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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 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, 1993 Commission File Number 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of registrant as specified in its charter)
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Michigan 38-1971791
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
211 South Rose Street, Kalamazoo, Michigan 49007
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
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(616) 376-9000
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $10 Par Value
(TITLE OF CLASS)
Securities registered pursuant to Section 12(g) of the Act:
None
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 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. / /
State the aggregate market value of the voting stock held by non-affiliates
of the registrant: $2,061,993,726 on February 28, 1994.
Indicate the number of shares outstanding of each of the registrant's classes
of common stock, as of the latest practicable date.
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CLASS OUTSTANDING AT FEBRUARY 28, 1994
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Common Stock, $10 Par Value 59,525,010
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DOCUMENTS INCORPORATED BY REFERENCE
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INFORMATION FROM THE FOLLOWING DOCUMENT HAS
BEEN PARTS OF THIS REPORT
INCORPORATED INTO THIS REPORT BY REFERENCE INTO
TO THE EXTENT INDICATED IN THOSE PARTS. WHICH INCORPORATED
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Proxy Statement dated March 17, 1994 for the
Annual Meeting of Shareholders to be
held on April 20, 1994 III
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PART I
ITEM 1. BUSINESS OF FIRST OF AMERICA BANK CORPORATION
General
First of America Bank Corporation (herein after referred to as First of
America or the Registrant) is a multi-bank holding company headquartered in
Kalamazoo, Michigan. The Registrant was incorporated as a Michigan corporation
in May 1971. Its principal activity consists of owning and supervising twenty
affiliate financial institutions which operate general, commercial banking
businesses from 572 banking offices and facilities located in Michigan, Indiana,
and Illinois. The Registrant also has divisions and non-banking subsidiaries
which provide mortgage, trust, data processing, pension consulting, revolving
credit, discount securities brokerage and investment advisory services. At
December 31, 1993, the Registrant had assets of $21.2 billion, deposits of $18.2
billion and shareholders' equity of $1.5 billion.
The Registrant has responsibility for the overall conduct, direction and
performance of its affiliates. The Registrant establishes direction and policies
for the entire organization and monitors compliance with these policies. The
Registrant provides capital funds to affiliates as required and assists
affiliates in asset and liability management, marketing, planning, accounting,
tax, internal audit, loan review, and human resource management of its 13,330
full time equivalent employees. The operational responsibilities of each
affiliate rest with its officers and directors. The Registrant derives its
income principally from dividends upstreamed from its subsidiaries and fees paid
for management services provided to its subsidiaries.
Subsidiary Banks
As of December 31, 1993, the Registrant had three wholly owned subsidiaries,
First of America Bank - Southeast Michigan, N.A., First of America
Bank - Michigan, N.A., and First of America Bank - Security which met the
conditions for "significant subsidiary." First of America Bank - Southeast
Michigan, N.A., is a general commercial bank based in Detroit, Michigan, and at
December 31, 1993, had $4.0 billion in assets and $3.5 billion in deposits.
First of America Bank - Michigan, N.A., is a general commercial bank based in
Kalamazoo, Michigan, and at December 31, 1993, had $1.4 billion in assets and
$1.2 billion in deposits. First of America Bank - Security is a general
commercial bank based in Southgate, Michigan, and at December 31, 1993, had $2.0
billion in assets and $1.7 billion in deposits. Similar to all of the
Registrant's banking subsidiaries, these subsidiaries offer a broad range of
lending, depository and related financial services to individual, commercial,
industrial, financial, and governmental customers, including demand, savings and
time deposits, secured and unsecured loans, lease financing, letters of credit,
money transfers, corporate and personal trust services, cash management, and
other financial services.
No material part of the business of the Registrant and its subsidiaries is
dependent upon a single customer, or a very few customers, where the loss of any
one would have a materially adverse effect on the Registrant.
Non-Banking Subsidiaries
First of America Mortgage Company is a wholly owned subsidiary of the
Registrant headquartered in Kalamazoo, Michigan. First of America Mortgage
Company engages in the servicing of both commercial and residential real estate
loans for institutional investors and certain affiliates of the Registrant and
secondary market sales and loan originations. FOA Mortgage Company is a wholly
owned subsidiary of First of America Mortgage Company and provides mortgage
origination and servicing and secondary market sales.
First of America Insurance Company is a wholly owned subsidiary of the
Registrant. The insurance company reinsures credit life and disability insurance
provided by an unaffiliated insurer for customers of the Registrant's
affiliates.
First of America Brokerage Service, Inc., is a wholly owned subsidiary of
First of America Bank - Michigan, N.A. It is a registered broker-dealer and
provides securities brokerage services through a clearing broker to customers of
the Registrant's affiliate banks and others.
First of America Investment Corporation is a wholly owned subsidiary of First
of America Bank - Michigan, N.A. First of America Investment Corporation is a
registered investment adviser which provides comprehensive investment advisory
services to the trust division of the Registrant and to individual and
institutional investors. It also serves as investment adviser for The Parkstone
Group of Funds, a family of mutual funds.
First of America Trust Company is a wholly owned subsidiary of the
Registrant. It provides trust services to customers of the Registrant's Illinois
affiliates.
First of America Community Development Corporation is a wholly owned
subsidiary of the Registrant. It invests in qualifying businesses or housing
projects, as allowed by federal law, to address the needs of low to moderate
income neighborhoods.
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COMPETITION
Banking and related financial services are highly competitive businesses and
have become increasingly so during the past few years. The banking subsidiaries
of the Registrant compete primarily with other banks and savings and loan
associations for loans, deposits and trust accounts. They are also faced with
increasing competition from other financial intermediaries including consumer
finance companies, leasing companies, credit unions, retailers and investment
banking firms.
Technological changes have resulted in computer and communication
applications intended to meet the needs of First of America's business and
consumer customers in a convenient, efficient and reliable manner. Affiliate
banks of the Registrant have 387 automated teller machines (ATM's) located on
bank premises to handle banking transactions 24 hours per day and 144
off-premise terminals located in high volume retail and service locations.
SUPERVISION AND REGULATION
The Registrant and its subsidiary banks are subject to supervision,
regulation and periodic examination by various federal and state banking
regulatory agencies, including the Board of Governors of the Federal Reserve
Board (the "FRB"), the Office of the Comptroller of the Currency (the "OCC"),
the Federal Deposit Insurance Corporation (the "FDIC"), the Office of Thrift
Supervision (the "OTS"), the Illinois Commissioner of Banks and Trust Companies
(the "Illinois Commissioner"), the Michigan Financial Institutions Bureau (the
"Michigan FIB") and the Indiana Department of Financial Institutions (the
"Indiana DFI").
The following is a summary of certain statutes and regulations affecting
First of America and its affiliate financial institutions. This summary is
qualified in its entirety by such statutes and regulations, which are subject to
change based on pending and future legislation and action by regulatory
agencies.
Bank Holding Companies. As a bank holding company, First of America is
subject to regulation under the Bank Holding Company Act of 1956, as amended
(the "BHCA") and by the FRB. Among other things, the BHCA and the FRB impose
requirements for the maintenance of capital adequate to support a bank holding
company's operations. The BHCA also restricts the geographic and product range
of bank holding companies by circumscribing the types and locations of
institutions which bank holding companies may own or acquire. The BHCA limits
bank holding companies to owning and managing banks or companies engaged in
activities determined by the FRB to be closely related to banking. The BHCA
requires bank holding companies to obtain the prior approval of the FRB before
acquiring substantially all the assets of any bank or bank holding company or
direct or indirect ownership or control of more than 5% of the voting shares of
a bank or bank holding company. Bank holding companies are also prohibited from
acquiring shares of any bank located outside the state in which the operations
of the bank holding company's banking subsidiaries are primarily conducted
unless the acquisition is specifically authorized by statute of the state of the
bank whose shares are to be acquired.
Under a Michigan statute applicable to First of America, a Michigan bank
holding company may acquire a bank located in any state in the United States if
the laws of the other state permit ownership of banks located in that state by a
Michigan bank holding company. Under the same Michigan statute, a Michigan bank
or bank holding company may be acquired by a bank holding company located in any
state in the United States, subject to approval of the Michigan FIB and the
existence of a reciprocal law in such other state.
Savings and Loan Holding Companies. Its acquisition of thrift institutions
subjects First of America to regulation as a savings and loan holding company by
the OTS. A savings and loan holding company that is also a bank holding company
may engage only in activities permissible for a bank holding company, and may,
in certain circumstances, be required to obtain approval from the OTS, as well
as the FRB, before acquiring new subsidiaries or commencing new business
activities. Further, a savings and loan holding company's acquisitions of
savings associations and other savings and loan holding companies are subject to
prior approval by the OTS comparable to the extent to which bank holding company
acquisitions of banks and other bank holding companies are subject to the prior
approval of the FRB.
Banks. First of America's affiliate banks are subject to regulation,
supervision and periodic examination by the bank regulatory agency of the state
under the laws of which the affiliate bank is chartered or, in the case of
national banks, the OCC. Additionally, certain of First of America affiliate
state banks and all of its affiliate national banks are members of the Federal
Reserve System, and as such are subject to applicable provisions of the Federal
Reserve Act and regulations thereunder. These regulations relate to reserves and
other aspects of banking operations. First of America's affiliate state banks
that are not members of the Federal Reserve Systems are subject to federal
regulation, supervision and examination by the FDIC. Deposits held by all
affiliate banks of First of America are insured, to the extent permitted by law,
by the FDIC. Applicable federal and state law govern, among other things, the
scope of First of America's affiliate banks' businesses, maintenance of adequate
capital, investments and loans they may make, transactions with affiliates and
their activities with respect to mergers and establishing branches.
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Savings Associations. First of America may from time to time acquire and
operate federally chartered savings associations subject to regulation,
supervision and regular examination by the OTS. Federal law governs, among other
things, the scope of the savings association's business, required reserves
against deposits, the investments and loans the savings association may make,
and transactions with the savings association's affiliates. Deposits held by
such savings associations are insured, to the extent permitted by law, by the
FDIC.
Non-banking Subsidiaries. First of America has non-banking subsidiaries that
are a broker-dealer and an investment adviser, each registered and subject to
regulation by the Securities and Exchange Commission under federal securities
laws. These subsidiaries are also subject to regulation under various state
securities laws. Because they are affiliated with First of America's subsidiary
banks, these subsidiaries are subject to certain limitations on their securities
activities imposed by federal banking laws.
Economic Conditions and Governmental Policy. First of America's earnings are
affected not only by the extensive regulation described above, but also by
general economic conditions. These economic conditions influence and are
influenced by the monetary and fiscal policies of the United States government
and its various agencies, particularly the FRB. The Registrant cannot predict
changes in monetary policies or their impact on its operations and earnings.
STATISTICAL DATA
The statistical data as required is presented with "Item 7. Management's
Discussion and Analysis" and in certain of the Notes to Consolidated Financial
Statements and Supplemental Data included with "Item 8. Financial Statements and
Supplementary Data" appearing later in this document.
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of the Registrant, their ages and their positions for
the last five years are shown in the following table. There are no family
relationships between the executive officers or between the executive officers
and the Registrant's directors.
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Name Age Position and Office
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Daniel R. Smith................... 59 Chairman and Chief Executive Officer of the Registrant.
Richard F. Chormann............... 56 President and Chief Operating Officer of the Registrant.
Thomas W. Lambert................. 52 Executive Vice President and Chief Financial Officer of the Registrant.
George S. Nugent.................. 59 Executive Vice President of the Registrant; Secretary and Chief Service Officer
since 1992.
John B. Rapp...................... 57 Executive Vice President of the Registrant.
David B. Wirt..................... 54 Executive Vice President of the Registrant.
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ITEM 2. PROPERTIES
The Registrant is headquartered in Kalamazoo, Michigan.
The Registrant's subsidiaries operate a total of 572 offices of which 435 are
owned by the respective banks, 108 are leased, 20 are owned by the subsidiary
involved but on leased land, and 9 are owned by the banks involved, with leased
parking lots. Reference is made to Note 10 of the Notes to Consolidated
Financial Statements included under "Item 8. Financial Statements and
Supplementary Data" included later in this document for further information
regarding the terms of these leases. All of these offices are considered by
management to be well maintained and adequate for the purpose intended.
ITEM 3. LEGAL PROCEEDINGS
The subsidiaries of the Registrant are routinely engaged in litigation, both
as plaintiff and defendant, which is incident to their business, and in certain
proceedings, claims or counter-claims have been asserted against the
Registrant's subsidiaries. Management, after consultation with legal counsel,
does not currently anticipate that the ultimate liability, if any, arising out
of such litigation and threats of litigation will have a material effect on the
financial position of the Registrant.
Certain of First of America's subsidiaries own or previously owned certain
parcels of real property with respect to which they have been notified by the
Michigan Department of Natural Resources pursuant to Michigan environmental
statutes that they may be potentially responsible parties
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(PRPs) for environmental contamination on or emanating from the properties. The
costs of remediating the contamination cannot be determined at this time. While,
as PRPs, these subsidiaries may be jointly and severally liable for the costs of
remediating the contamination, in most cases, there are a number of other PRPs
who may also be jointly and severally liable for remediation costs.
Additionally, in certain cases, these subsidiaries have asserted statutory
defenses to liability for remediation costs based on the subsidiaries' status as
lending institutions that acquired ownership of the contaminated property
through foreclosure. First of America's management, after consultation with
legal counsel, does not currently anticipate that the ultimate liability, if
any, arising from these matters will have a material effect on First of
America's financial position.
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, 1993.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS
The Registrant's common stock is listed for trading on the New York Stock
Exchange (NYSE). The range of high and low sales prices appear under the caption
"Market price of common stock" under Supplemental Information included with
"Item 8. Financial Statements and Supplementary Data" included later in this
document.
Common stock dividends, payable in cash, were declared on a quarterly basis
during 1993 and 1992. The dividends declared per common share totaled $1.55
during 1993 and $1.34 during 1992. Restrictions on the Registrant's ability to
pay dividends are described in Note 11 in the paragraph beginning "The various
loan agreements" and in Note 15 of the Registrant's "Notes to Consolidated
Financial Statements" included under "Item 8. Financial Statements and
Supplementary Data" included later in this document.
The number of record holders of the Registrant's common stock as of December
31, 1993 was 28,400.
ITEM 6. SELECTED FINANCIAL DATA
Reference is made to the following information included in "Item 7.
Management's Discussion and Analysis -- Table II" under the caption "Selected
Financial Data": the line items "Interest income" through "Fully diluted"
earnings per share, "Cash dividends declared per common share," "Total assets"
and "Long term debt" for the years 1989 through 1993.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following financial review compares the performance of First of America,
on a consolidated basis, for the three years ended December 31, 1993, and should
be read in conjunction with the consolidated financial statements and notes
thereto.
Mergers and Acquisitions
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
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Business Combinations TABLE I
($ in thousands)
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1993 1992 1991
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Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
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Kewanee Investing Security Bancorp, Champion Federal Savings
Company, Inc............. $ 29,776 Inc....................... $2,716,029 and Loan Association........... $2,147,780
Citizens Federal Bank First Petersburg Morgan Community
(14 branches)............ 499,337 Bancshares, Inc........... 50,100 Bancorp, Inc................... 41,961
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Pioneer Mortgage Company Home Federal Savings
(five offices)........... -- Bank, F.A...................... 136,840
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$529,113 $2,766,129 $2,326,581
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First of America continued to expand selected areas during 1993 through the
acquisition process. On August 16th, First of America acquired five Pioneer
Mortgage Company origination offices bringing the total origination offices to
18 and expanding its presence into North Carolina. Additionally, First of
America continued to increase its presence in Illinois with the acquisition of
Kewanee Investing Company, Inc. and 14 Illinois branches of Citizens Federal
Bank which added $498 million in deposits to the balance sheet. First of America
also announced the pending acquisition of LGF Bancorp, Inc. and its principal
subsidiary, La Grange Federal Savings and Loan Association with $410 million in
assets at December 31, 1993. Note 3 to the Notes to the Consolidated Financial
Statements provides additional information about the pending acquisition of LGF
Bancorp, Inc.
1993 Highlights
Reported net income was $247.4 million, an increase of 67.7 percent from
1992's $147.5 million, and fully diluted earnings per share were $4.14 compared
with $2.46 a year ago. The prior year's results were reduced by three
substantial nonrecurring charges -- adoption of Financial Accounting Statement
No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
($22.0 million), one-time Security Bancorp merger and assimilation costs ($23.9
million), and an intangible asset writedown ($25.9 million). Compared with 1992
results from ongoing operations, which excludes these one-time charges, net
income and fully diluted earnings per share for 1993 increased 12.8 percent and
12.5 percent, respectively. Reported net income for 1991 was $159.5 million, or
$2.69 per fully diluted share.
Also showing improvement, return on average assets for 1993 was 1.20 percent
versus 0.75 percent in 1992 and 0.95 percent in 1991. Return on average total
shareholders' equity for the same periods was 17.50 percent, 11.38 percent and
13.07 percent, respectively. Both of 1993's ratios exceeded 1992's ongoing
operating ratios of 1.12 percent return on average assets and 16.42 percent
return on total equity.
The final assimilation of Champion Federal into nine Illinois affiliate banks
occurred on July 1, 1993, paving the way for added market development and cost
efficiencies in the company's Illinois franchise.
First of America's asset quality measurements showed improvement in 1993 as
non-performing assets as a percent of total assets decreased to 0.86 percent
versus the 0.97 percent reported at year-end 1992 and 0.87 percent at year-end
1991. Net charge-offs as a percent of average loans also improved to 0.53
percent versus 0.57 percent for 1992, another indicator of First of America's
strong asset quality. Net charge-offs as a percent of average loans was 0.53
percent for 1991.
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Total assets were $21.2 billion at December 31, 1993, a 5.4 percent increase
over the $20.1 billion reported at December 31, 1992, while total loans, for the
same periods, increased 4.6 percent to $14.4 billion. The increase in loans was
primarily the result of an 18.0 percent increase in total consumer loans. These
loans, which include credit cards, indirect installment, direct installment and
other revolving credit, accounted for $5.1 billion or 35 percent of the total
loan portfolio. The commercial loan portfolio experienced only a 0.6 percent
increase from year-end 1992.
Total shareholders' equity increased 14.1 percent to $1.5 billion at year-end
1993. The increase over the $1.3 billion reported for December 31, 1992 resulted
from the retention of earnings and a $31.5 million mark-to-market adjustment to
equity, net of tax, due to the adoption at year-end of Financial Accounting
Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities." Statement No. 115 is discussed later in this document under the
heading of Funding, Liquidity and Interest Rate Risk and in Notes 1 and 6 of the
Notes to Consolidated Financial Statements. Book value per fully diluted share
was $25.60 compared with $22.49 and $21.47 for year-ends 1992 and 1991.
The Board of Directors increased the cash dividend paid per common share in
May to $1.60, on an annualized basis, a 14.3 percent increase. This increase
represents the largest percentage increase since 1986 and indicates the Board's
continued confidence in the current and future profitability of First of
America.
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[EARNINGS PER [RETURN ON AVERAGE
SHARE GRAPH] TOTAL EQUITY GRAPH]
Return on average total
equity measures what a
company earns on its
Over the last five years, shareholders' investment.
fully diluted earnings First of America's 1993
per share grew at a 14.8% return on equity of
annual compound growth 17.50% exceeded its Peer
rate. Group average of 15.98%
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Note: The Peer Group averages were calculated by First of America and include
BancOne, Boatmen's Bancshares, Inc., Comerica, Firstar, First Bank Systems,
Marshall and Ilsley, Michigan National, National City Corporation, NBD Bancorp,
Northern Trust, Norwest, Old Kent Corporation and Society Corporation.
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Selected Financial Data TABLE II
($ in thousands, except per share data)
5 Year Year ended December 31,
Compound --------------------------------------------------------------------------------------------
Growth Rate 1993 1992 1991 1990 1989 1988
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SUMMARY OF OPERATIONS
Interest income...... 4.3% $ 1,510,966 1,596,127 1,537,861 1,519,841 1,447,239 1,222,490
Interest expense..... (1.4) 608,949 721,300 786,910 841,142 806,619 654,254
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Net interest
income.............. 9.7 902,017 874,827 750,951 678,699 640,620 568,236
Provision for loan
losses.............. 17.6 84,714 78,809 71,030 44,782 43,805 37,601
Total non-interest
income.............. 14.3 292,184 261,316 209,900 181,558 166,604 149,469
Total non-interest
expense............. 8.2 763,528 796,348 665,732 602,319 558,183 514,566
Applicable income tax
expense............. 17.5 98,574 91,506 64,625 58,628 53,728 43,965
Extraordinary item,
net of tax.......... n/a -- (21,956) -- -- -- --
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Net income........... 15.3% $ 247,385 147,524 159,464 154,528 151,508 121,573
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Net income applicable
to common stock..... 18.7% $ 241,232 135,015 144,028 137,818 132,897 102,348
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EARNINGS PER SHARE OF
COMMON STOCK:
Primary............. 15.1% $ 4.20 2.46 2.69 2.62 2.52 2.08
Fully diluted....... 14.8 4.14 2.46 2.69 2.62 2.52 2.08
Average common shares
outstanding
("000")............. 3.2 57,417 54,842 53,536 52,622 52,685 49,088
Cash dividends
declared per common
share............... 10.3 $ 1.55 1.34 1.24 1.15 1.08 0.95
Primary book value
per common share.... 9.8 25.60 22.12 20.58 18.97 17.52 16.03
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BALANCE SHEET SUMMARY
ASSETS:
Cash and due from
banks............... (1.1)% $ 903,517 918,960 1,000,578 1,028,159 983,018 956,178
Federal funds sold,
resale agreements
and time deposits... (28.8) 74,909 175,030 254,333 146,175 457,828 409,911
Securities:
Held to
maturity...... n/a 1,856,623 3,489,626 4,261,360 3,775,030 3,604,406 3,602,682
Available for
sale.......... n/a 3,261,481 -- -- -- -- --
Held for sale... n/a -- 1,137,420 -- -- -- --
Loans -- net of
unearned income..... 9.4 14,394,155 13,756,017 13,228,027 11,228,221 9,950,467 9,166,480
Allowance for loan
losses.............. 7.1 (188,664) (176,793) (174,882) (137,012) (126,175) (133,609)
Other assets......... 7.1 928,450 846,507 900,552 749,379 637,898 659,521
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Total assets......... 7.7% $ 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442 14,661,163
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LIABILITIES AND
EQUITY:
Deposits............. 7.0% $ 18,243,703 18,035,553 17,483,232 15,016,343 13,828,041 12,982,042
Short term
borrowings.......... 26.6 994,578 338,023 282,225 264,049 273,286 306,317
Long term debt....... 4.7 254,193 254,051 260,398 179,899 170,680 201,865
Other liabilities.... 9.5 214,560 183,649 176,745 153,658 117,477 136,109
Total shareholders'
equity.............. 8.0 1,523,437 1,335,491 1,267,368 1,176,003 1,117,958 1,034,830
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Total liabilities and
equity.............. 7.7% $ 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442 14,661,163
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FINANCIAL RATIOS
Return on average
total equity........ 17.50% 11.38 13.07 13.70 14.07 12.74
Return on average
assets.............. 1.20 0.75 0.95 0.98 1.02 0.89
Net interest margin
(a)................. 4.86 4.98 5.07 4.92 4.95 4.83
Total shareholders'
equity to
assets at
year-end............ 7.18 6.63 6.51 7.00 7.21 7.06
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AS ORIGINALLY
REPORTED
Earnings per share,
fully diluted....... $ 4.14 2.46 3.24 3.18 2.90 2.99
Book value per share,
fully diluted....... 25.60 22.49 25.87 24.06 22.37 22.66
Return on average
total assets........ 1.20% 0.75 0.96 1.01 1.00 0.99
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</TABLE>
(a) Fully taxable equivalent; based on a marginal federal income tax rate of 35%
for 1993 and 34% for prior years.
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Income Analysis
Net Interest Income -- Net interest income is the primary source of income
for First of America, accounting for 76 percent of total revenue. For 1993 net
interest income on a fully taxable equivalent basis (FTE) was $925.1 million, up
2.8 percent from $899.9 million in 1992. The 1993 increase was largely the
result of a 5.4 percent increase in average earning assets, offset by the lower
net interest margin of 4.86 percent versus 4.98 percent for 1992. For the 1992
comparison with 1991, net interest income (FTE) increased 15.4 percent due to
the addition of Champion Federal's earning assets at December 31, 1991.
Loans as a percent of earning assets for 1993 and 1992 were 73.5 percent and
74.1 percent, respectively. The deposits acquired with Citizens Federal's 14
Illinois offices were assumed without accompanying loans; this was the main
reason for this ratio's decrease in 1993. As these deposits are used to fund
loans, the ratio of loans to deposits should return to a higher level and add to
the company's net interest income.
Net interest income, average balance sheet amounts and the corresponding
yields and costs for the years 1989 through 1993 are shown in Table IV. Table
III presents a summary of the changes in net interest income resulting from
changes in volumes and rates for 1993 and 1992.
Volume/Rate Analysis TABLE III
($ in thousands)
<TABLE>
<CAPTION>
1993 Change From 1992 Due To 1992 Change From 1991 Due To
- ------------------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans (FTE).............................. $ 41,276 (107,264) (65,988) 216,989 (143,074) 73,915
Taxable securities....................... 41,148 (52,325) (11,177) 48,329 (49,165) (836)
Tax exempt securities (FTE).............. 3,271 (7,035) (3,764) (8,190) (2,080) (10,270)
Money market investments................. (4,582) (1,654) (6,236) (2,282) (6,307) (8,589)
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE).............. $ 81,113 (168,278) (87,165) 254,846 (200,626) 54,220
- ------------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits................ $ 14,010 (135,114) (121,104) 121,318 (191,119) (69,801)
Short term borrowings.................... 11,713 (1,271) 10,442 1,787 (3,107) (1,320)
Long term debt........................... 1,984 (3,673) (1,689) 6,230 (719) 5,511
- ------------------------------------------------------------------------------------------------------------------------------------
Total interest expense................... $ 27,707 (140,058) (112,351) 129,335 (194,945) (65,610)
- ------------------------------------------------------------------------------------------------------------------------------------
Change in net interest income............ $ 53,406 (28,220) 25,186 125,511 (5,681) 119,830
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* 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. Non-taxable income has been adjusted to a fully
taxable equivalent basis.
9
<PAGE> 10
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------
Average Balances/Net Interest Income/Average Rates TABLE IV
($ in thousands)
Year Ended December 31, 1993 1992
- -------------------------------------------------------------------------------------------------------------------
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:
Money market investments............ $ 93,662 2,854 3.05% $ 233,757 9,090 3.89%
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 4,537,814 262,871 5.79 3,898,195 274,048 7.03
State and municipal securities(1)... 530,407 42,605 8.03 493,785 46,369 9.39
Total loans(1)(2)................... 13,875,584 1,225,736 8.83 13,435,991 1,291,724 9.61
----------- --------- ----------- ---------
Total earning assets/total interest
income(1).......................... 19,037,467 1,534,066 8.06 18,061,728 1,621,231 8.98
----------- --------- ----------- ---------
Less allowance for loan losses...... 182,594 176,595
Cash and due from banks............. 839,506 818,279
Other assets........................ 850,783 870,879
- -------------------------------------------------------------------------------------------------------------------
Total............................... $20,545,162 $19,574,291
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ $ 3,137,831 66,088 2.11% $ 2,820,091 86,568 3.07%
Money market savings and checking
account............................ 3,852,780 95,314 2.47 3,972,004 128,820 3.24
Time deposits....................... 8,638,044 409,097 4.74 8,520,485 476,215 5.59
----------- --------- ----------- ---------
Total interest-bearing deposits..... 15,628,655 570,499 3.65 15,312,580 691,603 4.52
Short term borrowings............... 575,074 18,546 3.22 216,352 8,104 3.75
Long term debt...................... 272,297 19,904 7.31 248,032 21,593 8.71
----------- --------- ----------- ---------
Total interest-bearing
liabilities/total interest
expense............................ 16,476,026 608,949 3.70 15,776,964 721,300 4.57
----------- --------- ----------- ---------
Demand deposits..................... 2,463,534 2,301,768
Other liabilities................... 191,922 198,633
Non-redeemable preferred stock...... 74,586 140,952
Common shareholders' equity......... 1,339,094 1,155,974
- -------------------------------------------------------------------------------------------------------------------
Total............................... $20,545,162 $19,574,291
- -------------------------------------------------------------------------------------------------------------------
Interest income/earning assets...... 8.06% 8.98%
Interest expense/earning assets..... 3.20 4.00
- -------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets............................. 4.86% 4.98%
- -------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1991 1990
- ------------------------------------------------------------------------------------------------------------------
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:
Money market investments............ $ 273,208 17,679 6.47% $ 462,816 38,941 8.41%
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 3,267,738 274,884 8.41 3,041,910 265,876 8.74
State and municipal securities(1)... 580,307 56,640 9.76 599,891 59,607 9.94
Total loans(1)(2)................... 11,276,061 1,217,808 10.80 10,359,695 1,188,213 11.47
----------- --------- ----------- ---------
Total earning assets/total interest
income(1).......................... 15,397,314 1,567,011 10.18 14,464,312 1,552,637 10.74
----------- --------- ----------- ---------
Less allowance for loan losses...... 139,332 129,067
Cash and due from banks............. 785,798 803,022
Other assets........................ 754,446 665,238
- ------------------------------------------------------------------------------------------------------------------
Total............................... $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ $ 2,375,565 105,904 4.46% $ 2,334,355 111,322 4.77%
Money market savings and checking
account............................ 3,829,647 186,406 4.87 3,419,159 197,699 5.78
Time deposits....................... 6,804,895 469,094 6.89 6,260,473 493,857 7.89
----------- --------- ----------- ---------
Total interest-bearing deposits..... 13,010,107 761,404 5.85 12,013,987 802,878 6.68
Short term borrowings............... 177,834 9,424 5.30 257,243 18,836 7.32
Long term debt...................... 176,780 16,082 9.10 199,592 19,428 9.73
----------- --------- ----------- ---------
Total interest-bearing
liabilities/total interest
expense............................ 13,364,721 786,910 5.89 12,470,822 841,142 6.74
----------- --------- ----------- ---------
Demand deposits..................... 2,064,849 2,068,642
Other liabilities................... 148,626 136,245
Non-redeemable preferred stock...... 165,730 178,605
Common shareholders' equity......... 1,054,300 949,191
- ------------------------------------------------------------------------------------------------------------------
Total............................... $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------
Interest income/earning assets...... 10.18% 10.74%
Interest expense/earning assets..... 5.11 5.82
- ------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets............................. 5.07% 4.92%
- ------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1989
- ----------------------------------------------------------------------
Average
Interest Rate
Average Income/ Earned/
Balance Expense Paid
- ----------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS:
Money market investments............ $ 512,705 48,495 9.46%
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 3,057,965 263,608 8.62
State and municipal securities(1)... 503,035 51,497 10.24
Total loans(1)(2)................... 9,507,486 1,115,708 11.74
----------- ---------
Total earning assets/total interest
income(1).......................... 13,581,191 1,479,308 10.89
----------- ---------
Less allowance for loan losses...... 126,793
Cash and due from banks............. 787,677
Other assets........................ 630,537
- ----------------------------------------------------------------------
Total............................... $14,872,612
- ----------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ $ 2,443,718 119,194 4.88%
Money market savings and checking
account............................ 2,897,483 169,971 5.87
Time deposits....................... 5,743,946 470,441 8.19
----------- ---------
Total interest-bearing deposits..... 11,085,147 759,606 6.85
Short term borrowings............... 315,251 26,293 8.34
Long term debt...................... 205,895 20,720 10.06
----------- ---------
Total interest-bearing
liabilities/total interest
expense............................ 11,606,293 806,619 6.95
----------- ---------
Demand deposits..................... 2,049,283
Other liabilities................... 140,256
Non-redeemable preferred stock...... 194,069
Common shareholders' equity......... 882,711
- ----------------------------------------------------------------------
Total............................... $14,872,612
- ----------------------------------------------------------------------
Interest income/earning assets...... 10.89%
Interest expense/earning assets..... 5.94
- ----------------------------------------------------------------------
Net interest margin/earning
assets............................. 4.95%
- ----------------------------------------------------------------------
</TABLE>
(1) Interest income on obligations of states and political subdivisions and on
tax exempt commercial loans has been adjusted to a taxable equivalent basis
using a marginal federal tax rate of 35% for 1993 and 34% for prior years.
(2) Non-accrual loans are included in average loan balances.
10
<PAGE> 11
Net Interest Margin -- The net interest margin for 1993 was 4.86 percent
compared with 4.98 percent in 1992 and 5.07 percent in 1991. While the prime
rate remained constant throughout 1993, yields on earning assets declined at a
faster pace than did the rates paid on interest bearing liabilities (92 basis
points versus 87 basis points). The reduction in earning asset yields was due to
accelerated prepayments of residential mortgages and collateralized mortgage
obligations. Also affecting the 1993 margin was an internal investment strategy,
involving borrowing short-term money to purchase short-term securities, which
added to earnings but reduced the net interest margin by approximately 3 basis
points, and the August 26, 1993 acquisition of Citizens Federal adding $498
million of higher priced deposits with no offsetting earning assets, which also
reduced 1993's margin by approximately 3 basis points. During 1992 the earning
asset yields decreased 120 basis points while rates paid on interest bearing
liabilities decreased at a faster pace (132 basis points). The decrease in the
1992 net interest margin from 1991 was the result of the acquisition of Champion
Federal's higher rate thrift deposits at year-end 1991. This acquisition reduced
1992's margin by approximately 34 basis points but was partially offset by
strong net interest margins at First of America's bank affiliates.
Provision for Loan Losses -- The provision for loan losses is based on the
current level of net charge-offs and management's assessment of the credit risk
inherent in the loan portfolio. For 1993, the provision for loan losses was
increased 7.5 percent to $84.7 million from $78.8 million in 1992 to keep pace
with growth in the total loan portfolio, particularly consumer loans which
historically have a higher charge-off ratio than other portfolios. However, net
charge-offs for 1993 decreased 4.7 percent compared with 1992 contributing to
the higher allowance as a percent of gross loans ratio of 1.31 percent from the
1.29 percent reported at December 31, 1992. The 1991 provision was $71.0
million. Additional information on the provision for loan losses, net
charge-offs and non-performing assets is provided in Tables IX and XI and under
the caption, "Credit Risk Profile," presented later in this discussion.
Non-interest Income -- Non-interest income continued its double digit growth
pattern in 1993 as First of America maintained its emphasis on cross sell
strategies for products throughout its extensive branch network. Non-interest
income increased 11.8 percent to $292.2 million in 1993 compared with $261.3
million in 1992 and $209.9 million in 1991. Non-interest income which has grown
at an average compounded rate of 14.3 percent over the last five years, now
represents 24.0 percent of total revenue (net interest income (FTE) plus
non-interest income) versus 22.5 percent for 1989. Table V presents the major
components of non-interest income from 1989 to 1993.
11
<PAGE> 12
<TABLE>
<CAPTION>
Non-Interest Income and Non-Interest Expense TABLE V
($ in thousands)
Change
1993/1992
- -----------------------------------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989 Amount %
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST INCOME
Service charges on deposits................. $ 84,648 79,522 70,318 64,388 57,322 5,126 6.45%
Trust and financial services income......... 77,290 68,850 60,904 51,038 42,876 8,440 12.26
Investment securities transactions, net..... 16,753 14,993 1,088 (6,380) 119 1,760 11.74
Other operating income...................... 113,493 97,951 77,590 72,512 66,287 15,542 15.87
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest income................... $ 292,184 261,316 209,900 181,558 166,604 30,868 11.81
- -----------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Personnel................................... $ 403,119 410,854 361,187 326,308 300,481 (7,735) (1.88)%
Occupancy, net.............................. 55,093 57,286 50,413 48,985 44,991 (2,193) (3.83)
Equipment................................... 53,376 63,134 51,474 46,690 43,929 (9,758) (15.46)
Outside data processing..................... 14,963 10,380 11,448 13,005 13,147 4,583 44.15
Amortization of intangibles................. 8,902 38,336 10,303 8,583 8,374 (29,434) (76.78)
FDIC premiums............................... 39,680 38,711 31,032 16,444 10,669 969 2.50
Other operating expenses.................... 188,395 177,647 149,875 142,304 136,592 10,748 6.05
- -----------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense.................. $ 763,528 796,348 665,732 602,319 558,183 (32,820) (4.12)
- -----------------------------------------------------------------------------------------------------------------------------------
Non-interest income as a percent of average
assets..................................... 1.42% 1.33 1.25 1.15 1.12
Non-interest expense as a percent of average
assets..................................... 3.72 4.07 3.96 3.81 3.75
Burden ratio................................ 2.30 2.74 2.71 2.66 2.63
Efficiency ratio............................ 62.72 68.58 67.25 67.44 66.51
Efficiency ratio, excluding FDIC
premiums................................... 59.46 65.24 64.11 65.60 65.24
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The two largest components of First of America's non-interest income are
service charges on deposit accounts and income from trust and financial
services. Service charges on deposit accounts increased 6.4 percent in 1993 to
$84.6 million compared with $79.5 million in 1992 and $70.3 million in 1991.
The Trust and Financial Services Division provides First of America's
customers with quality traditional trust services, brokerage services,
investment advisory services, farm management and administration for pension and
profit-sharing plans. At year-end 1993, total trust assets held in personal
trust accounts, employee benefit plans, retail accounts and others exceeded
$12.6 billion. Total income from trust and financial services was $77.3 million
in 1993, $68.9 million in 1992 and $60.9 million in 1991. The primary component
of total trust income, traditional trust income, increased 10.8 percent in 1993
to $56.7 million compared with $51.1 million in 1992 and $47.7 million in 1991.
First of America's Trust and Financial Services Division expanded its
income-producing capabilities in 1993. As part of its current marketing efforts,
First of America increased its sales force including the placement of financial
service consultants in its mortgage origination offices in Missouri, Arizona,
Florida and North Carolina to cross-sell its investment products. Revenue from
other financial services showed continued growth in 1993, increasing 16.4
percent to $20.6 million versus $17.7 million and $13.2 million in 1992 and
1991, respectively. This business activity has maintained double digit growth in
revenue due to the increased sales efforts, the growing number of products
available to customers and the consumers' increased interest in alternative
investment vehicles. Retail sales of The Parkstone Group of Mutual Funds more
than doubled in 1993 to $247 million versus $107 million in 1992.
Investment securities gains increased slightly over 1992, adding $0.18 per
fully diluted share to 1993 earnings per share versus $0.17 per fully diluted
share in 1992. The total net gain from such sales in 1993 was $16.8 million
compared with $15.0 million in 1992 and $1.1 million in 1991. At year-end 1993,
total unrealized gains of $53.2 million and total unrealized losses of $4.4
million remained in the Securities Available for Sale portfolio.
12
<PAGE> 13
Other non-interest income totaled $113.5 million in 1993, versus $98.0
million in 1992 and $77.6 million in 1991. The most significant components of
other non-interest income, retail credit fees and mortgage banking revenue,
increased 10.3 percent and 93.3 percent, respectively, for the year over year
comparisons.
Largely attributable to growth in the credit card portfolio, credit card fees
for 1993 increased to $40.0 million compared with $36.2 million and $32.5
million in 1992 and 1991, respectively. The credit card portfolio reached $1.2
billion at year-end 1993, compared with $1.0 billion last year. Contributing to
this increase were credit card solicitation campaigns to selected local and
national customers which added over 300,000 accounts during 1993. First of
America's cost to acquire a new account is $22, approximately one-half the
quoted rate of its competitors. The cost to efficiently service the credit card
portfolio of approximately $34 per account compares favorably with an industry
peer average of approximately $48 per account.
First of America's mortgage banking revenue contributed 13.2 percent of total
fee-based income recorded in 1993 versus 7.7 percent in 1992. Gains on the sale
of loans, the largest component of 1993's mortgage banking revenue, totalled
$29.5 million compared to $15.2 million in 1992 and $5.2 million in 1991. The
other source of mortgage banking revenue, mortgage servicing, has also continued
to rise, increasing 93.3 percent to $7.0 million in 1993 versus 1992's $3.6
million and the $2.4 million reported in 1991. Reducing the 1993 and 1992
mortgage servicing income were $0.5 million and $3.3 million in excess mortgage
servicing rights, respectively, written-off due to the decline in residential
mortgage rates and the resulting higher mortgage prepayment rate.
First of America originated $3.0 billion in new residential mortgage loans in
1993, a large portion of which were sold to the secondary market contributing to
the record gains recorded in 1993. As the surge of mortgage refinancings
diminishes, gains from the sale of new mortgage loans will level off; when that
occurs, servicing fees from the previously sold loans will continue to provide a
steady revenue stream. Servicing was retained on substantially all of the loans
sold to the secondary market during 1993 resulting in a total servicing
portfolio of $6.3 billion at year-end versus $6.1 billion a year ago. The
outstanding servicing portfolio has an average interest rate of 7.80 percent and
an average original term of 19.2 years.
13
<PAGE> 14
<TABLE>
<CAPTION>
Nonbank Services TABLE VI
($ in thousands)
% Change
1993 1992 1991 1993/1992
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
TRUST AND FINANCIAL SERVICES
Traditional trust assets............................................... $ 9,870,860 9,544,708 8,977,223 3.4%
Brokerage assets....................................................... 1,260,720 1,143,491 1,099,270 10.3
Other assets........................................................... 1,446,407 1,244,339 1,189,576 16.2
- --------------------------------------------------------------------------------------------------------------------
Total trust assets..................................................... $12,577,987 11,932,538 11,266,069 5.4
- --------------------------------------------------------------------------------------------------------------------
Parkstone funds retail sales........................................... $ 246,578 107,565 19,146 129.2
- --------------------------------------------------------------------------------------------------------------------
Traditional trust income............................................... $ 56,677 51,142 47,696 10.8
Brokerage income....................................................... 10,159 8,868 6,091 14.6
Investment management fees,
cash management fees and other........................................ 10,454 8,840 7,117 18.3
- --------------------------------------------------------------------------------------------------------------------
Total trust income..................................................... $ 77,290 68,850 60,904 12.3
- -----------------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING
Gains on sale of loans................................................. $ 29,456 15,230 5,246 93.4%
Servicing income....................................................... 6,990 3,616 2,401 93.3
Loans sold servicing retained.......................................... 1,386,000 594,144 286,812 133.3
Number of loans serviced at year end(#)................................ 130,837 130,829 116,822 --
- -----------------------------------------------------------------------------------------------------------------------------------
RETAIL CREDIT SERVICES
Visa/Mastercard Gold outstandings...................................... $ 607,827 248,586 236,590 144.5%
Other credit card and revolving loans outstandings..................... 753,777 938,344 811,590 (19.7)
- --------------------------------------------------------------------------------------------------------------------
Total revolving loan portfolio......................................... $ 1,361,604 1,186,930 1,048,180 14.7
- --------------------------------------------------------------------------------------------------------------------
Visa/Mastercard Gold accounts(#)....................................... 821,845 389,656 360,683 110.9
Other credit card and revolving accounts(#)............................ 1,282,421 1,287,216 1,043,316 (0.4)
- --------------------------------------------------------------------------------------------------------------------
Total revolving cardholders(#)......................................... 2,104,266 1,676,872 1,403,999 25.5
- --------------------------------------------------------------------------------------------------------------------
Total revolving credit fees............................................ $ 39,964 36,216 32,499 10.3
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Non-interest expense -- As detailed in Table V, non-interest expense was
$763.5 million in 1993, a decrease of 4.1 percent over 1992's $796.3 million.
The total expense for 1992 was affected by two major items: $29.5 million
(pre-tax) of one-time charges for the merger and assimilation of Security and
the $25.9 million intangible asset writedown. Excluding these amounts, total
non-interest expense increased 3.1 percent in 1993 over 1992.
The largest component of First of America's non-interest expense is personnel
costs which were $403.1 million in 1993 versus $410.9 million in 1992 and $361.2
million in 1991. Included in the 1992 total were $12.2 million in one-time costs
related to the Security merger for severance costs, employment contract expenses
and early retirements. Personnel costs were up only 1.1 percent for 1993 over
1992 when adjusted for these one-time costs. Net income from ongoing operations
per full time equivalent employee was $18,558 in 1993 versus $16,947 in 1992,
demonstrating the benefit of First of America's program of functional
consolidations and staff reductions.
Net occupancy and equipment costs decreased 9.9 percent in 1993 to $108.5
million compared with $120.4 million in 1992 and $101.9 million in 1991. The
1992 total included $6.2 million in one-time costs for the write-off of
duplicative fixed assets as a result of the Security acquisition. Without these
one-time costs, the 1993 decrease was 5.1 percent, primarily the result of the
assimilation of operating sites acquired with Champion Federal and Security.
Other operating expenses, which included all other costs of doing business
such as outside data processing, advertising, supplies, travel, telephone,
professional fees and outside services purchased, were $203.4 million in 1993,
up 8.2 percent from 1992's total of $188.0 million. One-time costs of $11.2
million related to the Security acquisition were included in the 1992 total.
Excluding those costs, the 1993 percent increase would have been 15.0 percent.
Increased advertising expense due to the national credit card solicitations and
increased loan and collection
14
<PAGE> 15
expense due to growth in the consumer portfolio were two of the larger
contributors to this growth, increasing $8.1 million, or 56.5 percent, and $2.7
million, or 31.0 percent, respectively.
Efficiency ratio -- The efficiency ratio
measures non-interest expense as a percent
of the sum of net interest income (FTE) and
non-interest income. The lower the ratio,
the more efficiently a company's resources [EFFICIENCY RATIO GRAPH]
produce revenues. Table V presents the
efficiency ratio over the last five years.
Excluding the 1992 one-time charges for the
Security acquisition and the $25.9 million
writedown of intangible assets, the 1993
efficiency ratio improved to 62.72 percent
compared with 63.80 percent in 1992 and 67.25
percent in 1991. The growth in non-interest
income, which outpaced the growth in non-
interest expense, and the cost controls
mentioned previously are responsible for
the improvement in this ratio.
Income tax expense -- Income tax expense
was $98.6 million in 1993 compared with
$91.5 million in 1992 and $64.6 million in
1991. The Omnibus Budget Reconciliation Act
of 1993 was passed in August 1993, increasing
First of America's federal income tax rate
to 35 percent effective January 1, 1993. The
effect of the change from the previous 34
percent is included in the 1993 financial
statements as a current charge to earnings
and added $3.1 million of income tax expense
for the full year. However, the new Act also
resulted in $2.9 million of additional tax
benefits. In addition, the results for 1993,
included income tax benefits of $5.6 million
related to the acquisition of Champion Federal,
that helped offset the increased federal
income tax rate. A summary of significant tax
components is provided in Note 19 of the Notes The lower the ratio, the
to Consolidated Financial Statements included more efficiently resource
later in this document. are being utilized to
produce revenue. First of
America has improved its
efficiency ratio through
Credit Risk Profile streamlining operations,
standardizing computer
First of America's community banking structure systems and increasing
helps minimize its credit risk exposure. Community fee income.
banking means that loans are made in local markets
to consumers and small to mid-sized businesses
from deposits gathered in the same market. Also
in keeping with this philosophy, loans with few
exceptions are limited to a total of $20 million
for any one borrower or group of related borrowers.
A centralized, independent loan review staff
evaluates each affiliate's loan portfolio on a
regular basis and shares its evaluation with
bank management as well as corporate senior
management.
First of America's loan portfolio has shifted to include more consumer loans
than other types. At year-end 1993, the portfolio was distributed among
commercial loans (14.9 percent), commercial mortgages (20.2 percent),
residential mortgages (29.7 percent) and consumer loans (35.2 percent). The
total loan portfolio, as presented in Table VII, was $14.4 billion at year-end
1993, up 4.6 percent from $13.8 billion a year ago.
Components of the Loan Portfolio TABLE VII
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer, net.......................................... $ 5,062,173 4,288,431 4,060,126 3,566,844 3,330,600
Commercial, financial and agricultural................. 2,148,663 2,170,715 2,223,202 2,640,351 2,590,687
Real estate -- construction............................ 252,839 300,954 342,944 320,476 281,071
Real estate -- mortgage................................ 6,930,480 6,995,917 6,601,755 4,700,550 3,748,109
- ---------------------------------------------------------------------------------------------------------------------------------
Total loans............................................ $14,394,155 13,756,017 13,228,027 11,228,221 9,950,467
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commercial and Commercial Mortgage Loans -- First of America's commercial and
commercial mortgage loans are made in local markets to small to mid-sized
businesses. No single industry accounted for more than 10 percent of the total
commercial loan portfolio, including mortgages and construction loans.
Investor/developer loans, made to serve local markets, totaled $1.4 billion at
year-end 1993 and were spread among such diverse property types as retail,
residential rental, office rental and industrial. First of America has no
foreign loans, no highly leveraged transactions and no syndicated purchase
participations. Approximately 36.4 percent of total commercial loans, including
commercial mortgages and construction loans, were made to customers in the
metropolitan areas of Detroit, Grand Rapids and Indianapolis, compared with 37.4
percent a year ago. The remainder of the commercial portfolio was spread among
suburban and rural communities throughout Michigan (31.3 percent), Illinois
(31.1 percent) and Indiana (1.2 percent). Maturity and rate sensitivity of
selected loan categories is presented in Table VIII.
15
<PAGE> 16
Maturity and Rate Sensitivity of Selected Loans TABLE VIII
($ in thousands)
<TABLE>
<CAPTION>
One year One year to After
December 31, 1993 or less five years five years Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural................................ $1,218,168 522,557 135,677 1,876,402
Commercial tax-exempt................................................. 50,673 83,471 138,117 272,261
Real estate construction.............................................. 184,491 51,139 17,209 252,839
- ----------------------------------------------------------------------------------------------------------------------------------
Total................................................................. $1,453,332 657,167 291,003 2,401,502
- ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate...................................... $ 297,614 94,978 392,592
With floating or adjustable interest rates............................ 359,553 196,025 555,578
- ----------------------------------------------------------------------------------------------------------------------------------
Total................................................................. $ 657,167 291,003 948,170
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Included in the commercial loan and commercial mortgage portfolio at year-end
1993 was $114.1 million in non-performing loans compared with $124.6 million at
the end of 1992. First of America's loan policies and procedures seek to
minimize credit risk in the commercial portfolio. Cash-flow lending procedures
emphasize the earning ability of the business instead of sole dependence on the
collateral value which is dependent upon many variables. Net charge-offs as a
percent of average commercial and commercial mortgage loans were 0.36 percent in
1993 and 0.47 percent in 1992, as the continuing economic recovery was reflected
in reduced net loss experience.
Residential Mortgage Loans -- Residential mortgage loans were $4.3 billion at
year-end 1993 and $4.4 billion at year-end 1992. The average balance outstanding
on First of America's residential mortgages at year-end 1993 was $48,000 per
loan. The asset quality of the residential mortgage loan portfolio remained
excellent. Non-performing loans as a percent of total residential mortgages were
0.40 percent at year-end 1993 compared with 0.48 percent a year ago. Net
charge-offs as a percent of average residential mortgage loans were 0.03 percent
and 0.02 percent in 1993 and 1992, respectively.
At December 31, 1993, residential mortgage loans held for sale, originated at
prevailing market rates, totalled $365.9 million with a market value of $368.8
million. These residential mortgages are closed and therefore included in
outstandings on the balance sheet.
In addition, First of America has entered into commitments to originate
residential mortgage loans, at prevailing market rates, totalling $260.7 million
of which all are intended for sale. Mandatory commitments to deliver mortgage
loans or mortgage backed securities to investors, at prevailing market rates,
totalled $373.3 million as of December 31, 1993. Additionally, approximately $16
million of put options were in existence at December 31, 1993 as a hedge against
interest rate risk.
Consumer Loans -- First of America's consumer loan portfolio was $5.1 billion
at the end of 1993, compared with $4.3 billion at year-end 1992. Growth in this
portfolio versus a year ago was across the board as direct consumer installment
loans increased 16.8 percent, indirect consumer installment loans increased 20.1
percent and credit cards increased 18.5 percent. At year-end 1993, the number of
credit card holders increased to 1.9 million and other revolving accounts
totalled 0.2 million.
The growth in the consumer portfolio was not achieved at the expense of
reduced credit quality. In accordance with corporate policy, all revolving loans
are charged off when they become 120 days past due. During 1993, net charge-offs
as a percent of average total consumer loans were 1.18 percent versus 1.29
percent in 1992 and 1.50 percent in 1991.
16
<PAGE> 17
Asset Quality -- Total non-performing
loans, other real estate owned and other [NON-PERFORMING
loans of concern for the past five years ASSETS AS A PERCENT
are detailed in Table IX. Total non- OF LOANS PLUS OREO]
performing assets, including nonaccrual
loans, renegotiated loans and other real
estate owned, totaled $182.7 million
at year-end 1993, compared with $196.0
million at year-end 1992 and $168.4
million at year-end 1991. Except for
the southeast Michigan region, all An example of First of America's
geographic areas served by the company asset quality has been its non-
showed improvement in their asset quality performing assets as a percent
during 1993. Non-performing assets in the of total loans plus OREO ratio
southeast Michigan region represented which has averaged 1.15 percent
1.30 percent of its total assets over the last five years. The
for 1993 compared with 1.08 percent Peer Group ratio over the last
for 1992. For the company as a five years averaged 1.94 percent.
whole this ratio was 0.86 percent,
0.97 percent and 0.87 percent,
respectively for 1993, 1992 and 1991.
<TABLE>
<CAPTION>
Risk Elements in the Loan Portfolio TABLE IX
($ in thousands)
December 31, 1993 1992 1991 1990 1989
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans.......................................................... $121,186 126,619 116,995 76,533 55,556
Restructured loans......................................................... 10,879 20,669 16,837 12,234 14,762
Other real estate owned.................................................... 50,595 48,699 34,601 17,620 16,759
-------- ------- ------- ------- -------
Non-performing assets..................................................... 182,660 195,987 168,433 106,387 87,077
Past due loans 90 days or more (excluding the above two categories)........ 23,462 20,887 32,499 31,380 20,901
Other loans of concern..................................................... 53,206 37,663 37,189 23,361 16,536
- ------------------------------------------------------------------------------------------------------------------------------
Total...................................................................... $259,328 254,537 238,121 161,128 124,514
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Other loans of concern which represent loans where known information about
possible credit problems of borrowers causes management concern about the
ability of such borrowers to comply with the present loan terms totaled $53.2
million at year-end 1993, an increase of 41.3 percent from 1992's year-end total
of $37.7 million. While management has identified these loans as requiring
additional monitoring, they do not necessarily represent future non-performing
loans.
Net charge-offs as a percent of average loans was 0.53 percent for 1993, 0.57
percent for 1992 and 0.53 percent for 1991. Over the last five years, First of
America's net charge-offs as a percent of average loans has averaged 0.53
percent which compares favorably to the 0.64 percent experienced by its Peer
Group. The Peer Group's net charge-offs as a percent of average loans for 1993
was 0.51 percent.
The allowance for loan losses is determined by management, taking into
consideration past charge-off experience, estimated loss exposure on specific
loans and the current and projected economic climate. Quarterly each affiliate
evaluates the adequacy of its allowance for loan loss and their recommendations
are reviewed by corporate loan review management. Management's allocation of the
allowance for loan losses over the last five years is presented in Table X. The
amounts indicated for each loan type include amounts allocated for specific
loans as well as a general allocation.
17
<PAGE> 18
The allowance coverage of non-performing loans at year-end 1993 was 143
percent compared with 120 percent at year-end 1992 and 131 percent at year-end
1991. It was management's determination that the level of the allowance was
adequate to absorb potential loan losses. Other ratios measuring asset quality
and the adequacy of the allowance for loan losses are presented in Table XI.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses TABLE X
($ in thousands)
December 31, 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans*
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial and
agricultural............ $ 39,231 1.83% $ 43,466 2.00% $ 49,129 2.21% $ 43,498 1.65% $ 52,992 2.05%
Real estate.............. 55,661 0.81 54,873 0.76 49,639 1.14 40,334 0.80 28,609 0.71
Consumer................. 69,633 1.38 52,847 1.23 54,333 1.34 44,000 1.23 38,932 1.17
Unallocated.............. 24,139 0.17 25,607 0.19 21,781 0.16 9,180 0.08 5,642 0.06
- ------------------------------------------------------------------------------------------------------------------------------
Total.................... $188,664 176,793 174,882 137,012 126,175
- ----------------------------------------------------------------------------------------------------------------------------------
Allowance to total
loans................... 1.31% 1.29 1.32 1.22 1.27
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
<TABLE>
<CAPTION>
Summary of Loan Loss Experience TABLE XI
($ in thousands)
December 31, 1993 1992 1991 1990 1989
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period............................... $ 176,793 174,882 137,012 126,175 133,609
Provision charged against income............................. 84,714 78,809 71,030 44,782 43,805
Allowance for loan losses of acquired/(sold) banks........... 50 (372) 27,094 11,185 2,324
RECOVERIES:
Commercial, financial and agricultural....................... 8,692 7,215 8,616 11,010 10,773
Real estate -- construction.................................. -- -- -- -- 3
Real estate -- mortgage...................................... 2,615 2,112 1,487 1,741 1,261
Consumer loans............................................... 24,556 24,313 20,177 15,719 15,691
----------- ---------- ---------- ---------- ---------
Total recoveries............................................. 35,863 33,640 30,280 28,470 27,728
----------- ---------- ---------- ---------- ---------
CHARGE-OFFS:
Commercial, financial and agricultural....................... 19,764 22,558 13,475 16,403 32,470
Real estate -- construction.................................. -- -- -- -- 15
Real estate -- mortgage...................................... 10,539 10,588 5,669 3,810 2,081
Consumer loans............................................... 78,453 77,020 71,390 53,387 46,725
----------- ---------- ---------- ---------- ---------
Total charge-offs............................................ 108,756 110,166 90,534 73,600 81,291
----------- ---------- ---------- ---------- ---------
Net charge-offs.............................................. 72,893 76,526 60,254 45,130 53,563
- ----------------------------------------------------------------------------------------------------------------------------------
Balance at end of period..................................... $ 188,664 176,793 174,882 137,012 126,175
- ----------------------------------------------------------------------------------------------------------------------------------
Average loans (net of unearned income)....................... $13,875,584 13,435,991 11,276,061 10,359,695 9,507,486
- ----------------------------------------------------------------------------------------------------------------------------------
Earnings coverage of net charge-offs......................... 5.91x 4.44 4.90 5.72 4.65
Allowance to total end of period loans....................... 1.31% 1.29 1.32 1.22 1.27
Net charge-offs to end of period allowances.................. 38.64 43.29 34.45 32.94 42.45
Recoveries to total charge-offs.............................. 32.98 30.54 33.45 38.68 34.11
Provision to average loans................................... 0.61 0.59 0.63 0.43 0.46
Net charge-offs to average loans............................. 0.53 0.57 0.53 0.44 0.56
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
18
<PAGE> 19
Funding, Liquidity and Interest Rate Risk
Liquidity is measured by a financial institution's ability to raise funds
through deposits, borrowed funds, capital or the sale of assets. Funding is
achieved through growth in core deposits and accessibility to the money and
capital markets.
Deposits -- First of America's primary source of funding is its core deposits
which include all but negotiated certificates of deposit. As a percent of total
deposits, core deposits were 95.6 percent at year-end 1993 and 95.8 percent at
year-end 1992. First of America does not issue negotiated CD's in the national
money markets, and the level of purchased funds is strictly limited by corporate
policy to less than 10 percent of assets. The majority of negotiated CD's and
purchased funds originate from the core deposit customer base, including
downstream correspondents.
The average deposit balances outstanding and the rates paid on those deposits
for the three years ended December 31, 1993, are presented in Table XII. The
maturity distribution of time deposits of $100,000 or more at year-end 1993 is
detailed in Table XIII.
In addition to deposits, First of America's sources of funding include money
market borrowings, capital funds and long term debt. First of America has an
effective shelf registration statement under the Securities Act of 1933 on file
with the Securities and Exchange Commission allowing it to publicly issue, on a
continuous or delayed basis, any combination of debt securities, preferred stock
and/or common stock up to a maximum offering price of $500 million. In addition,
First of America has in place a revolving credit agreement with various lender
banks to borrow up to $100 million. First of America also upstreams dividends
from its affiliates as another means of funding. The total dividends upstreamed
from First of America's bank subsidiaries to the parent company were $200.7
million in 1993, $137.4 million in 1992 and $177.7 million in 1991. The
dividends paid from subsidiaries met all regulatory requirements.
Deposits TABLE XII
($ in thousands)
<TABLE>
<CAPTION>
1993 1992 1991
Average Average Average
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing.................................. $ 2,463,534 -- $ 2,301,768 -- $ 2,064,849 --
Savings and NOW accounts.............................. 3,137,831 2.11% 2,820,091 3.07% 2,375,565 4.46%
Money market savings and checking accounts............ 3,852,780 2.47 3,972,004 3.24 3,829,647 4.87
Time.................................................. 8,638,044 4.74 8,520,485 5.59 6,804,895 6.89
- ----------------------------------------------------------------------------------------------------------------------------------
Total................................................. $ 18,092,189 $17,614,348 $15,074,956
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Maturity Distribution of Time Deposits of $100,000 or More TABLE XIII
($ in thousands)
Three Six
Three months months
months to six to After
or less months one year one year Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit......................... $ 774,574 339,759 148,550 135,295 1,398,178
Other time deposits............................. 24,993 37,735 19,192 21,691 103,611
- ----------------------------------------------------------------------------------------------------------------------------------
Total........................................... $ 799,567 377,494 167,742 156,986 1,501,789
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities -- First of America adopted the Financial Accounting Standards
Board Statement No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," at December 31, 1993. In accordance with Statement No. 115,
Securities Held to Maturity include only those securities which First of America
has the positive intent and ability to hold to maturity. At year-end 1993, the
Held to Maturity portfolio was $1.9 billion compared with $3.5 billion at
year-end 1992. Also in accordance with Statement No. 115, Securities Available
for Sale include only those securities which would be available to be sold prior
to final maturity in response to liquidity or asset/liability management needs.
Table XIV details the components of the Securities Held to Maturity and
Securities Available for Sale portfolios and the amortized cost and market
values of the portfolios classified by maturity at December 31, 1993. Amortized
cost and average maturities for these portfolios are detailed in Table XV.
19
<PAGE> 20
<TABLE>
<CAPTION>
Securities Held to Maturity TABLE XIV
Maturity Distribution and Portfolio Yields
($ in thousands)
December 31, 1993 One year or less One year to five years Five years to ten years
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government securities... $ -- -- --% $ -- -- -- % $ -- -- --%
U.S. Agency
securities.................. 53,932 53,844 5.69 1,342,205 1,338,363 5.77 59,297 60,715 5.69
State and municipal
securities*................. 162,374 161,304 6.46 170,579 162,307 9.39 33,949 30,702 10.86
Collateralized mortgage
obligations................. -- -- -- -- -- -- -- -- --
Other securities............. 545 545 10.55 504 504 9.62 664 664 6.19
- --------------------------------------------------------------------------------------------------------------------------
Total........................ $ 216,851 215,693 4.78% $1,513,288 1,501,174 5.83 % $ 93,910 92,081 6.15%
- --------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.............. 100.54% 100.81% 101.99%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1993 After ten years Total
- ---------------------------------------------------------------------------------------------
Market Amortized Market Amortized
Value Cost Yield Value Cost Yield
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government securities... $ -- -- --% $ -- -- -- %
U.S. Agency
securities.................. -- -- -- 1,455,434 1,452,922 5.77
State and municipal
securities*................. 7,901 7,299 10.45% 374,803 361,612 8.23
Collateralized mortgage
obligations................. -- -- -- -- -- --
Other securities............. 40,376 40,376 5.73 42,089 42,089 6.35
- ---------------------------------------------------------------------------------------------
Total........................ $48,277 47,675 5.89% $1,872,326 1,856,623 6.26 %
- ---------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.............. 101.26% 100.85%
- ---------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
Securities Available for Sale
Maturity Distribution and Portfolio Yields
<TABLE>
<CAPTION>
($ in thousands)
December 31, 1993 One year or less One year to five years Five years to ten years
- --------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Government
securities................. $ 369,274 363,909 5.43 % $1,213,965 1,185,271 5.45 % $ -- -- --%
U.S. Agency
securities................. 541,308 534,129 6.11 678,200 669,650 5.92 96,214 96,904 5.81
State and municipal
securities*................ 12,926 12,875 4.92 308,308 308,963 3.75 18,526 18,484 6.91
Collateralized mortgage
obligations................ 19,154 19,011 8.00 3,606 3,491 8.67 -- -- --
Other securities............ -- -- -- -- -- -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total....................... $ 942,662 929,924 5.85 % $2,204,079 2,167,375 5.38 % $114,740 115,388 5.60%
- --------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost............. 101.37% 101.69% 99.44%
- --------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1993 After ten years Total
- ------------------------------------------------------------------------------------------
Market Amortized Market Amortized
Value Cost Yield Value Cost Yield
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. Government
securities................. $ -- -- --% $1,583,239 1,549,180 5.44 %
U.S. Agency
securities................. -- -- -- 1,315,722 1,300,683 5.99
State and municipal
securities*................ -- -- -- 339,760 340,322 5.82
Collateralized mortgage
obligations................ -- -- -- 22,760 22,502 8.11
Other securities............ -- -- -- -- -- --
- ------------------------------------------------------------------------------------------
Total....................... $ -- -- --% $3,261,481 3,212,687 5.72 %
- ------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost............. --% 101.52%
- ------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
20
<PAGE> 21
<TABLE>
<CAPTION>
Securities Held to Maturity TABLE XV
($ in thousands)
December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
Amortized Average Amortized Average Amortized Average
Cost Maturity Cost Maturity Cost Maturity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency
securities........................... $ 1,452,922 2.6yrs. $2,992,443 2.8yrs. $3,084,800 3.3yrs.
State and municipal securities........ 361,612 2.2 458,207 2.4 560,178 2.5
Marketable equity securities*......... -- -- 23,082 -- 34,987 --
Other securities...................... 42,089 9.7 15,894 9.2 581,395 2.1
- ------------------------------------------------------------------------------------------------------------------------------
Total................................. $ 1,856,623 3,489,626 4,261,360
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Represents Federal Reserve Stock of $23,082 in 1992, and $34,987 in 1991.
Securities Available for Sale
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------
Amortized Average
Cost Maturity
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities............................................................. $ 2,849,863 1.8yrs.
State and municipal securities.................................................................... 340,322 3.1
Collateralized mortgage obligations............................................................... 22,502 0.7
- ------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $ 3,212,687
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest Rate Risk -- 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 rate 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, appropriate action is taken to maintain the net interest spread, even
in periods of rapid interest rate movement.
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 December 31, 1993,
totalling $291.6 million in notional amounts. This total included notional
amounts of $125 million as a hedge against long term debt and the remainder as a
hedge against certain deposits. First of America had no outstanding interest
rate swap agreements at December 31, 1992.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities.
Table XVI presents First of America's Gap position at December 31, 1993, for one
year and shorter periods, and Table XVII details the company's five year Gap
position. The Gap reports' reliability in measuring the risk to income from a
change in interest rates is tested through the use of simulation models. The
most recent simulation models show that less than one percent of First of
America's annual net income is at risk if interest rates were to move up or down
an immediate one percent. Management has determined that these simulations
provide a more accurate measurement of the company's interest rate risk
positions than the following Gap tables.
21
<PAGE> 22
<TABLE>
<CAPTION>
Interest Rate Sensitivity -- Short Term TABLE XVI
($ in millions)
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1993 Days Days Days Days Days
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Other earnings assets............................................... $ 75 75 75 75 75
Investment securities............................................... 267 368 504 927 1,702
Loans, net of unearned discount..................................... 4,478 4,946 5,307 6,245 7,997
- ----------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)................................... $4,820 5,389 5,886 7,247 9,774
- ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Money market type deposits.......................................... $1,231 1,780 1,843 1,850 1,850
Other core savings and time deposits................................ 1,403 2,489 3,097 4,646 6,628
Negotiated deposits................................................. 330 479 572 721 784
Borrowings.......................................................... 943 976 976 1,001 1,044
- ----------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL).............................. $3,907 5,724 6,488 8,218 10,306
- ----------------------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)..................................................... $ 913 (335) (602) (971) (532)
- ----------------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL.................................................. 88.18% 94.84
GAP divided by total assets......................................... (4.57) (2.51)
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Interest Rate Sensitivity -- Long Term TABLE XVII
($ in millions)
13 to 25 to 37 to 0 to
December 31, 1993 24 Months 36 Months 60 Months 60 Months
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Other earnings assets..................................................... $ -- -- -- 75
Investment securities..................................................... 1,310 746 687 4,445
Loans, net of unearned discount........................................... 2,390 1,279 1,331 12,997
- ---------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)......................................... $ 3,700 2,025 2,018 17,517
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:
Money market type deposits................................................ $ 74 88 176 2,188
Other core savings and time deposits...................................... 1,951 652 941 10,172
Negotiated deposits....................................................... 18 8 -- 810
Borrowings................................................................ -- -- -- 1,044
- ---------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL).................................... $ 2,043 748 1,117 14,214
- ---------------------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)........................................................... $ 1,657 1,277 901 3,303
- ---------------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL........................................................ 123.24%
GAP divided by total assets............................................... 15.56
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 23
Capital Strength
Regulatory Requirements -- First of America's capital policy is to maintain
its capital levels above minimum regulatory guidelines. At December 31, 1992,
the Federal Reserve required a tier I risk based capital ratio of 4.00 percent
and a total risk based capital ratio of 8.00 percent. In 1991, the Federal
Reserve also adopted a new leverage capital adequacy standard. This ratio
compares tier I capital to reported total assets less certain intangibles and
requires a minimum ratio of 4.00 percent in order to be categorized as
adequately capitalized. As shown in Table XVIII, at December 31, 1993, First of
America's capital ratios exceeded required regulatory minimums with a tier I
risk based ratio of 9.45 percent, a total risk based ratio of 11.87 percent and
a tier I leverage ratio of 6.43 percent. The increase in the ratios was largely
the result of net earnings retention. The year-end 1993 capital ratios exclude
the Statement No. 115 mark-to-market adjustment to shareholders' equity in
accordance with the Federal Reserve's interim regulations.
The long term debt which qualified as tier II capital at December 31, 1993,
consisted of $150 million in 8.5% Subordinated Notes Due February 1, 2004, a $10
million 6.35% Subordinated Note which matures ratably over a five year period
beginning December 31, 2003, $21.4 million in 9.25% Senior Notes due in equal
installments through 1996, and $7.8 million in 10.675% Subordinated Notes due in
equal installments through 1998. This debt is included in tier II capital on a
weighted maturity basis. On February 7, 1994, First of America exercised the
right to prepay its 9.25% Senior Notes, incurring a $441,000 prepayment penalty.
Additional information relating to First of America's various long term debt
agreements is provided in Note 11 of the Notes to Consolidated Financial
Statements included later in this document.
<TABLE>
<CAPTION>
Risk-Based Capital TABLE XVIII
($ in thousands)
December 31, 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIER I CAPITAL:
Common shareholders' equity........................................................... $1,491,906 1,260,905 1,101,817
Less: Goodwill and core deposit premium............................................... 138,423 124,179 159,629
Qualifying preferred stock............................................................ -- 74,586 165,551
- ------------------------------------------------------------------------------------------------------------------------------
Tier I Capital........................................................................ $1,353,483 1,211,312 1,107,739
- ------------------------------------------------------------------------------------------------------------------------------
TIER II CAPITAL:
Allowance for loan losses*............................................................ $ 179,094 168,539 164,575
Qualifying long term debt............................................................. 167,396 173,238 62,726
- ------------------------------------------------------------------------------------------------------------------------------
Tier II Capital....................................................................... $ 346,490 341,777 227,301
- ------------------------------------------------------------------------------------------------------------------------------
Total Capital......................................................................... $1,699,973 1,553,089 1,335,040
- ------------------------------------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS:
Tier I................................................................................ 9.45% 8.99 8.43
Total................................................................................. 11.87 11.53 10.16
Tier I leverage ratio................................................................. 6.43 6.10 6.51
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
*Limited to 1.25% of total risk-weighted assets.
23
<PAGE> 24
Total Shareholders' Equity -- First of America's total shareholders' equity
increased 14.1 percent to $1.5 billion at year-end 1993, primarily as a result
of net earnings retention and the Statement No. 115 adjustment. Common
shareholders' equity was $1.5 billion at year-end 1993, a 20.8 percent increase
from $1.3 billion a year ago. This growth was the result of net earnings
retention and the conversion of the Series F 9% Convertible Preferred Stock to
First of America Common Stock. Also impacting common shareholders' equity was
the issuance of 95,668 shares of First of America Common Stock in the company's
acquisition of Kewanee Investing Company, Inc. on April 1, 1993.
On December 31, 1993, First of America redeemed all outstanding shares of its
Series F 9% Convertible Preferred Stock which represented the remainder of its
outstanding preferred issues. Series F 9% Convertible Preferred Stock had
392,557 outstanding shares prior to redemption. All shares were converted to
First of America Common Stock resulting in an additional 2,355,342 common shares
being issued.
At December 31, 1993, First of America had one pending acquisition, LGF
Bancorp, Inc., and its principal subsidiary, La Grange Federal Savings and Loan
Association. This acquisition, which is currently anticipated to be completed in
the first half of 1994, will require the issuance of approximately 1,662,200
shares of First of America Common Stock. Consummation of this acquisition is
subject to approval by LGF Bancorp's shareholders and various regulatory
agencies and other conditions. Further information concerning this acquisition
is provided in Note 3 of the Notes to Consolidated Financial Statements included
later in this document.
In Conclusion
A return on assets of 1.20 percent, an efficiency
ratio of 62.72 percent and a return on total equity of
17.50 percent represented significant achievements for
First of America for 1993. Based on this level of
performance and the competitiveness of the financial
services industry, management believes that it is
appropriate to set similar high goals for the future.
In the years ahead, management's goals for the
company's performance include a return on assets of
1.25 percent or higher and an efficiency ratio of 60
percent or lower, while maintaining a return on equity
between 17 percent and 18 percent. Looking specifically
at 1994, management has stated that it is currently
comfortable with the published range of investment
analysts' forecasts of $4.40 to $4.70 for earnings per
share.
[RETURN OF
AVERAGE ASSETS
GRAPH]
Return on average assets
of 1.20% in 1993 was
achieved by sustaining an
above average net interest
margin, while growing fee
income at a faster pace
than non-interest expense.
24
<PAGE> 25
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Statement of Management Responsibility
The following consolidated financial statements and accompanying notes to the
consolidated financial statements of First of America have been prepared by
management, which has the responsibility for their integrity and objectivity.
The statements have been prepared in accordance with generally accepted
accounting principles to reflect, in all material respects, the substance of
financial events and transactions occurring during the respective periods.
In meeting its responsibility, management relies on First of America's
accounting systems and related internal controls. These systems are designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. Augmenting these systems are written policies and procedures and
audits performed by First of America's internal audit staff.
The consolidated financial statements and notes to the consolidated financial
statements of First of America have been audited by the independent certified
public accounting firm, KPMG Peat Marwick, who were engaged to express an
opinion as to the fairness of presentation of such financial statements.
/s/ Daniel R. Smith /s/ Thomas W. Lambert
Daniel R. Smith Thomas W. Lambert
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
Letter of Audit Committee Chairman
The audit committee of the Board of Directors is composed of eight independent
directors with Robert L. Hetzler as chairman. The committee held four meetings
during fiscal year 1993.
The audit committee oversees First of America's financial reporting process on
behalf of the Board of Directors. In fulfilling its responsibility, the
committee recommended to the Board of Directors, subject to shareholder
approval, the selection of First of America's independent auditor. The audit
committee discussed with the internal auditor and the independent auditor the
overall scope and specific plans for their respective audits. The committee
additionally discussed First of America's consolidated financial statements and
the adequacy of First of America's internal controls. The committee also met
with First of America's internal auditor and independent auditor, without
management present, to discuss the results of their audits, their evaluations of
First of America's internal controls and the overall quality of First of
America's financial reporting. This meeting was designed to facilitate private
communications between the committee, the internal auditor and the independent
auditor.
The audit committee believes that, for the period ended December 31, 1993, its
duties, as indicated, were satisfactorily discharged and that First of America's
system of internal controls is adequate.
/s/ Robert L. Hetzler
Robert L. Hetzler
Chairman
Audit Committee
25
<PAGE> 26
Report of Independent Auditors
To the Shareholders and Board of Directors,
First of America Bank Corporation:
We have audited the accompanying consolidated balance sheets of First of
America Bank Corporation and its subsidiaries as of December 31, 1993 and 1992
and the related consolidated statements of income, changes in shareholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these consolidated 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 respects, the financial position of First of
America Bank Corporation and its subsidiaries as of December 31, 1993 and 1992,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993, in conformity with generally
accepted accounting principles.
As discussed in Notes 1 and 6 to the consolidated financial statements, First
of America Bank Corporation adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115
"Accounting for Certain Investments in Debt and Equity Securities" at December
31, 1993.
As discussed in Notes 1 and 17 to the consolidated financial statements,
First of America Bank Corporation adopted the provisions of the Financial
Accounting Standards Board's Statement of Financial Accounting Standards No. 106
"Employers' Accounting for Postretirement Benefits other than Pensions" in 1992.
/s/ KPMG Peat Marwick
KPMG Peat Marwick
Chicago, Illinois
January 18, 1994
26
<PAGE> 27
<TABLE>
<CAPTION>
Consolidated Balance Sheets
($ in thousands)
December 31, 1993 1992
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks.......................................................................... $ 903,517 918,960
Bank time deposits............................................................................... 2,000 4,198
Federal funds sold and resale agreements......................................................... 72,909 170,832
Securities:
Securities held to maturity, market value of $1,872,326 at December 31, 1993 and $3,543,395 at
December 31, 1992............................................................................. 1,856,623 3,489,626
Securities available for sale, amortized cost of $3,212,687 at December 31, 1993................ 3,261,481 --
Securities held for sale, market value of $1,154,276 at December 31, 1992....................... -- 1,137,420
Loans, net of unearned income:
Consumer........................................................................................ 5,062,173 4,288,431
Commercial, financial and agricultural.......................................................... 2,148,663 2,170,715
Commercial real estate.......................................................................... 2,902,549 2,851,032
Residential real estate......................................................................... 3,914,914 4,382,672
Loans held for sale, market value of $368,846 for 1993 and $64,083 for 1992..................... 365,856 63,167
----------- -----------
Total loans................................................................................... 14,394,155 13,756,017
Less: Allowance for loan losses............................................................... 188,664 176,793
----------- -----------
Net loans..................................................................................... 14,205,491 13,579,224
Premises and equipment, net...................................................................... 432,256 375,675
Other assets..................................................................................... 496,194 470,832
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................................................... $21,230,471 20,146,767
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing............................................................................ $ 2,682,621 2,572,325
Interest bearing................................................................................ 15,561,082 15,463,228
----------- -----------
Total deposits................................................................................ 18,243,703 18,035,553
Securities sold under repurchase agreements...................................................... 664,531 108,873
Other short term borrowings...................................................................... 330,047 229,150
Long term debt................................................................................... 254,193 254,051
Other liabilities................................................................................ 214,560 183,649
----------- -----------
Total liabilities............................................................................. 19,707,034 18,811,276
----------- -----------
SHAREHOLDERS' EQUITY
Preferred stock.................................................................................. -- 74,586
Common stock - $10 par value:
Authorized Outstanding
1993 100,000,000 59,520,710
1992 100,000,000 57,014,117............................................................. 595,207 570,141
Capital surplus.................................................................................. 265,596 211,290
Net unrealized gain on securities available for sale, net of tax of $17,263...................... 31,531 --
Retained earnings................................................................................ 631,103 479,474
----------- -----------
Total shareholders' equity.................................................................... 1,523,437 1,335,491
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................................... $21,230,471 20,146,767
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
27
<PAGE> 28
<TABLE>
<CAPTION>
Consolidated Statements of Income
($ in thousands except per share data)
Year ended December 31 1993 1992 1991
<S> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME
Loans and fees on loans...................................................... $1,217,139 1,282,434 1,206,143
Securities:
Taxable income.............................................................. 262,871 274,048 274,884
Tax exempt income........................................................... 28,102 30,555 39,155
Federal funds sold and resale agreements..................................... 2,744 6,685 6,979
Bank time deposits........................................................... 110 2,405 10,700
-------- -------- --------
Total interest income........................................................ 1,510,966 1,596,127 1,537,861
-------- -------- --------
INTEREST EXPENSE
Deposits..................................................................... 570,499 691,603 761,404
Short term borrowings........................................................ 18,546 8,104 9,424
Long term debt............................................................... 19,904 21,593 16,082
-------- -------- --------
Total interest expense....................................................... 608,949 721,300 786,910
-------- -------- --------
NET INTEREST INCOME.......................................................... 902,017 874,827 750,951
Provision for loan losses.................................................... 84,714 78,809 71,030
-------- -------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.......................... 817,303 796,018 679,921
-------- -------- --------
NON-INTEREST INCOME
Service charges on deposit accounts.......................................... 84,648 79,522 70,318
Trust and financial services income.......................................... 77,290 68,850 60,904
Investment securities transactions, net...................................... 16,753 14,993 1,088
Other operating income....................................................... 113,493 97,951 77,590
-------- -------- --------
Total non-interest income.................................................... 292,184 261,316 209,900
-------- -------- --------
NON-INTEREST EXPENSE
Personnel.................................................................... 403,119 410,854 361,187
Occupancy, net............................................................... 55,093 57,286 50,413
Equipment.................................................................... 53,376 63,134 51,474
Outside data processing...................................................... 14,963 10,380 11,448
Amortization of intangibles.................................................. 8,902 38,336 10,303
Other operating expenses..................................................... 228,075 216,358 180,907
-------- -------- --------
Total non-interest expense................................................... 763,528 796,348 665,732
-------- -------- --------
Income before income taxes, and cumulative effect of prior years' change in
accounting principle........................................................ 345,959 260,986 224,089
Income taxes................................................................. 98,574 91,506 64,625
-------- -------- --------
Income before cumulative effect of prior years' change in accounting
principle................................................................... 247,385 169,480 159,464
Cumulative effect of prior years' change in accounting for postretirement
benefits other than pensions, net of tax of $11,446......................... -- 21,956 --
- ----------------------------------------------------------------------------------------------------------------
NET INCOME................................................................... $247,385 147,524 159,464
- ----------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK........................................ $241,232 135,015 144,028
- ----------------------------------------------------------------------------------------------------------------
PER COMMON AND COMMON EQUIVALENT SHARE
PRIMARY:
Income before cumulative effect of prior years' change in accounting
principle................................................................... $ 4.20 2.86 2.69
Cumulative effect of prior years' change in accounting principle............. -- 0.40 --
Net income................................................................... 4.20 2.46 2.69
FULLY DILUTED:
Income before cumulative effect of prior years' change in accounting
principle................................................................... 4.14 2.85 2.69
Cumulative effect of prior years' change in accounting principle............. -- 0.37 --
Net income................................................................... 4.14 2.46 2.69
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands except per share data)
Net Unrealized
Preferred Common Capital Gain on Securities Retained
Stock Stock Surplus Available for Sale Earnings Total
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, JANUARY 1, 1991.................. $165,750 532,632 147,638 -- 329,983 1,176,003
Net Income................................ 159,464 159,464
Issuance of stock:
Acquisition of subsidiaries.............. 1,587 2,738 4,325
Other.................................... 1,132 (10) 356 1,478
Repurchase and conversions................ (199) 23 51 (125)
Cash dividends declared:
Preferred:............................... (15,436) (15,436)
Common:
First of America -- $1.24 per share.... (44,442) (44,442)
Security Bancorp -- $1.00 per share.... (13,899) (13,899)
--------- ------- ------- ------------------ -------- ---------
BALANCE, DECEMBER 31, 1991................ 165,551 535,374 150,417 -- 416,026 1,267,368
Net income................................ 147,524 147,524
Issuance of stock:
Acquisition of subsidiaries.............. 2,672 3,149 5,821
Other.................................... 2,068 353 515 2,936
Repurchase and conversions................ (90,965) 30,027 57,371 (3,567)
Cash dividends declared:
Preferred................................ (12,509) (12,509)
Common:
First of America -- $1.34 per share.... (68,598) (68,598)
Security Bancorp -- $.25 per share..... (3,484) (3,484)
--------- ------- ------- ------------------ -------- ---------
BALANCE, DECEMBER 31, 1992................ 74,586 570,141 211,290 -- 479,474 1,335,491
Net income................................ 247,385 247,385
Issuance of stock:
Acquisition of subsidiaries.............. 957 3,026 3,983
Stock options exercised.................. 526 606 1,132
Other.................................... 29 (358) (329)
Repurchase and conversions................ (74,586) 23,554 51,032 --
Implementation of change in accounting for
securities available for sale, net of tax
of $17,263............................... 31,531 31,531
Cash dividends declared:
Preferred................................ (6,153) (6,153)
Common -- $1.55 per share................ (89,603) (89,603)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1993................ $ -- 595,207 265,596 31,531 631,103 1,523,437
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
29
<PAGE> 30
<TABLE>
<CAPTION>
Consolidated Statements of Cash Flows
($ in thousands)
Year ended December 31 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income......................................................................... $ 247,385 147,524 159,464
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation...................................................................... 39,838 45,711 34,924
Provision for loan losses......................................................... 84,714 78,809 71,030
Provision for deferred taxes...................................................... (7,514) (9,782) (7,385)
Amortization of intangibles....................................................... 8,902 38,336 10,303
(Gain) loss on sale of investment securities...................................... -- (14,993) (1,088)
Gain on sale of loans............................................................. -- (15,230) (5,246)
(Gain) loss on sale of securities held for sale................................... (16,753) -- --
(Gain) loss on sale of mortgage loans held for sale............................... (29,456) -- --
Gain on sale of other assets...................................................... (638) (4,264) (899)
Originations of mortgage loans held for sale...................................... (1,891,928) -- --
Proceeds from sales of loans...................................................... 1,618,695 902,482 298,283
Proceeds from the sales of securities held for sale............................... 1,269,875 150,820 --
Proceeds from the maturities of securities held for sale.......................... 433,191 -- --
Purchases of securities held for sale............................................. (262,301) -- --
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable....................... (35,868) (2,812) 44,754
(Increase) decrease in other assets............................................... 136,955 126,752 (58,703)
Increase (decrease) in accrued expense and other liabilities...................... 32,947 15,116 7,188
----------- ---------- ----------
Net cash from operating activities............................................ 1,628,044 1,458,469 552,625
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sales of investment securities....................................... -- 723,591 738,551
Proceeds from maturities of investment securities.................................. 921,031 1,709,475 1,170,356
Purchases of investment securities................................................. (2,820,565) (2,943,348) (2,103,427)
Net increase in loans and leases................................................... (398,592) (1,464,607) (725,755)
Premises and equipment purchased................................................... (93,203) (37,090) (86,234)
Proceeds from the sale of premises and equipment................................... 2,337 6,852 3,826
(Acquisition) sale of affiliates, net of cash acquired............................. 475,263 12,396 157,919
Payment of acquisition costs and acquired affiliate liabilities.................... -- (1,344) (35,437)
----------- ---------- ----------
Net cash flows used by investing activities................................... (1,913,729) (1,994,075) (880,201)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits..................................... 50,203 486,056 107,849
Net increase (decrease) in time deposits........................................... (364,628) 23,095 206,189
Net increase (decrease) in short term borrowings................................... 656,055 55,797 2,750
Proceeds from issuance of long term debt........................................... 222,475 151,438 134,313
Repayments of long term debt....................................................... (202,333) (177,785) (79,030)
Payments for redemption of preferred stock......................................... -- (3,567) --
Proceeds from issuance of common stock............................................. 1,132 2,883 (479)
Dividends paid..................................................................... (92,333) (83,824) (73,079)
Other, net......................................................................... (329) (105) 1,482
----------- ---------- ----------
Net cash provided by financing activities..................................... 270,242 453,988 299,995
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents............................... (15,443) (81,618) (27,581)
Cash and cash equivalents at beginning of year..................................... 918,960 1,000,578 1,028,159
- ---------------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END.............................................. $ 903,517 918,960 1,000,578
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
30
<PAGE> 31
Notes To Consolidated Financial Statements
NOTE 1: ACCOUNTING POLICIES
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and reporting practices prescribed for
the banking industry. The significant accounting and reporting policies of First
of America Bank Corporation and its subsidiaries follow.
Consolidation:
The consolidated financial statements include the accounts of First of
America and its subsidiaries, after elimination of significant intercompany
transactions and accounts. Goodwill, the cost over the fair value of assets
acquired, is amortized on a basis which matches the periods estimated to be
benefitted ranging from five to forty years. First of America's current policy
is to amortize goodwill generated from acquisitions over a fifteen year period.
Basis of Presentation:
Certain amounts in the prior years' financial statements have been
reclassified to conform with the current financial statement presentation. First
of America uses the accrual basis of accounting for financial reporting
purposes, except for immaterial sources of income and expenses which are
recorded when received or paid.
Securities:
In 1993, the Financial Accounting Standards Board issued Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," effective
for fiscal years beginning after December 15, 1993 with earlier adoption
allowed. First of America adopted Statement No. 115 at December 31, 1993.
In accordance with Statement No. 115, Securities Held to Maturity include
only those securities which First of America has the positive intent and ability
to hold until maturity. Such securities are carried at cost adjusted for
amortization of premium and accretion of discount, computed in a manner which
approximates the interest method. Using the specific identification method, the
adjusted cost of each security sold is used to compute realized gains or losses
on the sales of these securities.
In accordance with Statement No. 115, Securities Available for Sale include
those securities which would be available to be sold prior to final maturity in
response to asset-liability management needs. Using the specific identification
method such securities are carried at market value with a corresponding market
value adjustment carried as a separate component of the equity section of the
balance sheet on a net of tax basis. The adjusted cost of each security sold is
used to compute realized gains or losses on the sales of these securities.
Securities held for sale were recorded at the lower of aggregate cost or
estimated fair value and were primarily U.S. Treasury and Agency securities.
Loans Held for Sale:
Loans held for sale consist of fixed rate and variable rate residential
mortgage loans with maturities of fifteen to thirty years. Such loans are
recorded at the lower of aggregate cost or estimated fair value.
Allowance for Loan Losses:
Losses on loans are charged to the allowance for loan losses. The allowance
is increased by recoveries of principal and interest previously charged to the
allowance and by a provision charged against income. Management determines the
adequacy of the allowance based on reviews of individual loans, recent loss
experience, current economic conditions, risk characteristics of various
categories of loans and such other factors which, in management's judgement,
deserve recognition in estimating possible loan losses.
Premises and Equipment:
Premises and equipment are stated at cost, less accumulated depreciation, and
include capital leases, expenditures for new facilities and additions which
materially extend the useful lives of existing premises and equipment.
Expenditures for normal repairs and maintenance are
31
<PAGE> 32
charged to operations as incurred. The cost of assets retired or otherwise
disposed of and the related accumulated depreciation are eliminated from the
accounts in the year of disposal, and the resulting gains or losses are
reflected in operations.
Depreciation is computed principally by the straight-line method and is
charged to operations over the estimated useful lives of the assets. Capital
leases and leasehold improvements are being amortized over the lesser of the
remaining term of the respective lease or the estimated useful life of the
asset.
Non-Performing Loans:
Loans are considered non-performing when placed in non-accrual status or when
terms are renegotiated meeting the definition of troubled debt restructuring of
Financial Accounting Standards Board Statement No. 15, "Accounting by Debtors
and Creditors for Troubled Debt Restructuring."
Loans are placed in non-accrual status when, in the opinion of management,
there is doubt as to collectibility of interest or principal, or when principal
or interest is past due 90 days or more, and the loan is either not well secured
or not in the process of collection. Consumer and revolving loans are generally
charged off when payments are 120 days past due.
Loans are considered to be renegotiated when concessions have been granted,
such as reduction of interest rates or deferral of interest or principal
payments, as a result of the borrower's financial condition.
In 1993, the Financial Accounting Standards Board issued Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," effective for fiscal years
beginning after December 15, 1994, with earlier adoption allowed. Statement No.
114 requires that impaired loans be measured based on the present value of
expected future cash flows discounted at the loan's effective interest rate or,
as a practical expedient, at the loan's observable market price or the fair
value of the collateral if the loan is collateral dependent. Currently,
management believes that the adoption of Statement No. 114 will not have a
material effect on First of America's financial position.
Other Real Estate Owned:
Other real estate owned includes, primarily, properties acquired through
foreclosure or deed in lieu of foreclosure and in-substance foreclosure. Other
real estate is recorded in other assets at the lower of the amount of the loan
balance plus unpaid accrued interest or the current fair value. Any write-down
of the loan balance to fair value when the property is acquired is charged to
the allowance for loan losses. Subsequent market write-downs, operating
expenses, and gains or losses on the sale of other real estate are charged or
credited to other operating expense.
Interest Income on Loans:
Fees and unearned interest income on loans is recognized over the terms of
the loans based on the unpaid principal balance. Interest accrual on loans is
discontinued when, in the opinion of management, the ultimate full collection of
both principal and interest is in doubt. Interest previously accrued on charged
off loans is reversed, by charging interest income, to the extent of the amount
included in current year income. The excess, if any, is charged to the allowance
for loan losses.
Accounting for Loan Fees:
Non-refundable loan origination fees and direct loan origination costs are
deferred and amortized as an adjustment of yield by a method that approximates
the interest method. The deferred fees and costs are netted against outstanding
loan balances. When a loan is placed into nonaccrual status, amortization of the
loan fees is stopped until the loan returns to accruing status.
Deferred fees and costs related to credit card loans are included in other
assets and other liabilities and are amortized to non-interest income over the
life of the loans.
Income Tax:
In February 1992, the Financial Accounting Standards Board issued Statement
No. 109, "Accounting for Income Taxes" which required a change from the deferred
method to the asset and liability method of accounting for income taxes. Under
the asset and liability method of Statement No. 109, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
differences between the financial statement carrying amounts of existing assets
and liabilities and their respective tax bases. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. Under
32
<PAGE> 33
Statement No. 109, the effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the enactment
date.
Effective January 1, 1992, First of America adopted Statement No. 109. The
adoption of Statement No. 109 did not have a material effect on the 1992
consolidated financial results.
The Omnibus Budget Reconciliation Act of 1993 was passed in August 1993,
increasing First of America's federal income tax rate to 35 percent effective
January 1, 1993. The effect of the change from the previous 34 percent is
included in 1993 earnings.
Pursuant to the deferred method under APB Opinion 11, which was applied in
1991 and prior years, deferred income taxes were recognized for income and
expense items that are reported in different years for financial reporting
purposes and income tax purposes using the tax rate applicable for the year of
the calculation. Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Postretirement Benefits Other Than Pensions:
In December 1990, the Financial Accounting Standards Board issued Statement
No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions,"
effective for fiscal years beginning after December 15, 1992 with earlier
adoption allowed. Statement No. 106 required the accrual of the expected cost of
providing postretirement benefits to employees during the years that the
employees render services. Effective January 1, 1992, First of America adopted
Statement No. 106. Prior to 1992, First of America expensed the costs of
postretirement benefits as they were incurred. The cumulative effect of the
change in method of accounting for postretirement benefits other than pensions
is reported in the 1992 consolidated statement of income.
Post-Employment Benefits:
In 1993, the Financial Accounting Standards Board issued Statement No. 112,
"Employers' Accounting for Post-employment Benefits," effective for fiscal years
beginning after December 15, 1993. Statement No. 112 requires employers to
recognize the obligation to provide post-employment benefits, such as salary
continuation, supplemental unemployment benefits and severance benefits, if the
obligation is attributable to employees' services already rendered. Management
has determined that First of America was in compliance with Statement No. 112
prior to its issuance and accordingly there is no financial statement impact in
the adoption of Statement No. 112.
Interest Rate Swaps:
The corporation and its subsidiaries have entered into interest rate swaps as
a tool to manage the interest sensitivity of the balance sheet. The contracts
represent an exchange of interest payments and the underlying principal balances
of the assets or liabilities are not affected. Net settlement amounts are
reported as adjustments to interest income or interest expense.
33
<PAGE> 34
NOTE 2: BUSINESS COMBINATIONS
Information relating to mergers and acquisitions for the three year period
ended December 31, 1993 follows.
<TABLE>
<CAPTION>
Intangible
Financial Number of Assets
Date of Reporting Common Cash Paid/ Acquired at
Acquisition Value* Shares Issued Debt Issued Acquisition
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Citizens Federal Branches
(Illinois)..................... Aug. 26, 1993 $ 20,224,000 -- $20,098,000 20,244,000
Kewanee Investing Co., Inc.
(Illinois)..................... April 1, 1993 3,983,000 95,668 -- 1,025,000
First Petersburg Bancshares,
Inc.
(Illinois)..................... July 1, 1992 5,934,000 267,184 -- **
Security Bancorp, Inc.
(Michigan)..................... May 1, 1992 207,493,000 17,744,000 -- ***
Champion Federal Savings and
Loan Association
(Illinois)..................... Dec. 31, 1991 104,036,000 -- -- 2,848,000
Morgan Community Bancorp, Inc.
(Illinois)..................... Sept. 30, 1991 4,451,000 158,700 -- 1,300,000
Home Federal Savings Bank, F.A.
(Illinois)..................... Sept. 13, 1991 8,415,000 -- 8,363,000 8,363,000
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes direct acquisition costs on all purchased affiliates.
** Accounted for as a pooling of interests with no restatement of prior periods
as the amounts involved were not material to First of America.
*** Accounted for as a pooling of interests with restatement of prior periods.
Goodwill, the cost over the fair value of assets acquired, is amortized on a
basis which matches the periods estimated to be benefitted ranging from five to
forty years. Total intangibles, which is included in other assets in the
Consolidated Balance Sheets, amounted to $138,423,000 at December 31, 1993 and
$124,179,000 at December 31, 1992. At December 31, 1992, First of America
accelerated the amortization of its intangible assets incurring a charge of
$25,891,000 with no tax effect.
NOTE 3: PENDING ACQUISITIONS
On October 12, 1993, First of America Bank Corporation entered into a
definitive agreement to acquire LGF Bancorp, Inc., a $410 million in assets
savings and loan association based in La Grange, Illinois. Subject to regulatory
approval and the shareholders of LGF Bancorp, Inc., the transaction will be
based on an exchange of 0.8754 shares of First of America Common Stock for each
share of LGF common stock and an exchange of 0.6322 shares of First of America
Common Stock for each outstanding option to purchase LGF common stock. It is
expected that the transaction will be accounted for as a pooling of interests.
LGF Bancorp, Inc. has also issued a warrant to allow First of America to acquire
up to 19.99 percent of its common shares under certain circumstances.
NOTE 4: RESTRICTIONS ON CASH AND DUE FROM BANKS
Federal regulations require First of America to maintain as reserves, minimum
cash balances based on deposit levels at subsidiary banks. Cash balances
restricted from usage due to these requirements were $297,497,000 and
$289,582,000 at December 31, 1993 and 1992, respectively.
34
<PAGE> 35
NOTE 5: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1993, 1992 and 1991:
<TABLE>
<CAPTION>
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASE OF AFFILIATES
1993
Citizens Federal Branches.................................... $ 25,113 499,337 -- (474,224)
Kewanee Investing Company, Inc............................... 28,737 25,793 3,983 (1,039)
1991
Champion Federal Savings & Loan Association.................. 2,002,227 2,045,780 -- (43,553)
Morgan Community Bancorp, Inc................................ 45,624 38,991 4,324 2,309
Home Federal Savings Bank, F.A............................... 20,163 136,838 -- (116,675)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following schedule details supplemental disclosures for the cash flow
statements:
<TABLE>
<CAPTION>
Assets Transferred Assets Transferred
Loans to Securities to Securities Total Interest Total Income
($ in thousands) Securitized Available for Sale Held for Sale Paid Taxes Paid
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1993............................ $ 113,380 3,212,687 465,697* 576,945 108,399
1992............................ -- -- 740,151 769,865 104,385
1991............................ -- -- -- 810,515 65,959
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Transferred as a result of the final assimilation and merger of Champion
Federal into nine Illinois bank affiliates.
NOTE 6: SECURITIES
The amortized cost and estimated market value of Securities Held to Maturity
at December 31, 1993 and 1992 follow.
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities................................. $1,452,922 1,455,434 2,992,443 3,033,726
State and municipal securities........................................ 361,612 374,803 458,207 473,117
Other securities...................................................... 42,089 42,089 38,976 36,552
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL................................................................. $1,856,623 1,872,326 3,489,626 3,543,395
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE> 36
The following table details the gross unrealized gains and losses for
Securities Held to Maturity at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities.............................. $ 11,489 8,977 54,787 13,504
State and municipal securities..................................... 13,593 402 15,847 937
Other securities................................................... -- -- 47 2,471
- ---------------------------------------------------------------------------------------------------------------------------------
Total.............................................................. $ 25,082 9,379 70,681 16,912
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1993 follow.
<TABLE>
<CAPTION>
1993
- ---------------------------------------------------------------------------------------------------------------------------------
Estimated
Amortized Market
($ in thousands) Cost Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities............................................................... $2,849,863 2,898,961
State and municipal securities...................................................................... 340,322 339,760
Collateralized mortgage obligations................................................................. 22,502 22,760
- ---------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................... $3,212,687 3,261,481
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1993.
<TABLE>
<CAPTION>
1993
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
($ in thousands) Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities............................................................... $ 52,371 3,273
State and municipal securities...................................................................... 491 1,053
Collateralized mortgage obligations................................................................. 303 45
- ---------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................... $ 53,165 4,371
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America's December 31, 1993 adoption of Statement No. 115 resulted
in a $31,531,000 mark-to-market adjustment to equity, net of $17,263,000 in
taxes, from unrealized gains on the Securities Available for Sale portfolio.
The amortized cost and estimated market value of Securities Held for Sale at
December 31, 1992 follow.
<TABLE>
<CAPTION>
1992
- ---------------------------------------------------------------------------------------------------------------------------------
Estimated
Amortized Market
($ in thousands) Cost Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities............................................................. $ 957,379 969,464
Collateralized mortgage obligations............................................................... 152,263 154,882
Other securities.................................................................................. 27,778 29,930
- ---------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $1,137,420 1,154,276
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
36
<PAGE> 37
The following table details the gross unrealized gains and losses on
Securities Held for Sale at December 31, 1992.
<TABLE>
<CAPTION>
1992
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross
Unrealized Unrealized
($ in thousands) Gains Losses
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities............................................................ $ 13,039 954
Collateralized mortgage obligations.............................................................. 2,627 8
Other securities................................................................................. 2,152 --
- ------------------------------------------------------------------------------------------------------------------------------
Total............................................................................................ $ 17,818 962
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Except as indicated below, total securities of no individual state, political
subdivision or other issuer exceeded 10 percent of shareholders' equity at
December 31, 1993. At December 31, 1993 and 1992, the book value of securities
issued by the State of Michigan and all of its political subdivisions totalled
approximately $189,536,000 and $213,582,000, respectively, with a market value
of approximately $194,238,000 and $217,052,000, respectively. The securities at
December 31, 1993, represent a wide range of ratings, all of "investment grade"
with a substantial portion rated A-1 or higher. First of America has no
concentration of credit risk in its investment portfolio.
Assets, principally securities, carried at approximately $1,394,103,000 at
December 31, 1993, and $787,455,000 at December 31, 1992, were pledged to secure
public deposits, exercise trust powers and for other purposes required or
permitted by law.
NOTE 7: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal rates include (1) non-accrual loans, (2)
restructured loans (loans for which the interest rate or principal balance has
been reduced because of a borrower's financial difficulty) and (3) other real
estate which has been acquired in lieu of loan balances due. Information
concerning these assets, loans past due 90 days or more and other loans of
concern (loans where known information about possible credit problems of
borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1993 and 1992 follows:
<TABLE>
<CAPTION>
($ in thousands) 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCES OUTSTANDING:
Non-accrual loans.................................................................................... $121,186 126,619
Restructured loans................................................................................... 10,879 20,669
Past due 90 days or more............................................................................. 23,462 20,887
Other loans of concern............................................................................... 53,206 37,663
Other real estate owned (included in other assets)................................................... 50,595 48,699
- -------------------------------------------------------------------------------------------------------------------------------
Total................................................................................................ $259,328 254,537
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest income of $3,149,000 and $2,503,000 during 1993 and 1992,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$6,928,000 and $6,957,000 of interest would have been reflected in interest
income during 1993 and 1992, respectively.
First of America has no significant concentrations of credit risk. Its loan
portfolio is well balanced both by type and by geographical area.
NOTE 8: LOANS TO RELATED PARTIES
First of America's subsidiary banks have extended loans to directors and
executive officers of the corporation and their associates and to the directors
and executive officers of the corporation's significant subsidiaries and their
associates (other than members of their immediate families). In conformance with
First of America's written corporate policy and applicable laws and regulations,
these loans to related parties were made in accordance with sound business and
banking practices on non-preferential terms and rates available to non-insiders
of comparable credit worthiness under similar circumstances. The loans do not
involve more than the normal risk of collectibility or present other unfavorable
features. All such extensions of credit must be properly documented as complying
with corporate policy. The aggregate loans outstanding as reported by the
directors and executive officers of the corporation and its significant
subsidiaries which exceeded $60,000 during 1993 totalled $42,405,000 at December
31, 1993, which represents 2.8 percent of total shareholders' equity, and
$39,489,000 at December 31, 1992. During 1993 $44,959,000 of new loans
37
<PAGE> 38
were made with repayments and other reductions totaling $42,043,000. First of
America relies on its directors and executive officers for identification of
loans to their associates.
First of America maintains a line of credit for First of America Mortgage
Company; at December 31, 1993, the amount of the borrowing was $95,600,000. In
conformance with First of America's corporate policy and applicable law, such
extensions of credit to subsidiaries are made in accordance with sound banking
practices and on non-preferential terms and rates.
In the opinion of management, the amount and nature of these loans to related
parties and subsidiaries do not materially affect the financial condition of
First of America.
NOTE 9: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1993,
1992 and 1991 follows.
<TABLE>
<CAPTION>
($ in thousands) 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.............................................................. $ 176,793 174,882 137,012
Additions: Provisions charged against income............................................ 84,714 78,809 71,030
Allowance of acquired (sold) banks, net........................................ 50 (372) 27,094
Recoveries..................................................................... 35,863 33,640 30,280
---------- --------- --------
297,420 286,959 265,416
Less: Loans charged off................................................................. (108,756) (110,166) (90,534)
- ---------------------------------------------------------------------------------------------------------------------------------
Balance, end of year.................................................................... $ 188,664 176,793 174,882
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Management has evaluated the loan portfolio and determined that the balance
in the allowance for loan losses is adequate in light of the composition of the
loan portfolio, economic conditions and other pertinent factors.
NOTE 10: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1993 and 1992 follows.
<TABLE>
<CAPTION>
($ in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Land.................................................................................................. $ 65,937 71,631
Buildings and leasehold improvements.................................................................. 393,133 256,691
Equipment............................................................................................. 327,103 361,138
Capital leases........................................................................................ 22,043 35,235
---------- --------
808,216 724,695
Less:
Accumulated depreciation and amortization............................................................. 371,512 338,961
Accumulated amortization of capital leases............................................................ 4,448 10,059
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................................. $ 432,256 375,675
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America and certain of its subsidiaries have capital and operating
leases for premises and equipment under agreements expiring at various dates
through 2034. These leases, in general, provide for renewal options and options
to purchase certain premises at fair values, and require the payment of property
taxes, insurance premiums and maintenance costs. Total rental expense for all
operating leases was $10,936,000 in 1993, $16,329,000 in 1992, and $21,226,000
in 1991.
38
<PAGE> 39
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1993.
<TABLE>
<CAPTION>
($ in thousands) Capital Leases Operating Leases
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
1994................................................................................... $ 309 10,181
1995................................................................................... 338 8,882
1996................................................................................... 369 7,491
1997................................................................................... 404 6,019
1998................................................................................... 432 5,208
Thereafter............................................................................. 19,991 23,613
------- ------
Total minimum lease payments........................................................... 21,843 61,394
Amounts representing interest.......................................................... 31,819 --
- -------------------------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments............................................ $ 53,662 61,394
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1993 and 1992 follows.
<TABLE>
<CAPTION>
($ in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
PARENT COMPANY:
9.25% senior notes, payable $7,143 annually in 1990 through 1995, balance due 1996, interest payable
semi-annually........................................................................................ $ 21,429 28,571
10.625% subordinated notes payable in equal annual installments in 1990 through 1998, interest payable
semi-annually........................................................................................ 7,778 9,333
8.50% subordinated notes due February 1, 2004......................................................... 150,000 150,000
Revolving credit agreement............................................................................ 30,000 20,000
6.35% subordinated debenture due December 31, 2007.................................................... 10,000 10,000
Capital lease obligations (Note 10)................................................................... 20,408 20,601
-------- -------
239,615 238,505
SUBSIDIARIES:
Subordinated variable rate installment notes from 10-15 percent....................................... -- 2,612
Note, due April 30, 1999.............................................................................. 1,913 1,438
7% subordinated notes due January 2, 1993 through 1996................................................ -- 250
FHLB borrowings, with interest rates ranging from 3.42% to 8.30%, payable from 1994 to 1996........... 10,820 5,820
Mortgages and land contracts, payable in installments through 1999 with interest rates ranging
from 4.75% to 10.25%................................................................................. 410 3,825
Capital lease obligations (Note 10)................................................................... 1,435 1,601
- ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM DEBT.................................................................................. $254,193 254,051
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
On April 21, 1989, First of America entered into a revolving credit agreement
with various lender banks to borrow up to $100,000,000 until April 21, 1994. On
December 6, 1993, First of America extended a Promissory Note, due December 5,
1994, in the amount of $35,000,000. Under the Note, First of America may request
partial advances which mature before December 5, 1994, and bear interest based
on a sliding scale of LIBOR-based rates tied to the amount of the advance. A
facility fee is payable on the daily average balance of the commitment at a rate
of 3/16 of 1%.
The various loan agreements include restrictions on additional indebtedness,
refinancing, payment of cash dividends and the purchase of capital stock. During
1994 First of America can, under the most restrictive loan covenants, declare
and pay dividends of approximately $58,575,000 plus 50 percent of consolidated
net income. The indebtedness of subsidiary banks is subordinated to the claims
of its depositors and certain other creditors. Management has determined that
First of America is in compliance with all of its loan covenants.
39
<PAGE> 40
Maturities of outstanding indebtedness at December 31, 1993 follow.
<TABLE>
<CAPTION>
Total Principal
($ in thousands) Amount Due
<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------
Year ending December 31,
1994.......................................................................................................... $ 49,087
1995.......................................................................................................... 9,121
1996.......................................................................................................... 9,939
1997.......................................................................................................... 1,988
1998.......................................................................................................... 2,015
Thereafter.................................................................................................... 182,043
- ------------------------------------------------------------------------------------------------------------------------------
Total......................................................................................................... $ 254,193
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 12: COMMITMENTS AND CONTINGENT LIABILITIES
Financial Instruments with Off-Balance Sheet Risk:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notational amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or other
security to support financial instruments with off balance sheet credit risk.
A summary of the contract or notional amounts of these financial instruments
at December 31 follows:
<TABLE>
<CAPTION>
($ in thousands) 1993 1992
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Commitments on unused credit card lines......................................................... $ 7,876,161 4,882,411
Other commitments to extend credit.............................................................. 2,061,959 1,715,529
Mortgages sold with recourse.................................................................... 90,302 448,336
Standby letters of credit....................................................................... 220,451 180,549
Commercial letters of credit.................................................................... 12,383 15,936
Foreign exchange contracts...................................................................... 25,650 15,020
Interest rate swaps............................................................................. 291,605 --
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................................................................................... $10,578,511 7,257,781
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates and may require payment of a fee. Since
many of the commitments are expected to expire without being drawn upon, the
commitment amounts included in the preceding table does not necessarily
represent future cash requirements. At December 31, 1993, other commitments to
extend credit were comprised of $1,246,685,000 in unused commercial loan
commitments, $343,880,000 in commitments to fund commercial real estate,
construction and land development of which $287,195,000 was secured by real
estate, and $471,394,000 in home equity lines of credit. Collateral held on
these instruments varies but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
Standby letters of credit and commercial letters of credit are conditional
commitments issued to secure performance of a customer to a third party and are
subject to the same credit review and approval process as loans. Losses to date
have not been material.
Foreign exchange contracts are entered into for trading activities which
enable customers to transfer or reduce their foreign exchange risk. Foreign
exchange forward contracts represent First of America's largest activity in this
specialized area. Forward contracts are commitments to buy or sell at a future
date a currency at a contracted price and are settled in cash or through
delivery. The risk in foreign exchange trading arises from the potential
inability of the counterparties to deliver under the terms of the contract and
the possibility that the value of a foreign currency might
40
<PAGE> 41
change in relation to the U.S. dollar. In the event of a default by a
counterparty, the cost to First of America would be the replacement of the
contract at the current market rate. Such credit losses to date have not been
material. The risk of loss from changes in market rate is substantially lessened
because First of America limits its risk by entering into offsetting contracts.
First of America has entered into mandatory commitments to deliver mortgage
loans or mortgage backed securities to investors, at prevailing market rates,
which totalled $373.3 million as of December 31, 1993. Approximately $16 million
of put options were in existence at year-end as a hedge against interest rate
risk.
Mortgages Sold With Recourse:
First of America has sold mortgage loans to the Federal National Mortgage
Association (FNMA), Government National Mortgage Association (GNMA), Federal
Home Loan Mortgage Corporation (FHLMC), and other savings institutions with full
recourse. The total unpaid principal balances of these loans were $90.3 million
at December 31, 1993 and are not included in the accompanying consolidated
balance sheets.
Interest Rate Swaps:
During the second quarter of 1993, First of America instituted rate swaps to
hedge its interest rate risk. At December 31, 1993, the interest rate swaps had
a total notional value of $291.6 million. Although the notional amounts are
often used to express the volume of these transactions, the amounts potentially
subject to credit risk are much smaller. The company minimizes this risk by
performing normal credit reviews of its counterparties and collateralizing its
exposure when it exceeds a predetermined limit.
Litigation:
First of America and its subsidiaries are parties to routine litigation
arising in the normal course of their respective businesses. In the opinion of
management after consultation with counsel, liabilities arising from these
proceedings, if any, are not expected to be material to First of America's
financial position.
Environmental Matters:
Certain of First of America's subsidiaries own or previously owned certain
parcels of real property with respect to which they have been notified by the
Michigan Department of Natural Resources pursuant to Michigan environmental
statutes that they may be potentially responsible parties (PRPs) for
environmental contamination on or emanating from the properties. The costs of
remediating the contamination cannot be determined at this time. While, as PRPs,
these subsidiaries may be jointly and severally liable for the costs of
remediating the contamination, in most cases, there are a number of other PRPs
who may also be jointly and severally liable for remediation costs.
Additionally, in certain cases, these subsidiaries have asserted statutory
defenses to liability for remediation costs based on the subsidiaries' status as
lending institutions that acquired ownership of the contaminated property
through foreclosure. First of America's management, after consultation with
legal counsel, does not currently anticipate that the ultimate liability, if
any, arising from these matters will have a material effect on First of
America's financial position.
NOTE 13: PREFERRED STOCK
On December 31, 1993, First of America redeemed all outstanding shares of its
Series F 9% Convertible Preferred Stock which represented the remainder of its
outstanding preferred issues. The Series F 9% Convertible Preferred Stock had
392,557 outstanding shares prior to redemption. All the shares were converted to
First of America Common Stock resulting in 2,355,342 shares being issued.
First of America has reserved 500,000 shares of preferred stock for issuance
as Series A Junior Participating Preferred Stock ("Series A Preferred") upon the
exercise of certain preferred stock purchase rights (each a "Right") issued to
holders of and in tandem with shares of the common stock. The description and
terms of the Rights are set forth in a Rights Agreement ("Rights Agreement"),
dated July 18, 1990, between First of America and First of America Bank --
Michigan, N.A., as Rights Agent. The Rights Agreement was filed with the
Securities and Exchange Commission as an exhibit to First of America's
Registration Statement dated July 18, 1990 on Form 8-A under the Securities
Exchange Act of 1934.
Generally, the Rights Agreement provides as follows. The Rights are not
exercisable until a distribution date, which occurs ten days after a person or
group (an "Acquiring Person") publicly announces acquisition of or commences a
tender offer which may result in the acquisition of beneficial ownership of 10
percent or more of the outstanding shares of First of America Common Stock (a
"Stock Acquisition Date"). If, following a Stock Acquisition Date, First of
America is merged with or engages in a business combination transaction with the
Acquiring Person or the Acquiring Person increases its beneficial ownership of
First of America Common Stock by more than one percent or engages in self
dealing, then
41
<PAGE> 42
holders of Rights, other than the Acquiring Person, will receive upon exercise
of each Right, common stock of First of America or of the entity surviving the
merger or business combination or other consideration with a value of two times
the exercise price of the right.
First of America may, at its option, at any time after a Stock Acquisition
Date and before an Acquiring Person becomes the beneficial owner of more than 50
percent of the outstanding shares of First of America Common Stock, elect to
exchange all outstanding Rights for shares of First of America Common Stock at
an exchange ratio of one share of First of America Common Stock per Right,
subject to adjustment to prevent dilution. At any time until twenty days
following the Stock Acquisition Date, First of America may redeem the Rights in
whole, but not in part, at a price of $.01 per Right. Until a Right is
exercised, the holder thereof, as such, will have no right as a shareholder of
First of America, including, without limitation, the right to vote or to receive
dividends. Other than those provisions relating to the principal economic terms
of the Rights, any of the provisions of the Rights Agreement may be amended by
First of America's Board of Directors prior to the distribution date.
If issued upon exercise of the Rights, shares of the Series A Preferred will
rank junior to any convertible preferred outstanding at such time. Each share of
Series A Preferred shall be entitled to 100 votes on all matters submitted to a
vote of the shareholders of the company. Additionally, in the event the company
fails to pay dividends on the Series A Preferred for four full quarters, holders
of the Series A Preferred have certain rights to elect additional directors of
the company. Except as described above, holders of the Series A Preferred have
no preemptive rights to subscribe for additional securities which the company
may issue. The Series A Preferred will not be redeemable. Each share of Series A
Preferred will, subject to the rights of any preferred stock the company may
issue ranking senior to the Series A Preferred, be entitled to preferential
quarterly dividends equal to the greater of $10.00, or subject to certain
adjustments, 100 times the dividend declared per share of common stock. Upon
liquidation of the company, holders of Series A Preferred will, subject to the
rights of senior securities, be entitled to a preferential liquidation payment
equal to $190.00 per share, plus accrued and unpaid dividends. In the event of
any merger, consolidation, or other transaction in which shares of common stock
are exchanged, each share of Series A Preferred will, subject to the rights of
senior securities, be entitled to receive 100 times the amount received per
share of common stock. The rights of the Series A Preferred are protected by
customary antidilution provisions.
NOTE 14: STOCK OPTION PLAN
The First of America Bank Corporation Restated 1987 Stock Option Plan is
administered by the Nominating and Compensation Committee of the Board of
Directors, none of whom is eligible to participate therein. Under the Plan
options to purchase up to 1,700,000 authorized but unissued shares of First of
America Common Stock may be issued through December 9, 1997.
The stock options are exercisable during the 10 year period, beginning on the
date of grant and may be granted at prices not less than the fair market value
on the date of grant.
The following is a summary of transactions which occurred during 1991, 1992
and 1993:
<TABLE>
<CAPTION>
Shares Under Option Price
Option Per Share
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1990............................................................ 548,768 $16.00-26.375
Granted..................................................................................... 192,800 27.50
Exercised................................................................................... (18,300)
Canceled.................................................................................... (18,268)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1991............................................................ 705,000 $16.00-27.50
Granted..................................................................................... 193,450 32.50
Exercised................................................................................... (37,367)
Canceled.................................................................................... (17,383)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1992............................................................ 843,700 $16.00-32.50
Granted..................................................................................... 176,000 40.00
Exercised................................................................................... (53,700)
Canceled.................................................................................... (11,367)
- ---------------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1993............................................................ 954,633 $16.00-40.00
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
42
<PAGE> 43
NOTE 15: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$200,700,000 in 1993, $137,369,000 in 1992 and $177,665,000 in 1991. Unless
prior regulatory approval is obtained, banking regulations limit the amount of
dividends that First of America's banking subsidiaries can declare during 1994,
to the 1994 net profits, as defined in the Federal Reserve Act, plus retained
net profits for 1993 and 1992, which amounted to $157,285,000. Under the FDIC
Improvement Act of 1991, there is incentive to maintain banks' capital at the
"well-capitalized" level. This may further restrict dividends in the future.
NOTE 16: EMPLOYEE PENSION PLAN
First of America and its subsidiaries have a defined benefit pension plan
that covers substantially all of its full-time employees. Benefits are based on
years of service and the employee's compensation.
Pension costs for the years 1993 and 1992 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1993, 1992 and 1991
equaled $6,508,000, $11,821,000 and $6,957,000, respectively.
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
December 31,
-------------------------
($ in thousands) 1993 1992
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits
of $251,265 for 1993 and $180,753 for 1992......................................................... $ 257,056 184,934
- ---------------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date........................................... 320,219 238,925
Plan assets at fair value, primarily listed stocks and U.S. Bonds................................... 359,500 315,038
--------- --------
Projected benefit obligation less than plan assets.................................................. 39,281 76,113
Unrecognized net gain............................................................................... (31,834) (47,229)
Unrecognized prior service cost..................................................................... 28,694 2,324
Unrecognized net assets being recognized over 15 years.............................................. (17,846) (19,791)
--------- --------
Prepaid pension included in other assets............................................................ $ 18,295 11,417
- ---------------------------------------------------------------------------------------------------------------------------------
NET PENSION COST INCLUDING THE FOLLOWING COMPONENTS:
Service cost....................................................................................... $ 9,196 9,328
Interest cost on projected benefit obligation...................................................... 21,822 17,791
Actual return on plan assets....................................................................... (46,209) (28,798)
Net amortization and deferral...................................................................... 21,111 7,223
- ---------------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost........................................................................... $ 5,920 5,544
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America's weighted-average discount rate was 7.0 percent at December
31, 1993 and 8 1/4 percent at December 31, 1992. The rate of increase in future
compensation levels used in determining the actuarial present value of the
projected benefit obligation was 5.00 percent at year-end 1993 and 6.00 percent
at year-end 1992. The expected long term rate of return on assets was 8.75
percent and 8.00 percent at December 31, 1993 and 1992, respectively. The
assumed rates in place at each year-end are used to determine the net periodic
pension cost for the following year.
NOTE 17: OTHER POSTRETIREMENT BENEFITS
First of America and its subsidiaries have a Retiree Medical Plan which
provides a portion of retiree medical care premiums. First of America's level of
contribution is based on an age and service formula.
First of America adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," as of
January 1, 1992. Postretirement benefit costs of $2,308,000 were recorded on a
cash basis for the year ended December 31, 1991.
43
<PAGE> 44
During 1993, First of America implemented several managed care initiatives
and redesigned its Preferred Provider Organization. This change was measured as
of December 31, 1993 and reduced the accumulated postretirement benefit
obligation as of that date by $4,807,000.
The following table presents the plan's funded status reconciled with amounts
recognized in First of America's Consolidated Balance Sheet at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
December 31,
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1993 1992
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.............................................................................................. $(19,991) (16,580)
Fully eligible active plan participants............................................................... (6,941) (9,153)
Other active plan participants........................................................................ (10,599) (9,888)
-------- -------
(37,531) (35,621)
Plan assets at fair value............................................................................. -- --
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets................................ (37,531) --
Unrecognized prior service cost....................................................................... (4,807) --
Unrecognized net loss................................................................................. 4,682 --
- ---------------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities..................................... $(37,656) (35,621)
- ---------------------------------------------------------------------------------------------------------------------------------
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1993 AND 1992 INCLUDE THE FOLLOWING COMPONENTS:
Service cost.......................................................................................... $ 1,116 1,129
Interest cost......................................................................................... 2,986 2,935
Net amortization and deferral......................................................................... (91) --
- ---------------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost.............................................................. $ 4,011 4,064
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 10.95 percent and 11.54 percent annual rates of increase
in the per capita cost of covered benefits (i.e., health care cost trend rate)
were assumed at December 31, 1993 and 1992, respectively; the 1993 rate was
further assumed to decline evenly to 5.0 percent in 2004. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 7.0 percent at December 31, 1993 and 8.5 percent at December 31,
1992. To determine First of America's net periodic postretirement benefit cost
for 1993 and 1992, a weighted average discount rate of 8.5 percent and the
health care trend rate of 11.54 percent were used.
The health care cost trend rate assumption has a significant effect on the
amounts reported. For example, increasing the assumed health care cost trend
rates by one percentage point in each year would increase the accumulated
postretirement benefit obligation as of December 31, 1993 by 5.2 percent and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for the year ended December 31, 1993 by 4.4 percent.
44
<PAGE> 45
NOTE 18: SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other than the items listed below, other operating income and other operating
expenses did not include any accounts that exceeded 1 percent of total revenue,
which is the sum of total interest income and total non-interest income.
<TABLE>
<CAPTION>
($ in thousands) 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Revolving loan fees -- interchange income.................................................. $ 30,104 27,555 23,989
Revolving loan fees -- merchant discount................................................... 22,994 18,995 17,897
Gains on sale of loans..................................................................... 29,456 15,230 5,246
Other operating income..................................................................... 30,939 36,171 30,458
- ---------------------------------------------------------------------------------------------------------------------------------
Total other operating income............................................................... $113,493 97,951 77,590
- ---------------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Services purchased......................................................................... $ 14,638 20,409 20,515
Office supplies............................................................................ 22,541 21,672 18,512
FDIC insurance............................................................................. 39,680 38,711 31,032
Advertising, business development and public relations..................................... 22,573 14,427 10,044
Postage.................................................................................... 16,291 16,585 16,038
Telephone.................................................................................. 17,300 15,899 13,877
Other...................................................................................... 95,052 88,655 70,889
- ---------------------------------------------------------------------------------------------------------------------------------
Total other operating expenses............................................................. $228,075 216,358 180,907
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 19: INCOME TAXES
First of America adopted Statement of Financial Accounting Standards No. 109
"Accounting for Income Taxes," effective January 1, 1992. The adoption of
Statement No. 109 did not result in any cumulative effect for the change in
accounting for income taxes to be reported in 1992. Prior years' financial
statements have not been restated to apply the provisions of Statement No. 109.
Income tax expense attributable to income from continuing operations consists
of:
<TABLE>
<CAPTION>
($ in thousands) Current Deferred Total
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1993:
U.S. Federal......................................................................... $ 99,184 (3,117) 96,067
State and local...................................................................... 787 1,720 2,507
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................ $ 99,971 (1,397) 98,574
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1992:
U.S. Federal......................................................................... $101,288 (9,782) 91,506
State and local...................................................................... -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................ $101,288 (9,782) 91,506
- ---------------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1991:
U.S. Federal......................................................................... $ 72,010 (7,385) 64,625
State and local...................................................................... -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................ $ 72,010 (7,385) 64,625
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
45
<PAGE> 46
Income tax expense attributable to income from continuing operations was
$98,574,000, $91,506,000 and $64,625,000 for the years ended December 31, 1993,
1992 and 1991 respectively, and differed from the amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income from operations
for 1993 and 34 percent for 1992 and 1991 as a result of the following:
<TABLE>
<CAPTION>
($ in thousands) 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense...................................................... $121,086 88,774 76,191
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income............................................. (12,738) (13,017) (16,394)
Change in the beginning-of-the-year balance of the valuation allowance for deferred
tax assets allocated to income tax expense.......................................... (9,686) (2,507) --
Alternative minimum tax credits utilized............................................ (5,675) -- --
State and local tax expense, net of federal tax benefit............................. 1,630 -- --
Amortization of goodwill............................................................ 3,116 13,034 3,677
Other, net.......................................................................... 841 5,222 1,151
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................ $ 98,574 91,506 64,625
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax expense attributable to
income from continuing operations for the year ended December 31, 1993 and 1992
are as follows:
<TABLE>
<CAPTION>
December 31,
---------------------
($ in thousands) 1993 1992
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of the effects of other components below)............................... $ 8,289 (7,275)
Decrease in beginning-of-the-year balance of the valuation allowance for deferred tax assets............ (9,686) (2,507)
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................................... $ (1,397) (9,782)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
For the year ended December 31, 1991, a deferred income tax benefit of
$7,385,000 resulted from timing differences in the recognition of income and
expense for income tax and financial reporting purposes. The sources and tax
effects of those timing differences are presented below:
<TABLE>
<CAPTION>
($ in thousands) 1991
<S> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Difference between tax loan loss deductions and amounts included in operating expenses............................... $ (3,664)
Accretion of discount on investment securities....................................................................... (480)
Recapture of the difference between cash and accrual basis for certain subsidiary banks.............................. (48)
Tax depreciation in excess of book................................................................................... 253
Recapture of tax loan loss reserve................................................................................... (1,035)
Net pension adjustment............................................................................................... (372)
Accrued writedown of assets.......................................................................................... 225
Deferral of net loan fees............................................................................................ (516)
Other items -- net................................................................................................... (1,748)
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................................................................................................ $ (7,385)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The securities transactions tax effect for 1993, 1992 and 1991 was
$6,524,000, $5,574,000 and $1,373,000, respectively.
46
<PAGE> 47
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1992 are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
($ in thousands) 1993 1992
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Book loan loss deduction in excess of tax............................................................... $ 66,505 60,249
Deferred compensation................................................................................... 5,091 4,676
Deferred loan fees...................................................................................... 8,541 5,859
Employee benefits....................................................................................... 4,815 9,751
Other real estate expenses not allowed for tax purposes................................................. 2,849 3,695
Nonaccrual loan income.................................................................................. 3,621 4,321
State net operating loss carry forwards................................................................. -- 6,182
Net capital loss carry forwards......................................................................... 883 4,387
Expenses not currently deductible for tax purposes...................................................... 5,072 8,722
Other................................................................................................... 6,279 6,062
-------- --------
Total gross deferred tax assets......................................................................... 103,656 113,904
Less valuation allowance................................................................................ (883) (10,569)
-------- --------
Net deferred tax assets................................................................................. 102,773 103,335
-------- --------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation............................................... (7,017) (6,887)
Discount accretion on investment securities............................................................. (1,670) (2,426)
Market value adjustment on investment securities available for sale..................................... (17,263) --
Tax loan loss reserve to be recaptured.................................................................. (10,095) (12,533)
Other................................................................................................... (3,763) (2,658)
-------- --------
Total gross deferred liabilities........................................................................ (39,808) (24,504)
- ---------------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset.................................................................................. $ 62,965 78,831
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1993 was
$10,569,000. The net change in the total valuation allowance for the year ended
December 31, 1993 was a decrease of $9,686,000.
Subsequently recognized tax benefits of $883,000 relating to the valuation
allowance for deferred tax assets as of December 31, 1993 will be allocated to
the income tax benefit that would be reported in the consolidated statement of
earnings.
NOTE 20: EARNINGS PER SHARE CALCULATION
The weighted average number of shares used in the determination of earnings
per share were:
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
Common and common equivalents................................................... 57,416,771 54,841,762 53,536,154
Fully diluted................................................................... 59,772,113 59,559,956 59,083,334
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Common and common equivalents per share amounts were calculated by dividing
net income applicable to common shares by the weighted average number of common
shares outstanding during the respective periods adjusted for the portion of
stock options which were considered common equivalents, 305,240 in 1993, 212,463
in 1992 and 138,433 in 1991. Fully diluted earnings per share calculations were
based on the assumption that all outstanding preferred stock was converted into
common stock and the preferred dividends on these shares eliminated. In
addition, the average fully diluted earnings per share included the portion of
stock options which were considered common equivalents, 305,240 in 1993, 303,947
in 1992 and 190,777 in 1991.
On December 31, 1993 and 1992, there were 59,520,710 and 57,014,117 common
shares outstanding, respectively. At the same dates there were 100,000,000
authorized shares of $10 par value common stock. On October 20, 1993, First of
America's Board of Directors called for the
47
<PAGE> 48
redemption on December 31, 1993 of all outstanding shares of the company's
Series F 9% Convertible Preferred Stock. Notice of the redemption resulted in
the issuance of 2,355,342 shares of First of America Common Stock upon
shareholders' exercise of the conversion privilege before the redemption date.
NOTE 21: FAIR VALUE DISCLOSURE
The Financial Accounting Standards Board's Statement No. 107, "Disclosure
about Fair Value of Financial Instruments," requires disclosure of fair value
information for financial instruments, whether or not recognized in the balance
sheet, for which it is practicable to estimate that value. In cases where quoted
market prices were not available, fair values were based on estimates using
present value or other valuation techniques. Those techniques are significantly
affected by the assumptions used. Accordingly, the aggregate fair value amounts
presented do not represent the underlying value of First of America.
For purposes of this disclosure, estimated fair value of financial
instruments with short-term maturities is assumed to equal the recorded book
value. These financial instruments include cash and short term investments,
accrued interest receivable and payable and short term borrowings. Estimated
fair values for other financial instruments were determined as follows:
Loans Held for Sale:
Fair value for loans held for sale was based on quoted market prices. If a
quoted market price was not available, the fair value was estimated using market
prices for similar assets.
Securities:
Fair values for Held to Maturity and Available for Sale securities were based
on quoted market prices. If a quoted market price was not available, fair value
was estimated using quoted market prices for similar securities.
Loans Receivable:
For variable rate loans that reprice frequently and for which there has been
no significant change in credit risk, fair values equal carrying values. The
fair values for fixed rate loans were based on estimates using discounted cash
flow analyses and current interest rates being offered for loans with similar
terms to borrowers of similar credit quality. The carrying amount of accrued
interest approximates its fair value.
Deposit Liabilities:
The fair values disclosed for demand deposits with no stated maturity (e.g.,
interest and non-interest checking, passbook savings and certain types of money
market accounts) were, by definition, equal to the amount payable on demand at
the reporting date. The carrying amounts for variable rate, fixed-term money
market accounts and certificates of deposits with less than twelve months
maturities approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit with maturities greater than twelve months
are estimated using a discounted cash flow calculation that applied interest
rates being offered on the same or similar certificates at the reporting date to
a schedule of aggregated expected maturities on the certificates of deposits.
Long Term Borrowings:
Fair values for First of America's long term debt (other than deposits) was
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the company for debt of the same remaining
maturities.
Off Balance Sheet Instruments:
Fair values for unused commitments were estimated using the fees charged to
enter into similar agreements at the reporting date, taking into account the
remaining terms of the agreements and the present credit worthiness of the
counterparties. Fair values for guarantees and letters of credit were based on
fees charged for similar agreements.
The fair value of forward delivery commitments, foreign exchange contracts
and interest rate swaps is estimated, using dealer quotes, as the amount that
the corporation would receive or pay to execute a new agreement with terms
identical to those remaining on the current agreement, considering current
interest rates.
48
<PAGE> 49
First of America has mandatory commitments to deliver loans totalling $373.3
million which are at prevailing market rates. First of America attributes no
value to these commitments at December 31, 1993.
The estimated fair values of First of America's financial instruments for
which the fair value differs from the recorded book value for December 31, 1993
and 1992 were as follows:
<TABLE>
<CAPTION>
December 31, 1993 December 31, 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Recorded Estimated Recorded Estimated
($ in millions) Book Value Fair Value Book Value Fair Value
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Securities:
Held to maturity................................................ $ 1,857 1,872 3,490 3,543
Available for sale.............................................. 3,261 3,261 -- --
Held for sale................................................... -- -- 1,137 1,154
Loans, net........................................................ 13,840 14,062 13,516 13,761
Loans held for sale............................................... 366 369 63 64
FINANCIAL LIABILITIES:
Deposits*......................................................... (18,244) (18,307) (18,036) (18,088)
Long term borrowings.............................................. (254) (264) (254) (261)
Off-balance sheet instruments...................................... -- 13 (10)
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* SFAS No. 107 defines the fair value of demand deposits as the amount payable
on demand, and prohibits adjusting fair value for any value derived from
retaining those deposits for an expected future period of time.
49
<PAGE> 50
NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1993 and 1992, and the statements of
income and statements of cash flows for the three years ended December 31, 1993
follow.
<TABLE>
<CAPTION>
December 31
----------------------------
($ in thousands) 1993 1992
<S> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary banks................................... $ 23,745 16,024
Investment in subsidiaries.................................................................... 1,502,614 1,479,296
Other Assets.................................................................................. 306,829 130,364
- -----------------------------------------------------------------------------------------------------------------------------
Total Assets.................................................................................. $1,833,188 1,625,684
- -----------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable and other liabilities........................................................ $ 70,136 61,688
Long-term debt................................................................................ 239,615 228,505
----------- -----------
Total Liabilities............................................................................. 309,751 290,193
----------- -----------
SHAREHOLDERS' EQUITY
Non-redeemable preferred stock................................................................ -- 74,586
Common stock.................................................................................. 595,207 570,141
Surplus....................................................................................... 265,596 211,290
Net unrealized gain on securities available for sale, net of tax of $17,263................... 31,531 --
Retained earnings............................................................................. 631,103 479,474
----------- -----------
Total shareholders' equity.................................................................... 1,523,437 1,335,491
- -----------------------------------------------------------------------------------------------------------------------------
Total Liabilities and Equity.................................................................. $1,833,188 1,625,684
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------
($ in thousands) 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries................................................................. $ 205,891 128,275 173,098
Interest and other income................................................................... 291,798 217,649 184,308
--------- ------- -------
Total operating income...................................................................... 497,689 345,924 357,406
--------- ------- -------
EXPENSES
Interest on borrowed money.................................................................. 19,597 18,434 10,676
Salaries and employee benefits.............................................................. 134,734 101,873 88,588
Amortization of intangibles................................................................. 5,095 5,475 1,237
Other operating expenses.................................................................... 171,937 143,031 118,586
--------- ------- -------
Total operating expenses.................................................................... 331,363 268,813 219,087
--------- ------- -------
Income before income taxes, undistributed earnings of subsidiaries
and cumulative effect of change in accounting principle.................................... 166,326 77,111 138,319
Applicable income tax benefit............................................................... 14,084 13,614 11,187
--------- ------- -------
180,410 90,725 149,506
Equity in undistributed earnings of subsidiaries............................................ 66,975 61,062 9,958
--------- ------- -------
Income before cumulative effect of change in accounting principle........................... 247,385 151,787 159,464
Cumulative effect of change in accounting principle, net of tax of $2,196................... -- (4,263) --
- ---------------------------------------------------------------------------------------------------------------------------------
NET INCOME.................................................................................. $ 247,385 147,524 159,464
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
50
<PAGE> 51
<TABLE>
<CAPTION>
December 31,
-----------------------------------
($ in thousands) 1993 1992 1991
<S> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................................ $ 247,385 147,524 159,464
Adjustment to reconcile net income to net cash provided by operating activities........... (125,584) (41,629) 1,712
--------- -------- --------
Net cash from operating activities........................................................ 121,801 105,895 161,176
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased.......................................................... (46,724) (22,085) (44,689)
Proceeds from sale of premises & equipment................................................ 600 3,270 58
(Acquisition)/sale of affiliates.......................................................... -- 12,000 (7,403)
Capital infusions, net of redemptions..................................................... (6,535) (35,165) (104,627)
--------- -------- --------
Net cash from investing activities........................................................ (52,659) (41,980) (156,661)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt.................................................. 222,000 150,000 133,780
Repayment of long term debt............................................................... (190,891) (123,878) (70,704)
Proceeds from issuance of common stock.................................................... 1,132 2,883 1,003
Redemption of preferred stock............................................................. -- (3,567) --
Dividends paid............................................................................ (93,333) (83,824) (73,079)
Other, net................................................................................ (329) (105) --
--------- -------- --------
Net cash from financing activities........................................................ (61,421) (58,491) (9,000)
--------- -------- --------
Net increase (decrease) in cash........................................................... 7,721 5,424 (4,485)
Cash at beginning of year................................................................. 16,024 10,600 15,085
- ---------------------------------------------------------------------------------------------------------------------------------
Cash at Year End.......................................................................... $ 23,745 16,024 10,600
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
51
<PAGE> 52
Supplemental Information (Unaudited)
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share:
Primary............................................... $ 25.60 22.12 20.58 18.97 17.52
Fully diluted......................................... 25.60 22.49 21.47 20.02 18.75
Common shares outstanding:
Weighted average...................................... 57,416,771 54,841,762 53,536,154 52,621,736 52,684,571
Year end.............................................. 59,520,710 57,014,117 53,537,438 53,263,184 52,777,423
Market price of common stock:
High.................................................. $ 43.250 37.875 31.750 26.000 28.000
Low................................................... 36.500 29.000 18.250 15.375 19.125
Year end.............................................. 39.250 37.875 29.375 21.250 23.500
Number of shares traded (in thousands)................ 13,708 14,284 13,612 15,768 17,470
Price earnings ratio*................................. 9.3x 15.4 9.1 8.1 9.3
Dividend yield (at year end).......................... 4.08% 3.70 4.36 5.65 4.57
NON-FINANCIAL DATA
Number of common shareholders*........................ 28,400 23,800 17,815 16,700 17,200
Number of banking subsidiaries*....................... 20 23 26 33 42
Number of banking offices*............................ 572 551 487 450 415
Number of employees (FTE)*............................ 13,330 12,940 13,404 10,387 9,777
Number of automated teller machines*.................. 531 498 400 319 305
RETURN ON EQUITY AND ASSETS
Return on average total assets........................ 1.20% 0.75 0.95 0.98 1.02
Return on average common shareholders' equity......... 18.01 11.67 13.66 14.52 15.06
Return on average total shareholders' equity.......... 17.50 11.38 13.07 13.70 14.07
Common stock dividend payout rate..................... 35.71 53.25 45.35 43.13 41.67
Average common shareholders' equity as a percent
of total average assets.............................. 6.52 5.91 6.28 6.01 5.94
Average shareholders' total equity as a percent
of total average assets.............................. 6.88 6.63 7.26 7.14 7.24
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior years numbers not restated.
52
<PAGE> 53
<TABLE>
<CAPTION>
Quarterly Information (Unaudited)
($ in millions except per share data)
1993 Quarters 1992 Quarters
- ---------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Total interest income (FTE)............. $ 380.4 383.7 387.5 382.4 398.2 405.1 404.4 413.6
Total interest expense.................. 147.1 150.6 154.5 156.6 165.2 177.0 183.2 196.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (FTE)............... 233.3 233.1 233.0 225.8 233.0 228.1 221.2 217.6
Provision for loan losses............... 20.4 20.5 20.0 23.8 21.0 19.5 20.3 18.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
(FTE).................................. 212.9 212.6 213.0 202.0 212.0 208.6 200.9 199.6
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts..... 21.5 21.3 21.7 20.1 20.7 20.1 19.7 19.1
Trust income............................ 19.9 19.2 19.6 18.6 17.4 17.0 17.5 17.0
Investment securities transactions...... 4.4 2.7 2.5 7.2 4.3 4.5 2.5 3.7
Other operating income.................. 31.7 30.3 25.6 25.9 27.5 26.2 22.0 22.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest income............... 77.5 73.5 69.4 71.8 69.9 67.8 61.7 62.0
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages...................... 85.9 84.6 83.0 80.2 82.6 82.6 86.8 80.2
Employee benefits....................... 15.8 16.2 18.9 18.5 17.4 18.0 23.0 20.2
- ---------------------------------------------------------------------------------------------------------------------------------
Total personnel costs................... 101.7 100.8 101.9 98.7 100.0 100.6 109.8 100.4
Occupancy, net.......................... 14.1 13.7 13.0 14.2 14.2 14.5 14.6 14.0
Equipment............................... 14.0 12.7 13.1 13.5 13.9 14.4 20.4 14.6
Data processing......................... 3.5 4.1 3.8 3.6 2.1 2.7 2.9 2.8
Amortization of intangibles............. 2.6 2.2 2.1 2.0 29.4 3.1 3.0 2.8
Other operating expenses................ 58.2 59.5 57.2 53.5 50.8 51.4 62.6 51.4
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense.............. 194.1 193.0 191.1 185.5 210.4 186.7 213.3 186.0
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax (FTE).......... 96.3 93.1 91.3 88.3 71.5 89.7 49.3 75.6
Less: FTE adjustment.................... 5.7 6.8 5.3 5.3 6.2 5.9 6.1 6.8
- ---------------------------------------------------------------------------------------------------------------------------------
Actual income before tax................ 90.6 86.3 86.0 83.0 65.3 83.8 43.2 68.8
Applicable income tax expense........... 24.8 22.9 26.4 24.4 29.0 26.5 15.2 20.8
- ---------------------------------------------------------------------------------------------------------------------------------
Net income before FAS 106............... 65.8 63.4 59.6 58.6 36.3 57.3 28.0 48.0
FAS 106 transition obligation (net of
tax)................................... -- -- -- -- -- -- -- 22.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net income.............................. $ 65.8 63.4 59.6 58.6 36.3 57.3 28.0 26.0
- ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock... $ 64.7 61.7 57.9 56.9 34.6 54.2 24.1 22.1
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Earnings per common share:
Primary................................. $ 1.13 1.07 1.01 0.99 0.61 0.99 0.45 0.41
Fully diluted........................... 1.10 1.06 1.00 0.98 0.61 0.96 0.45 0.41
Common stock cash dividend paid......... 0.40 0.40 0.35 0.35 0.35 0.32 0.32 0.32
Market price of Common Stock:
High.................................... 42.875 42.500 43.250 42.875 37.875 35.375 34.125 31.500
Low..................................... 36.500 36.875 36.875 37.250 31.500 30.625 29.000 29.000
Period-end.............................. 39.250 42.375 39.875 42.375 37.875 32.500 33.250 30.625
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
53
<PAGE> 54
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Reference is made to the information under the headings "Election of
Directors" on pages 2 through 4 and "Other Matters" on page 20 of the
Registrant's definitive Proxy Statement for the Annual Meeting of Shareholders
to be held in 1994. Such information is incorporated herein by reference. The
information concerning executive officers of the Registrant appears on page 5 of
this document.
ITEM 11. EXECUTIVE COMPENSATION
Reference is made to the information under the headings "Meetings and
Committees of the Board of Directors" and those portions of the information
under the heading "Executive Compensation," other than the "Compensation
Committee Report on Executive Compensation" and the "Performance Graph," on
pages 6 through 16 of the Registrant's definitive Proxy Statement for the Annual
Meeting of Shareholders to be held in 1994. Such information is incorporated
herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Reference is made to the information in the Registrant's definitive Proxy
Statement for the Annual Meeting of Shareholders to be held in 1994 under the
headings "Principal Shareholders" on page 2 and "Election of Directors" on pages
2 through 4 regarding ownership of the Registrant's securities. Such information
is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Reference is made to the information under the heading "Interest of
Management in Certain Transactions" on page 16 of the Registrant's definitive
Proxy Statement for the Annual Meeting of Shareholders to be held in 1994. Such
information is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as a part of this report:
1. Financial Statements
Report of Independent Auditors
Consolidated Balance Sheets -- December 31, 1993 and 1992
Consolidated Statements of Income -- three years ended December 31,
1993
Consolidated Statements of Changes in Shareholders' Equity -- three
years ended December 31, 1993
Consolidated Statements of Cash Flows -- three years ended December 31,
1993
Notes to Consolidated Financial Statements
The above listed auditor's report, consolidated financial statements and
notes to consolidated financial statements are included under "Item 8.
Financial Statements and Supplementary Data" of this document.
2. Financial statement schedules required by Article 9 of Regulation S-X are
inapplicable.
3. Exhibits required by Item 601 of Regulation S-K.
54
<PAGE> 55
(3) Articles of Incorporation and Bylaws
A. A copy of the Restated Articles of Incorporation of the Registrant
was filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended September 30, 1992, and is incorporated herein by
reference.
B. A copy of the Bylaws of the Registrant as currently in effect was
filed as an Exhibit to the Registrant's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1992, and is incorporated herein by
reference.
(4) Instruments defining the rights of security holders, including indentures
A. Instruments defining the rights of security holders are included in
the Registrant's Articles of Incorporation and Bylaws. See (3) A and B
above.
B. A copy of the Rights Agreement between the Registrant and First of
America Bank - Michigan, N.A., as Rights Agent, dated as of July 18, 1990,
was filed as an Exhibit to the Registrant's Current Report on Form 8-K,
dated July 18, 1990, and is incorporated herein by reference.
C. A copy of the Subordinated Indenture between the Registrant, as
Issuer, and Continental Bank, National Association, as Trustee, dated as
of November 1, 1991, was filed as an Exhibit to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1991, and is
incorporated herein by reference.
D. The Registrant is a party to various other instruments defining the
rights of holders of long term debt, none of which authorizes securities
in excess of 10 percent of the total assets of the Registrant and its
subsidiaries on a consolidated basis. None of such instruments (except
such as may be filed under (10) Material Contracts) are filed with this
Report. The Registrant hereby agrees to furnish a copy of any such
instrument to the Commission upon request.
(9) Voting trust agreement.
Not applicable.
(10) Material contracts
A. A copy of the $100,000,000 Credit Agreement dated as of April 21,
1989, between the Registrant and the Security Pacific National Bank as
agent for five banks was filed as an Exhibit to the Registrant's Quarterly
Report on Form 10-Q dated June 30, 1989, and is incorporated herein by
reference.
B. A copy of the Promissory Note dated as of December 6, 1993, between
the Registrant and Continental Bank, N.A. for an amount of $35,000,000 is
filed herewith as an Exhibit.
C.* A copy of the First of America Bank Corporation Annual Incentive
Compensation Plan for Key Corporate and Affiliate Executives was filed as
Exhibit (10)A to the Registrant's Annual Report on Form 10-K for the year
ended December 31, 1988 and is incorporated herein by reference, and a
copy of the Amendment to this document was filed as Exhibit (10) to the
Registrant's Quarterly Report on Form 10-Q dated September 30, 1990, and
is incorporated herein by reference.
D.* A copy of the Registrant's Unfunded Deferred Excess Benefit Plan as
adopted during 1990 was filed as Exhibit (10) to the Registrant's
Quarterly Report on Form 10-Q dated September 30, 1990, and is
incorporated herein by reference.
E.* A copy of the Registrant's Supplemental Retirement Plan to
Compensate for Nonqualified Savings Deferrals is filed herewith as an
Exhibit.
F.* A copy of the Registrant's Supplemental Savings Plan and the
Amendment to this document was filed as Exhibit (10) to the Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992 and is
incorporated herein by reference.
G.* A copy of The Restated First of America Bank Corporation 1987 Stock
Option Plan, as amended and adopted by the Board of Directors and
recommended for approval by the company's shareholders on April 20, 1994,
is filed herewith as an Exhibit.
- ---------------
* Denotes management contracts and compensatory arrangements required to be
filed as Exhibits and in which the Registrant's executive officers participate.
55
<PAGE> 56
H.* A copy of First of America's Long-Term Incentive Plan as amended
and restated for performance periods commencing July 1, 1988, and
thereafter, was filed as Exhibit (10)F to the Registrant's Registration
Statement on Form S-4 filed July 28, 1988 (Reg. No. 33-23365) and is
incorporated herein by reference, and a copy of the Amendment to this
document was filed as Exhibit (10) to the Registrant's Quarterly Report on
Form 10-Q dated September 30, 1990, and is incorporated herein by
reference.
I.* A copy of the composite form of the Management Continuity Agreement
entered into by the Registrant and its executive and certain other senior
officers of the Registrant was filed as Exhibit (10) to the Registrant's
Quarterly Report on Form 10-Q dated September 30, 1990, and is
incorporated herein by reference.
J.* A copy of First of America's Executive Management Trust Agreement,
intended to fund benefits under the Management Continuity Agreements (see
Exhibit (10)I above) was filed as Exhibit 10(H) to the Registrant's Annual
Report on Form 10-K for the year ended December 31, 1989, and is
incorporated herein by reference.
(11) Statement re computation of per share earnings
The computation of common and common equivalents and fully diluted
earnings per share is described in Note 20 of the Registrant's Notes to
Consolidated Financial Statements included in "Item 8. Financial Statements
and Supplementary Data" of this document.
(12) Statement re computation of ratios
Not applicable.
(13) Annual Report to Security Holders, Form 10-Q or Quarterly Report to
Security Holders.
Not applicable.
(16) Letter re change in certifying accountant
Not applicable.
(18) Letter re change in accounting principles
Not applicable.
(21) Subsidiaries of the Registrant
- ---------------
* Denotes management contracts and compensatory arrangements required to be
filed as Exhibits and in which the Registrant's executive officers participate.
56
<PAGE> 57
The subsidiaries of the Registrant as of the date of this document are as
follows:
<TABLE>
<CAPTION>
Name Place of Incorporation
------------------------------------------------------------------------------- ----------------------
<S> <C>
First of America Bank -- Ann Arbor Michigan
First of America Bank -- Central Michigan
First of America Bank -- Champaign County, N.A. United States
First of America Bank -- Decatur, N.A. United States
First of America Bank -- Indiana Indiana
First of America Bank -- Kankakee/Will County, N.A. United States
First of America Bank -- Northwest Indiana United States
First of America Bank -- Northeast Illinois, N.A. United States
First of America Bank -- Champion, N.A. United States
First of America Bank -- Michigan, N.A. United States
First of America Bank -- Mid Michigan, N.A. United States
First of America Bank -- Northern Michigan Michigan
First of America Bank -- Illinois, N.A. United States
First of America Bank -- Quad Cities, N.A. United States
First of America Bank -- North Central Illinois, N.A. United States
First of America Bank -- Southeast Michigan, N.A. United States
First of America Bank -- Springfield, N.A. United States
First of America Bank -- Upper Peninsula, N.A. United States
First of America Bank -- West Michigan Michigan
First of America Bank -- Security Michigan
First of America Brokerage Service, Inc. Michigan
First of America Community Development Corporation Michigan
First of America Insurance Company Arizona
First of America Mortgage Company Michigan
First of America Investment Corporation Michigan
First of America Bank Corporation -- Indiana Indiana
First of America Trust Company Illinois
FOA Investco -- Central, Inc. Michigan
FOA Investco -- Indiana, Inc. Michigan
FOA Investco -- Northwest Indiana, Inc. Michigan
FOA Investco -- Mid Michigan, Inc. Michigan
FOA Investco -- Michigan, Inc. Michigan
FOA Investco -- Southeast Michigan, Inc. Michigan
FOA Investco -- Southgate, Inc. Michigan
FOA Investco -- Ann Arbor, Inc. Michigan
FOA Investco -- Northern Michigan, Inc. Michigan
FOA Investco -- Upper Peninsula, Inc. Michigan
FOA Investco -- Illinois, Inc. Michigan
FOA Investco -- Champaign, Inc. Michigan
FOA Investco -- West Michigan, Inc. Michigan
CNB Investment Company Michigan
Frankenmuth Bank & Trust Realty Company Michigan
Commercial National Development Co. Delaware
First of America Information Systems, Inc. Illinois
</TABLE>
57
<PAGE> 58
<TABLE>
<CAPTION>
Name Place of Incorporation
---- ----------------------
<S> <C>
C F Service Corporation Illinois
FOA Mortgage Company Arizona
Champion Properties,Inc. Illinois
SecureData Corporation Michigan
</TABLE>
(22) Published report regarding matters submitted to a vote of security
holders.
Not applicable.
(23) Consents of experts
Consent of KPMG Peat Marwick
(24) Power of Attorney
Power of Attorney signed by various directors of the Registrant
authorizing Daniel R. Smith or Richard F. Chormann or Thomas W. Lambert to
sign this Report on their behalf.
(27) Financial Data Schedule
Not applicable.
(28) Information from reports furnished to state insurance regulatory
authorities.
Not applicable.
(99) Additional exhibits.
Not applicable.
(b) Reports on Form 8-K
No Reports on Form 8-K were filed by the Registrant during the three months
ended December 31, 1993.
(c) Exhibits
An Exhibit Index and Exhibits are attached to this Report.
(d) Financial Statement Schedules
Financial Statement Schedules are inapplicable. See Item 14 (a) 2 above.
58
<PAGE> 59
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 OF AMERICA BANK CORPORATION
By: /s/ DANIEL R. SMITH
Daniel R. Smith,
Chairman and Chief Executive
Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- ---------------------------------------------- -------------------------------------- --------------
<C> <S> <C>
/s/ DANIEL R. SMITH Director, Chairman and Chief March 3, 1994
------------------------ Executive Officer
Daniel R. Smith
/s/ THOMAS W. LAMBERT Executive Vice President March 3, 1994
------------------------ and Chief Financial Officer
Thomas W. Lambert (Principal Financial Officer and
Principal Accounting Officer)
<CAPTION>
*DIRECTORS
<S> <C> <C>
Jon E. Barfield Robert L. Hetzler George S. Nugent
John W. Brown Dorothy A. Johnson Gregory C. Smith
Richard F. Chormann J. Michael Kemp James S. Ware
Joseph J. Fitzsimmons Richard Krafft, Jr. James W. Wogsland
Joel N. Goldberg Martha M. Mertz Walter J. Wolpin
Clifford L. Greenwalt F. Karl Neumann
</TABLE>
*By: /s/ THOMAS W. LAMBERT
- -----------------------------------
Attorney in Fact
59
<PAGE> 60
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL
Page Number Graphic Material
- ----------- ----------------
7 Bar graph depicting growth of company's fully diluted
earnings per share from 1989 to 1993.
1989 1990 1991 1992 1993
----- ----- ----- ----- -----
Earnings per share $2.52 $2.62 $2.69 $2.46 $4.14
The 1992 bar also indicates earnings per share of
$3.68 based on ongoing operations.
7 Bar graph comparing company's return on equity with
that of its peer group from 1989 to 1993.
1989 1990 1991 1992 1993
------ ----- ----- ----- -----
First of America 14.07% 13.70 13.07 11.38 17.50
Peer Group 15.29 13.79 14.40 14.76 15.98
The graph also shows First of America's 1992 return on
average total equity of 16.42 percent based on ongoing
operations.
15 Bar graph comparing the efficiency ratio of the
company with that of its peer group from 1989 to 1993.
1989 1990 1991 1992 1993
------ ----- ----- ----- -----
First of America 66.51% 67.44 67.25 68.58 62.72
Peer Group 64.53 64.92 64.04 66.03 65.71
The graph also indicates First of America's 1992
efficiency ratio of 63.80 percent based on ongoing
operations.
17 Bar graph comparing the company's nonperforming assets
as a percent of loans plus OREO with that of its peer
group from 1989 to 1993.
1989 1990 1991 1992 1993
----- ---- ---- ---- ----
First of America 0.87% 0.95 1.27 1.42 1.26
Peer Group 1.68 2.43 2.44 1.95 1.22
24 Bar graph depicting growth of company's return on
average assets from 1989 to 1993.
1989 1990 1991 1992 1993
----- ---- ---- ---- ----
Return on average assets 1.02% 0.98 0.95 0.75 1.20
The graph also indicates First of America's 1992
return on average assets of 1.12 percent based on
ongoing operations.
<PAGE> 61
<TABLE>
<CAPTION>
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
- ------ -------
<S> <C>
10(b) A copy of the Promissory Note dated as of December 6, 1993, between the Registrant and Continental Bank,
N.A. for an amount of $35,000,000 is filed herewith as an Exhibit.
10(e)* A copy of the Registrant's Supplemental Retirement Plan to Compensate for Nonqualified Savings Deferrals
is filed herewith as an Exhibit.
10(g)* A copy of The Restated First of America Bank Corporation 1987 Stock Option Plan, as amended, is filed
herewith as an Exhibit.
11 The computation of common and common equivalents and fully diluted earnings per share is described in Note
20 of the Registrant's Notes to Consolidated Financial Statements included in "Item 8. Financial
Statements and Supplementary Data" of this document.
23 Consent of KPMG Peat Marwick
24 Power of Attorney signed by various directors of the Registrant authorizing Daniel R. Smith or Richard F.
Chormann or Thomas W. Lambert to sign this Report on their behalf.
</TABLE>
- ---------------------
* Denotes management contracts and compensatory arrangements required to be
filed as Exhibits and in which the Registrant's executive officers
participate.
<PAGE> 1
Exhibit 10b
231 South LaSalle Street
Chicago, Illinois 60697
312-828-4682
FAX: 312-987-6982
Jennings F. Werner
Vice President
Financial Institutions
CONTINENTAL BANK
December 6, 1993
First of America Bank Corporation
211 South Rose Street
Kalamazoo, MI 49007
Re: Promissory Note of First of America Bank Corporation dated as of
December 11, 1991
Gentlemen:
We hereby agree to a second amendment of the Promissory Note (the "Note") dated
December 11, 1991 by the deletion of the Due Date "December 6, 1993" wherever
it may appear and the substitution therefor of the Due Date "December 5, 1994".
As hereby amended the Note and all other terms and conditions shall remain in
full force and effect.
Please acknowledge your agreement by signing and returning a copy of this
letter.
Regards.
/s/ JENNINGS F. WERNER AGREED AND ACCEPTED
-------------------
FIRST OF AMERICA BANK
---------------------
CORPORATION
-----------
BY: /s/ SAMUEL G. STONE
-------------------------
Samuel G. Stone
TITLE: Senior Vice President
----------------------------
& Treasurer
DATE: December 6, 1993
----------------------
<PAGE> 1
Exhibit 10e
FIRST OF AMERICA BANK CORPORATION
SUPPLEMENTAL RETIREMENT PLAN TO COMPENSATE FOR
NONQUALIFIED SAVINGS DEFERRALS
WHEREAS, First of America Bank Corporation ("FABC"), a Michigan bank holding
corporation, maintains the First of America Bank Corporation Employees'
Retirement Plan (Pension Plan), a qualified defined benefit pension plan for
its employees and employees of affiliated banks and other subsidiaries, and
WHEREAS, FABC has entered into nonqualified deferred compensation agreements
(the Agreements) with certain employees who are members of a select group of
management and highly compensated employees; and
WHEREAS, FABC has also adopted the First of America Bank Corporation
Supplemental Savings Plan (the Supplemental Savings Plan), an unfunded,
nonqualified plan designed primarily for the purpose of providing deferred
compensation opportunities to a select group of management and highly
compensated employees; and
WHEREAS, the amount of a participant's compensation that may be considered in
calculating retirement benefits under the Pension Plan does not include
compensation deferred by FABC employees pursuant to the Agreements and the
Supplemental Savings Plan; and
WHEREAS, effective January 1, 1989, the amount of a participant's annual
compensation that may be considered in calculating retirement benefits under
the Pension Plan is limited to $200,000 (or such greater amount, as adjusted
for inflation) by Section 401(a)(17) of the Internal Revenue Code of 1986 (the
Code); and
WHEREAS, FABC wishes to establish an unfunded, nonqualified supplemental
executive retirement plan to provide pension benefits to the above described
employees, who are members of a select group of management and highly
compensated employees, equivalent to the amount by which their accrued benefits
under the Pension Plan are limited due to their participation in the
Supplemental Savings Plan and the Agreements (for any such deferrals on or
after July 1, 1988) and due to the limit on compensation imposed by Section
401(a)(17) of the Code (the 401(a)(17) Limitation).
NOW THEREFORE, effective July 1, 1989, FABC adopts the First of America Bank
Corporation Supplemental Retirement Plan to Compensate for Nonqualified Savings
Deferrals (the Plan) to provide as follows:
1. PURPOSE OF PLAN. The Plan is established as an unfunded, nonqualified
supplemental retirement plan. Benefits shall only be payable to those persons
who are participants under the Pension Plan, and whose benefits that would
otherwise be payable under the Pension Plan are reduced due to an employee's
participation in the Supplemental Savings Plan or the Agreements or due to the
401(a)(17) Limitation.
2. ELIGIBILITY. Only full-time, salaried employees of FABC (or any of its
affiliates) who participate in the Supplemental Savings Plan, have deferred
compensation pursuant to the Agreements, or have Monthly Earnings, as defined
in the Pension Plan, in excess of one-twelfth of the 401(a)(17) Limitation, as
adjusted for inflation, shall participate in this Plan. Such persons are
referred to in this
1
<PAGE> 2
Plan as Participants.
3. MEANING OF TERMS. For purposes of this Plan, all of the terms and
conditions of the Pension Plan, as in effect now, or as may be amended, shall
be deemed to be incorporated herein by reference and made a part of the Plan
(including, but not limited to, provisions of the Pension Plan relating to
vesting, early retirement date and benefits and late retirement date and
benefits), except that the following sections of the Pension Plan shall not be
applicable to this Plan.
Article I, Section 16, "Monthly Earnings"
Article I, Section 12, "Fund"
Article I, Section 30, "Trustee"
Article I, Section 31, "Vested Funds"
Article IV, Section 6, "Maximum Permissible Benefits Payable from Plan"
Article VII, "Retirement Benefit Payments"
Article VIII, "Financing"
Article X, Section 3, "Non-Alienation of Benefits"
Article XI, "Amendment"
Article XII, "Termination of the Plan"
Article XIII, "Governing Law"
4. DETERMINATION OF BENEFITS. For purposes of determining benefits payable to
Participants under this Plan, the Participant's vested Accrued Benefit (as
defined in the Pension Plan) shall first be calculated pursuant to the terms
and conditions of the Pension Plan in effect at the time of the Participant's
cessation of employment for any reason, except that:
a) Monthly Earnings, as defined in Article I, Section 16 of the Pension Plan,
shall also include:
(i) Monthly Earnings deferred since July 1, 1988 by a Participant pursuant
to the Agreements and the Supplemental Savings Plan; and
(ii) Monthly Earnings in excess of one-twelfth of the 401(a)(17) Limitation,
as adjusted for inflation; and
b) the vested Accrued Benefit shall be determined without reference to
Article IV, Section 6 of the Pension Plan, entitled "Maximum Permissible
Benefits Payable from Plan".
Such vested Accrued Benefit shall hereinafter be referred to as the Gross
Accrued Benefit. Compensation deferred by a Participant pursuant to Section
4(a)(i) shall not include any compensation deferred pursuant to a plan or
agreement maintained by an employer prior to the employer's affiliation with
FABC or an affiliate of FABC.
A Participant's vested Accrued Benefit shall then be calculated pursuant to
the terms and conditions of the Pension Plan in effect at the time of the
Participant's cessation of employment for any reason:
a) by including only Monthly Earnings, as defined in Article I, Section 16 of
the Pension Plan; and
2
<PAGE> 3
b) by adding the benefits determined pursuant to Paragraph 4 of the First of
America Bank Corporation Unfunded Deferred Excess Benefit Plan.
Such Accrued Benefit shall hereinafter be referred to as the Net Accrued
Benefit.
Any excess of the Gross Accrued Benefit over the Net Accrued Benefit
(hereinafter referred to as the "Supplemental Benefit") shall then be
calculated. Such Supplemental Benefit shall be actuarially adjusted for all
reasons specified in the Plan, including, but not limited to, early, deferred
or late retirement, and alternative forms of benefits payable pursuant to the
Pension Plan, and be paid to the Participant (or his designated beneficiary)
pursuant to the terms of this Plan.
Participants, who die while employed, become entitled to disability benefits
under the Pension Plan, or will not begin to receive benefit payments from the
Pension Plan within one year after the date they terminate employment, will
receive a single lump-sum distribution of the present value of the Supplemental
Benefit, which shall be determined in accordance with the actuarial assumptions
of the Pension Plan in effect at the time of payment (the Current Actuarial
Assumptions), within one year following their termination of employment.
Participants, who terminate employment on or after their Early, Normal or Late
Retirement Date, as such dates are defined in Article III of the Pension Plan,
shall be paid their Supplemental Benefit in the same form and commencing on the
same date as is their Accrued Benefit is paid pursuant to the Pension Plan.
5. UNSECURED CREDITORS. Nothing contained herein, and no action taken
pursuant to the provisions of this Plan shall create or be construed to create
a trust of any kind, or a fiduciary relationship between FABC, its affiliates,
Participants or any other person. To the extent that a Participant or any other
person acquires a right to receive payments under the terms of this Plan, such
rights shall be no greater than the rights of an unsecured general creditor of
FABC or its affiliates. Except for payments following a Change in Control, all
payments made under the terms of this Plan shall be made from the general funds
of FABC, or its affiliates, and no other segregation of assets shall be made
for the payment of any benefits under the terms of this Plan to any Participant
or beneficiary thereof.
6. PAYMENT OF BENEFITS UPON CHANGE IN CONTROL. Notwithstanding any other
provision of this Plan to the contrary, the present lump-sum value of a
Participant's Supplemental Benefit shall be calculated, by using the Current
Actuarial Assumptions, within 30 days after the Committee receives notice,
knows, or has reason to know that a Change in Control has occurred. Within said
30 days, the Committee shall prepare a listing of such lump-sum amounts for
each Participant and shall deliver such list to the Trustee of the Company's
Executive Management Plans Trust known to the Committee to hold funds securing
the benefits of the Plan, for payment directly to Participants.
A Change in Control of the Company shall have occurred:
(a) on the fifth day preceding the scheduled expiration date of a tender
offer by, or exchange offer by any corporation, person, other entity or group
(other than the Company or any of its wholly owned subsidiaries), to acquire
Voting Stock of the Company if:
(i) after giving effect to such offer such corporation, person, other entity
or group would own twenty-five percent (25%) or more of the Voting Stock of
the Company;
3
<PAGE> 4
(ii) there shall have been filed documents with the Securities and
Exchange Commission ("SEC") in connection therewith (or, if no such filing
is required, public evidence that the offer has already commenced); and
(iii) such corporation, person, other entity or group has secured all
required regulatory approvals to own or control twenty-five percent (25%)
or more of the Voting Stock of the Company;
(b) if the shareholders of the Company approve a definitive agreement to
merge or consolidate the Company with or into another corporation in a
transaction in which neither the Company nor any of its wholly owned
subsidiaries will be the surviving corporation, or to sell or otherwise
dispose of all or substantially all of the Company's assets to any
corporation, person, other entity or group (other than the Company or any of
its wholly owned subsidiaries), and such definitive agreement is consummated;
(c) if any corporation, person, other entity or group (other than the Company
or any of its wholly owned subsidiaries) becomes the Beneficial Owner (as
defined in the Company's Articles of Incorporation) of stock representing
twenty-five percent (25%) or more of the Voting Stock of the Company; or
(d) if during any period of two (2) consecutive years Continuing Directors
cease to comprise a majority of the Company's Board of Directors.
The term " Continuing Director" means:
(a) any member of the Board of Directors of the Company at the beginning of
any period of two (2) consecutive years; and
(b) any person who subsequently becomes a member of the Board of Directors of
the Company; if
(i) such person's nomination for election or election to the Board of
Directors of the Company is recommended or approved by resolution of a
majority of the Continuing Directors; or
(ii) such person is included as a nominee in a proxy statement of the
Company distributed when a majority of the Board of Directors of the
Company consists of Continuing Directors.
"Voting Stock" shall mean those shares of the Company entitled to vote
generally in the election of directors.
7. AMENDMENT. FABC, acting through its Board of Directors, reserves the right
at any time to terminate, modify or amend any of the provisions of this Plan
without the consent of any Participant or beneficiary, provided that no such
amendment shall adversely affect the rights of retired Participants or their
beneficiaries with respect to benefits in pay status prior to such amendment.
In addition, any amendment, modification, suspension or termination of any
provision of the Plan may only be made
4
<PAGE> 5
effective prospectively, and shall not reduce the benefits accrued under this
Plan to the date of such amendment, modification, suspension or termination.
8. GENERAL LIMITATIONS AND PROVISIONS. Nothing contained in this Plan shall
give any employee the right to be retained in the employment of FABC or any of
its affiliates or affect the right of FABC or any of its affiliates to dismiss
any employee. The adoption of the Plan shall not constitute a contract between
FABC, or any of its affiliates, and any employee.
9. ADMINISTRATION. FABC's Retirement Committee ( as defined in the Pension
Plan) shall have full power and authority to construe, interpret and administer
the Plan. All decisions, actions or interpretations of the Committee shall be
final, conclusive and binding upon all parties.
10. ALTERNATE PAYMENT OF BENEFITS. If the Committee finds that any person to
whom any amount is payable under the Plan is unable to care for his affairs
because of illness or accident, or is a minor, or has died, any payment due him
or his estate (unless a prior claim therefor has been made by duly appointed
legal representative), then the Committee may direct that benefits under this
Plan be paid to his spouse, a child, a relative, an institution maintaining or
having custody of such person, or any other person deemed by the Committee to
be a proper recipient on behalf of such person otherwise entitled to payment.
Any such payment shall be a complete discharge of the liability of the Plan,
FABC, FABC's affiliates and the Committee.
11. NONALIENABILITY. Except as otherwise required by law, no amount payable
under this Plan shall be subject to alienation by anticipation, sale, transfer,
assignment, bankruptcy, pledge, attachment, charge or encumbrance of any kind,
or be subject to the debts or liabilities of any person. Any attempt to
alienate any amount under this Plan payable presently or in the future, shall
be void. If any person shall attempt to, or shall alienate, sell, transfer or
assign, pledge, attach, charge, or otherwise encumber any amount payable under
this Plan, or if any amount payable to a person would be subject to that
person's debts and liabilities, so that such person would not be able to enjoy
such amount, then the Committee may elect to direct that such amount be
withheld and that the same be paid or applied to or for the benefit of such
person, his spouse, children or other dependents, or any of them, in such
manner and proportion as the Committee may deem proper.
12. NO PERSONAL LIABILITY - COMMITTEE. No member of the Committee shall be
personally liable by reason of any contract or other instrument executed by him
or on his behalf in his capacity as a member of the Committee, nor for any
mistake of judgment made in good faith, and FABC shall indemnify and hold
harmless each member of the Committee and each other officer, employee or
director of FABC to whom any duty or power relating to the administration or
interpretation of the Plan has been delegated, against any cost or expense
(including counsel fees) or liability (including any sum paid in settlement of
a claim with approval of the Committee) arising out of any act or omission to
act in connection with the Plan, unless arising out of such person's own fraud
or bad faith.
13. DESIGNATION OF BENEFICIARIES. Each Participant shall file with the
Committee a written designation of one or more persons as the beneficiary who
shall be entitled to receive the amount, if any, payable under this Plan in the
event of his death. A designation of beneficiary filed by a Participant with
respect to his benefits under the Pension Plan shall be deemed a designation of
beneficiary by such Participant for purposes of this Plan.
5
<PAGE> 6
A Participant may revoke or change his beneficiary designation without the
consent of any prior beneficiary by filing a new designation with the
Committee. The last such designation received by the Committee shall be
controlling, except that no designation, change or revocation shall be
effective unless received by the Committee prior to the Participant's death,
and in no event shall such designation be effective prior to the date received
by the Committee. If no such beneficiary designation is in effect at the time
of a Participant's death, or if no designated beneficiary survives the
Participant, or such designation conflicts with law, payment of the amount, if
any, payable under the Plan upon his death shall be made to the Participant's
estate.
If the Committee is in doubt as to the right of any person who receives such
amount, the Committee may retain such amount without liability for any interest
thereon, until the rights to such amount are determined or the Committee may
pay such amount into any court of appropriate jurisdiction and such payment
shall be a complete discharge of the liability of FABC, FABC's affiliates, the
Plan and the Committee.
14. FEDERAL INCOME TAX WITHHOLDING. FABC may withhold from any benefits
payable under this Plan any and all taxes required pursuant to any law or
governmental regulation or ruling.
15. APPLICABLE LAW. This Plan shall be construed and enforced according to
the laws of the State of Michigan to the extent not pre-empted by Federal Law.
16. BINDING NATURE OF PLAN. This Plan shall be binding upon the successors
and assigns of FABC and the heirs and successors of Participants.
IN WITNESS WHEREOF, the foregoing Plan has been executed by First of America
Bank Corporation, by a duly authorized officer this 14 day of May, 1991.
Attest: FIRST OF AMERICA BANK CORPORATION
/s/ ALLAN BOWERS By: /s/ RICHARD V. WASHBURN
- ---------------------- -------------------------------
Allan D. Bowers Richard V. Washburn
Corporate Benefits Manager Its: Sr. Vice President - First of America
Bank Corporation
6
<PAGE> 1
Exhibit 10g
THE RESTATED
FIRST OF AMERICA BANK CORPORATION
1987 STOCK OPTION PLAN
------------------------
1. PURPOSE OF PLAN. The purpose of the 1987 Stock Option Plan ("Plan") is to
attract and retain able and experienced key management employees and to provide
an incentive to, and encourage stock ownership in First of America Bank
Corporation ("Corporation") by the key management employees of the Corporation
and its subsidiaries.
2. ADMINISTRATION OF PLAN. This Plan shall be administered by the
Compensation Committee ("Committee") appointed by the Board of Directors of the
Corporation consisting of not less than three members of the Board of Directors
of the Corporation ("Board"), all of whom shall be ineligible to participate in
this Plan. A majority of the Committee shall constitute a quorum and the acts of
a majority of the members present at any meeting at which a quorum is present,
or actions approved in writing by all the members of the Committee, shall
constitute the acts of the Committee. The Committee shall have full authority
and discretion to (a) determine, consistent with the provisions of this Plan,
the employees to be granted options, the times at which options shall be
granted, the number of shares subject to each option, the period during which
each option becomes exercisable (subject to Section 7), and the form of and
terms contained in each option agreement evidencing the grant of an option to be
entered into between the Corporation and the optionees, and (b) adopt rules and
regulations and prescribe and approve the forms to carry out the purposes and
provisions of this Plan. The Committee's interpretation and construction of any
provisions of this Plan or any option granted hereunder shall be binding and
conclusive, unless otherwise determined by the Board. Any power that may be
exercised or action that may be taken by the Committee under this Plan may also
be exercised or taken by the Board. No member of the Committee or the Board
shall be liable for any action taken or determination made in good faith with
respect to this Plan or any option granted hereunder.
3. ELIGIBILITY. The Committee shall from time to time determine the key
management employees of the Corporation and its subsidiaries (including officers
and directors of the Corporation and its subsidiaries who are also employees)
who shall be granted options under this Plan. An employee who has been granted
an option may be granted an additional option or options under this Plan if the
Committee shall so determine. The granting of an option under this Plan shall
not affect any outstanding stock option previously granted to an optionee under
this Plan or any other plan of the Corporation.
4. SHARES SUBJECT TO PLAN. Subject to adjustment as provided in Section 10,
the aggregate number of shares which may be issued pursuant to options granted
by the Committee under this Plan shall not exceed 1,700,000 shares of Common
Stock of the Corporation, par value $10.00 per share ("Shares"), which may be
treasury shares reacquired by the Corporation or authorized and unissued shares,
or a combination of both. Any Shares subject to an option under this Plan which
shall expire or be terminated for any reason shall be available for the granting
of other options during the term of this Plan.
5. OPTION PRICE. The option price per Share under each option granted by the
Committee shall be not less than 100% of the fair market value per share on the
date an option is granted but in no event less than the par value thereof. The
fair market value on the date an option is granted shall be the average between
the highest and lowest quoted price per share for sales made and reported on the
New York Stock Exchange, or on a sales or quotation system maintained by the
National Association of Securities Dealers, or such other national stock
exchange on which such Common Stock may then be listed and which constitutes the
principal market for such Common Stock on the latest trading day for which sales
or quotations are reported preceding the day the option is granted.
6. EXERCISE OF OPTIONS. Each option granted under this Plan shall be
exercisable at the time and for the number of Shares as shall be provided in an
option agreement between the Corporation and the optionee evidencing the option
granted by the Committee and the terms thereof. Shares shall be issued to the
optionee pursuant to the exercise of an option only upon receipt of the
Corporation from the optionee of payment in full either in cash or by a single
exchange of shares of Common Stock of the Corporation previously owned by the
optionee for at least one year from the date of exercise, or a combination of
both, in an amount, or having a combined value equal to the aggregate option
price for the Shares subject to the option or portion thereof being exercised.
In determining the holding period of Shares of Common Stock exchanged in payment
which have been acquired by the optionee in conversion of the preferred stock of
the Corporation, the period during which such preferred stock had been held by
the optionee shall be counted. The value of the previously owned shares of
Common Stock exchanged in full or partial payment for the Shares purchased upon
the exercise of an option shall be equal to the aggregate fair market value, as
defined in Section 5, of such shares on the day of the exercise of such options.
1
<PAGE> 2
7. TERM OF OPTION. Subject to the provisions of Section 9, each option
granted hereunder shall expire and not be exercisable after the date ten years
from the date the option is granted. In circumstances deemed to be extraordinary
by the Committee with respect to an optionee whose employment with the
Corporation is involuntarily terminated or may be involuntarily terminated prior
to the date upon which all installments of the options shall be exercisable, the
Committee may authorize an amendment to any option agreement between the
Corporation and such optionee, or authorize a future option agreement between
the Corporation and such optionee to provide that the options which are
unexercised on the date of the termination of employment of the optionee with
the Corporation shall become exercisable in their entirety within the three
month period after the date of such termination and shall no longer be required
to be exercised in installments, as described above.
8. NON-TRANSFERABILITY OF OPTION. No option granted under this Plan shall be
transferable except by will or the laws of descent. Each such option shall be
exercisable during the optionee's lifetime only by the optionee.
9. TERMINATION OF EMPLOYMENT AND DEATH OF OPTIONEE.
(a) In the event that during the term of an unexercised option the
employment of the optionee with the Corporation is terminated for any reason
other than retirement, death or disability (as provided in subsections (b),
(c) and (d) below), such option may not be exercised after the last day of
employment.
(b) Subject to subsection (f) of this Section 9, in the event that during
the term of an unexercised option the employment of the optionee is
terminated because the optionee is disabled within the meaning of Section
22(e)(3) of the Internal Revenue Code or its successor statute, the optionee
may exercise the option with respect to all Shares covered by the option
during a three year period following the date of termination of employment or
the date of the optionee's death, as the case may be, in the latter instance
by the legal representative of the deceased optionee's estate.
(c) Subject to subsection (f) of this Section 9, in the event that during
the term of an unexercised option the employment of the optionee with the
Corporation is terminated by reason of retirement, such option may be
exercised only within a three year period following the date of retirement
with respect to all Shares covered by the option.
(d) Subject to subsection (f) of this Section 9, in the event that during
the term of an unexercised option an optionee dies, his option may be
exercised only within the three year period following the date of death by
his personal representative or person to whom the optionee's rights pass by
the optionee's will or the laws of descent and distribution with respect to
all Shares covered by the option.
(e) The unexercised portion of any option which has not been exercised and
as to which the option is no longer exercisable shall lapse, and the Shares
subject to such option shall become available for the granting of other
options under this Plan.
(f) The Committee may, in its discretion, grant options providing for, and
amend outstanding options to permit, their exercise during a period in excess
of three years, but not more than five years, following the circumstances
described in subsections (b), (c) and (d) of this Section 9, provided such
exercise period in excess of three years shall be set forth in the option
agreement evidencing the option granted or an amendment to such option
agreement.
10. ADJUSTMENT IN NUMBER OF SHARES AND OPTION PRICE. The Committee shall make
appropriate and equitable adjustments in the number of Shares subject to the
Plan and the number of Shares and the option price with respect to which all
outstanding options, or portions thereof then unexercised, shall be exercisable
in the event of any subdivision or combination of the outstanding Shares of the
Corporation by reclassification or otherwise, or in the event of the payment of
a stock dividend, a stock split, a capital reorganization, a reclassification of
Shares, a consolidation or merger, or the sale, lease or conveyance of
substantially all the assets of the Corporation. Any such adjustment made by the
Committee shall be final and binding upon all optionees, the Corporation and all
other interested persons.
11. LIMITED STOCK APPRECIATION RIGHTS. Notwithstanding anything to the
contrary herein, on the effective date of a Change in Control or a liquidation
or dissolution of the Corporation, each option granted under this Plan but not
yet exercised will be immediately canceled and in lieu of further rights under
the option, the optionee will receive from the Corporation in cash the
difference between the fair market value and the option price, multiplied by the
number of shares to which the option related. For purposes of this Section, the
fair market value of a Share of Common Stock of the Corporation shall be
determined in the same manner as provided in Section 5 on the latest trading day
for which sales or quotations are reported preceding such effective date or, if
greater, the price or value received by shareholders for a Share of Common Stock
of the Corporation with respect to the largest number of such Shares the
ownership of which is transferred in conjunction with such Change in Control,
liquidation or dissolution of the Corporation.
2
<PAGE> 3
12. CHANGE IN CONTROL DEFINED. A Change in Control of the Corporation shall
have occurred:
(a) on the fifth day preceding the scheduled expiration date of a tender
offer by, or exchange offer by any corporation, person, other entity or group
(other than the Corporation or any of its wholly owned subsidiaries) to
acquire Voting Stock of the Corporation if:
(i) after giving effect to such offer such corporation, person, other
entity or group would own twenty-five percent (25%) or more of the Voting
Stock of the Corporation;
(ii) there shall have been filed documents with the Securities and
Exchange Commission in connection therewith (or, if no such filing is
required, public evidence that the offer has already commenced); and
(iii) such corporation, person, other entity or group has secured all
required regulatory approvals to own or control twenty-five percent (25%)
or more of the Voting Stock of the Corporation;
(b) if the shareholders of the Corporation approve a definitive agreement
to merge or consolidate the Corporation with or into another corporation in a
transaction in which neither the Corporation nor any of its wholly owned
subsidiaries will be the surviving corporation, or to sell or otherwise
dispose of all or substantially all of the Corporation's assets to any
corporation, person, other entity or group (other than the Corporation or any
of its wholly owned subsidiaries), and such definitive agreement is
consummated;
(c) if any corporation, person, other entity or group (other than the
Corporation or any of its wholly owned subsidiaries) becomes the Beneficial
Owner (as defined in the Corporation's Articles of Incorporation) of stock
representing twenty-five percent (25%) or more of the Voting Stock of the
Corporation; or
(d) if during any period of two (2) consecutive years Continuing Directors
cease to comprise a majority of the Corporation's Board of Directors.
The term "Continuing Director" means:
(a) any member of the Board of Directors of the Corporation at the
beginning of any period of two (2) consecutive years; and
(b) any person who subsequently become a member of the Board of Directors
of the Corporation; if
(i) such person's nomination for election or election to the Board of
Directors of the Corporation is recommended or approved by resolution of a
majority of the Continuing Directors; or
(ii) such person is included as a nominee in a proxy statement of the
Corporation distributed when a majority of the Board of Directors of the
Corporation consists of Continuing Directors.
"Voting Stock" shall mean those shares of the Corporation entitled to vote
generally in the election of directors.
13. AMENDMENT AND DISCONTINUANCE. The Board of Directors of the Corporation
may amend, alter, suspend or terminate this Plan; provided, however, that no
such action shall increase the period within which options may be granted, or
the maximum term for which any option may be granted, the maximum term of any
option previously granted, or reduce the minimum option price per Share as
provided in Section 5, or otherwise alter or impair any option previously
granted under this Plan without the consent of the optionee. In addition, the
Board of Directors of the Corporation may not amend this Plan to increase the
number of Shares available to be optioned under the Plan (other than as provided
in Section 10), without the approval by the affirmative vote of the holders of a
majority of the Shares of the Corporation's Common Stock present or represented
and entitled to vote at a meeting of the holders of shares of the Corporation's
Common Stock.
14. REQUIREMENT OF LAW. The granting of options and the issuance of Shares
upon the exercise of an option shall be subject to all applicable laws, rules
and regulations and to such approvals by governmental agencies as may be
required.
15. EFFECTIVE DATE AND TERMINATION OF PLAN. The effective date of this Plan
is December 9, 1987. Options may be granted under the Plan at any time prior to
December 9, 1997, on which date the Plan shall terminate, except as to options
then outstanding which shall remain in effect until they have been fully
exercised or have expired.
16. NO EMPLOYMENT RIGHTS. Neither the Plan nor any option agreement entered
into between an optionee and the Corporation shall give the optionee or any
other person any right to remain in employment with the Corporation or any of
its subsidiaries or provide to any optionee or any other person any rights
except the right to purchase Shares as provided in the Plan and any option
agreement to which he or she is a party.
3
<PAGE> 1
Exhibit 23
The Board of Directors
First of America Bank Corporation
We consent to incorporation by reference in the registration statements on Form
S-3 (Registration Statement Number 33-49813), Form S-3 (Registration Statement
Number 33-65378), Form S-8 (Registration Statement Number 33-46297), and Form
S-8 (Registration Statement Number 33- 38891) of the First of America Bank
Corporation of our report dated January 18, 1994, relating to the consolidated
balance sheets of First of America Bank Corporation and its subsidiaries as of
December 31, 1993 and 1992 and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the years in the
three-year period ended December 31, 1993, which report appears in the December
31, 1993 annual report on Form 10-K of First of America Bank Corporation.
/s/ KMPG PEAT MARWICK
March 7, 1994
68
<PAGE> 1
Exhibit 24
FIRST OF AMERICA BANK CORPORATION
POWER OF ATTORNEY
Each of the undersigned directors of First of America Bank Corporation does
hereby authorize each of Daniel R. Smith, Richard F. Chormann and Thomas W.
Lambert and each of them to execute in his or her behalf and sign his or her
name to the Annual Report on Form 10-K for the year ended December 31, 1993, of
the said corporation to the Securities and Exchange Commission and any
amendment or amendments thereto and appoints the same Daniel R. Smith, Richard
F. Chormann and Thomas W. Lambert and each of them as attorney in fact to sign
in his or her behalf individually and as a director of said corporation such
report and any amendments thereof.
/s/ George S. Nugent /s/ F. Karl Neumann
- ------------------------------- -----------------------------
/s/ Dorothy A. Johnson /s/ Gregory C. Smith
- ------------------------------- -----------------------------
/s/ Clifford L. Greenwalt /s/ Jon E. Barfield
- ------------------------------- -----------------------------
/s/ John W. Brown /s/ Martha M. Mertz
- ------------------------------- -----------------------------
/s/ Joel N. Goldberg /s/ Joseph J. Fitzsimmons
- ------------------------------- -----------------------------
/s/ J. Michael Kemp /s/ James S. Ware
- ------------------------------- -----------------------------
/s/ Walter J. Wolpin /s/ Richard F. Chormann
- ------------------------------- -----------------------------
/s/ Robert L. Hetzler
- ------------------------------- -----------------------
/s/ James W. Wogsland
- ----------------------------- --------------------------
/s/ Richard Krafft, Jr.
- --------------------------------- -----------------------------
Dated: February 16, 1994 -----------------------------
