -- -- -- 13
------- ------- ------- ------- ------- -------
Total non-accrual loans $116,103 118,317 121,186 110,231 107,576 112,810
------- ------- ------- ------- ------- -------
Renegotiated loans:
Commercial $ 469 477 257 302 382 480
Commercial mortgage 8,084 8,303 9,272 9,087 11,527 17,310
Residential mortgage 1,074 1,106 1,350 1,791 69 --
Revolving mortgage -- -- -- -- -- --
Consumer installment 59 -- -- -- 59 162
Consumer revolving -- -- -- -- -- 1,234
------- ------- ------- ------- ------- -------
Total renegotiated loans $ 9,686 9,886 10,879 11,180 12,037 19,186
------- ------- ------- ------- ------- -------
Total non-performing loans $125,789 128,203 132,065 121,411 119,613 131,996
------- ------- ------- ------- ------- -------
Other real estate owned $ 42,467 46,417 50,595 50,486 53,950 46,321
------- ------- ------- ------- ------- -------
Total non-performing assets $168,256 174,620 182,660 171,897 173,563 178,317
======= ======= ======= ======= ======= =======
Loans past due 90 days or more:
Commercial $ 915 2,756 2,351 4,688 9,505 1,688
Commercial mortgage 1,680 10,289 4,589 17,895 12,565 5,199
Residential mortgage 2,027 8,955 8,951 7,901 7,192 5,738
Revolving mortgage 434 521 611 496 416 74
Consumer installment 780 1,093 1,683 2,132 1,537 1,214
Consumer revolving 4,927 4,980 5,277 4,477 5,313 4,908
------- ------- ------- ------- ------- -------
Total loans past due
90 days or more $ 10,763 28,594 23,462 37,589 36,528 18,821
======= ======= ======= ======= ======= =======
ASSET QUALITY RATIOS
Non-performing assets as a % of
total assets 0.73% 0.82 0.86 0.82 0.85 0.88
Non-performing assets as a % of
total loans + OREO 1.10 1.21 1.26 1.21 1.25 1.31
Allowance coverage of
non-performing loans 162.55 151.90 142.86 153.68 151.93 134.48
</TABLE>
<PAGE>
<TABLE> TABLE 5 INTEREST RATE SENSITIVITY
<CAPTION>
0 to 0 to 0 to 0 to 0
30 Days 60 Days 90 Days 180 Days 365
($ in millions) --------- --------- --------- --------- ------
<S> <C> <C> <C> <C> <C>
ASSETS
Other earning assets $ 60 60 60 60 60
Investment securities 258 391 504 898 1,568
Loans, net of unearned income 4,740 5,200 5,571 6,589 8,292
--------- --------- --------- --------- ---------
Total rate sensitive assets (RSA) $ 5,058 5,651 6,135 7,547 9,920
========= ========= ========= ========= =========
LIABILITIES AND EQUITY
Money market type deposits $ 2,040 2,679 2,764 2,784 2,878
Other core savings and time
deposits 1,481 2,219 2,623 3,547 5,028
Negotiated deposits 508 691 790 927 984
Borrowings 1,985 1,989 2,022 2,022 2,032
--------- --------- --------- --------- ---------
Total rate sensitive liabilities (RSL) $ 6,014 7,578 8,199 9,280 10,922
========= ========= ========= ========= =========
Off balance sheet $ (683) (783) (764) (719) (568)
========= ========= ========= ========= =========
GAP (RSA - RSL) $(1,639) (2,710) (2,828) (2,452) (1,570)
========= ========= ========= ========= =========
RSA divided by RSL 0.76 % 0.68 0.68 0.75 0.86
GAP divided by equity (107.69) (178.06) (185.81) (161.10) (103.15)
RSA divided by total assets 21.92 24.49 26.58 32.70 42.99
RSL divided by total assets 29.02 36.23 38.84 43.33 49.79
GAP divided by total assets (7.10) (11.74) (12.25) (10.63) (6.80)
</TABLE>
<PAGE>
II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Shareholders
was held on April 20, 1994.
(c) At the Annual Meeting, shareholders elected as
directors the nominees listed in the following
table:
Number of Voted Number of
Nominees Shares For Shares Withheld
------------------ --------------- --------------
Jon E. Barfield 48,642,327 445,896
Richard F. Chormann 48,800,688 287,535
Joel N. Goldberg 48,706,308 381,915
James S. Ware 48,811,030 277,193
John L. Zabriskie 48,739,429 348,794
Shareholders also voted to approve amendments to The Restated
First of America Bank Corporation 1987 Stock Option Plan;
43,161,968 shares voted in favor of approval, 4,985,323 shares
voted against, and 940,932 abstained from voting.
Shareholders also voted to ratify the selection of KPMG Peat
Marwick as the Registrant's independent auditors for 1994;
48,518,318 common stock voted in favor of the ratification with
211,041 voted against, and 358,863 abstained from voting.
There were no broker non-votes on the matters voted upon at the
meeting.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement regarding computation of per share
earnings.
The computation of primary and fully diluted
earnings per share is described in Note 5 to
the Consolidated Financial Statements included in
this report.
(b) Reports on Form 8-K
The Registrant filed a Current Report on Form 8-K
dated July 14, 1994, discussing its pending
acquisitions and reporting the release of its
earnings and financial highlights.
The Registrant filed a Current Report on Form 8-K
dated July 25, 1994, containing the following:
the Underwriting Agreement, dated July 19, 1994,
between Registrant and the Underwriters, a form of
First of America Bank Corporation's 7-3/4%
Subordinated Notes Due July 15, 2004 and the First
Supplemental Indenture, dated as of July 1, 1994,
between Registrant and Continental Bank as
Trustee.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, First of America has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRST OF AMERICA BANK CORPORATION
REGISTRANT
Date: August 10, 1994 /s/ Thomas W. Lambert
Thomas W. Lambert
Executive Vice President
and Chief Financial Officer
(Principal Financial and
Accounting Officer)
