<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
FIRST OF AMERICA BANK CORPORATION
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
THOMAS W. LAMBERT
Executive Vice President and Chief Financial Officer
211 South Rose St., Kalamazoo, Michigan 49007
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ $125 per Exchange Act Rule 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(j)(2).
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and
0-11.
(1) Title of each class of securities to which transaction applies:
- --------------------------------------------------------------------------------
(2) Aggregate number of securities to which transactions applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:1
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
/ / Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registrations statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
- ---------------
1Set forth the amount on which the filing fee is calculated and state how it
was determined.
<PAGE> 2
[LOGO TO COME]
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Annual Meeting of Shareholders
April 20, 1994
<PAGE> 3
<TABLE>
<S> <C>
DANIEL R. SMITH FIRST OF AMERICA BANK CORPORATION
Chairman and Chief 211 South Rose St.
Executive Officer Kalamazoo, Michigan 49007
Telephone 616-376-9000
</TABLE>
(LETTERHEAD)
March 17, 1994
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held April 20, 1994, at 9:00 a.m., at the Fetzer Business Development Center,
Western Michigan University, Kalamazoo, Michigan.
I encourage you to take advantage of your right as an investor in First of
America by completing the enclosed proxy and returning it to us in the envelope
provided.
First of America's Summary Annual Report to Shareholders is enclosed. It
contains our letter to shareholders, 1993 highlights, six year financial
summary, condensed financial statements and other information. With the Annual
Report is a card by which you can advise us of your intent as to attendance at
the meeting.
At this year's meeting, shareholders will vote on the election of five
directors, approval of amendments to First of America's Stock Option Plan and
ratification of the selection of KPMG Peat Marwick as independent auditors.
Information on the matters to be acted on by the shareholders is in the attached
notice and proxy statement. Our financial reports for the year and management's
discussion and analysis are in Appendix B attached.
I hope you will take the time to read the Summary Annual Report and I hope to
see you on April 20.
Sincerely,
/s/ Daniel R. Smith
Daniel R. Smith
Chairman and Chief Executive Officer
<PAGE> 4
[LOGO]
211 SOUTH ROSE STREET
KALAMAZOO, MICHIGAN 49007
(616) 376-9000
NOTICE OF ANNUAL SHAREHOLDERS MEETING
APRIL 20, 1994
To: The Shareholders
First of America Bank Corporation
The Annual Meeting of Shareholders of First of America Bank Corporation, a
Michigan Corporation, will be held at the Fetzer Business Development Center,
Western Michigan University, Wilbur Street and Marion Avenue, Kalamazoo,
Michigan on Wednesday, April 20, 1994 at 9:00 a.m., (Kalamazoo Time). A form of
Proxy and Proxy Statement for the meeting are furnished herewith. The purpose of
the meeting is to consider and vote on the following matters:
(1) Election of Directors to serve until the Annual Meeting of Shareholders
and until their successors have been elected and qualified.
(2) Approval of amendments to The Restated First of America Bank Corporation
1987 Stock Option Plan.
(3) Ratification of the selection of KPMG Peat Marwick, Certified Public
Accountants, as independent auditors for First of America.
(4) Such other business as may properly come before the meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on February 21, 1994,
as the record date for determination of common shareholders entitled to notice
of and to vote at the meeting.
IT IS IMPORTANT THAT YOUR STOCK BE REPRESENTED AT THE MEETING REGARDLESS OF
THE NUMBER OF SHARES YOU MAY HOLD. YOU ARE INVITED TO ATTEND THE MEETING IN
PERSON, BUT WHETHER OR NOT YOU PLAN TO ATTEND, PLEASE COMPLETE, DATE, SIGN AND
RETURN THE ACCOMPANYING PROXY IN THE ENCLOSED SELF-ADDRESSED ENVELOPE. IF YOU DO
ATTEND THE MEETING, YOU MAY, IF YOU WISH, REVOKE YOUR PROXY AND VOTE YOUR SHARES
IN PERSON.
By Order of the Board of Directors,
/s/ George S. Nugent
George S. Nugent
Executive Vice President & Secretary
Date: March 17, 1994
Kalamazoo, Michigan
<PAGE> 5
[LOGO]
211 SOUTH ROSE STREET
KALAMAZOO, MICHIGAN 49007
(616) 376-9000
PROXY STATEMENT
GENERAL INFORMATION
This Proxy Statement is furnished in connection with the solicitation of
proxies on behalf of the Board of Directors of FIRST OF AMERICA BANK CORPORATION
(hereinafter called "First of America" or the "corporation") for use at the
Annual Meeting of Shareholders to be held on Wednesday, April 20, 1994 at 9:00
a.m. (Kalamazoo Time) at the Fetzer Business Development Center, Western
Michigan University, Kalamazoo, Michigan (the "Annual Meeting").
The cost of solicitation will be borne by First of America. In addition to
the use of the mails, proxies may be solicited by persons regularly employed by
First of America, by personal interview, and by telephone. In addition, First of
America has engaged Georgeson & Company Inc. ("Georgeson") to assist in
soliciting proxies for the Annual Meeting. Georgeson's fees, excluding
reimbursable out-of-pocket expenses, are estimated to be $7,500 and will be paid
by First of America. Arrangements have been made with brokerage houses and other
custodians, nominees and fiduciaries for the forwarding of solicitation material
to the beneficial owners of common stock.
Any shareholder giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is exercised at the Annual Meeting. This Proxy
Statement and the form of Proxy were first sent to shareholders on March 17,
1994.
Common shareholders of record at the close of business on February 21, 1994,
are entitled to notice of and to vote at the Annual Meeting. Each common share
is entitled to one vote on each matter presented.
For shareholders participating in the Shareholders Investment Plan (First of
America's dividend reinvestment plan), First of America Bank-Michigan, N.A., the
Plan Administrator, will vote any shares that it holds for a participant's
account in accordance with the proxy returned by the participant to First of
America with respect to the other shares of First of America which the
participant holds of record.
PRINCIPAL SHAREHOLDERS
As of the close of business on February 1, 1994, there were 59,525,010 shares
of common stock of First of America outstanding, par value $10 per share ("First
of America Common Stock" or "common shares"), and entitled to vote at the Annual
Meeting. Insofar as is known to First of America, no person owns of record or
beneficially five percent or more of the outstanding First of America Common
Stock.
(1) ELECTION OF DIRECTORS
The Board of Directors is divided into three classes, with the directors in
each class being elected for a term of three years and until successors are duly
elected and qualified. At the Annual Meeting, directors will be elected for
terms ending with the annual meeting of shareholders in 1997.
Except as otherwise specified in the proxy, proxies will be voted for
election of the five nominees named below. If a nominee becomes unable or
unwilling to serve, proxies will be voted for such other person, if any, as
shall be designated by the Board of Directors. However, First of America's
management now knows of no reason to anticipate that this will occur. Directors
are elected by a plurality of the votes cast, whether in person or by proxy, by
holders of First of America Common Stock at the Annual Meeting, provided a
quorum (a majority of the shares entitled to be voted at the Annual Meeting) is
present or represented. Thus, the five nominees for election as directors who
receive the greatest number of votes cast will be elected directors.
Consequently, shares not voted, whether by the withholding of authority, broker
non-votes or otherwise, have no effect on the election of directors.
Nevertheless, if a proxy is returned for such shares or they are represented in
person at the Annual Meeting, they will be counted toward the establishment of a
quorum.
1
<PAGE> 6
Nominees for reelection and other current directors are listed below. Also
shown for each nominee and each other current director is his or her age,
principal occupation for the last five or more years and other major
affiliations, Board of Directors committee service and shares of First of
America equity securities beneficially owned as of February 1, 1994. As of
February 1, 1994, none of these persons owned one percent or more of the
outstanding class of shares. The information is based in part on information
supplied by these persons.
NOMINEES FOR DIRECTORS FOR THREE-YEAR TERMS ENDING IN 1997
JON E. BARFIELD, age 42, is President of Staffing Trends, Inc., a provider of
temporary employment services, Bartech, Inc., a contract engineering firm, and
Utility Support Services, Inc., a provider of contract meter reading and utility
support services, all of Livonia, Michigan. He is a director of Tecumseh
Products Company, Tecumseh, Michigan. Mr. Barfield became a director of First of
America Bank -- Ann Arbor in 1989 and a director of First of America Bank
Corporation in August 1993. He serves on the Audit and Public Policy Committees.
Mr. Barfield owns 669 shares of First of America Common Stock.
RICHARD F. CHORMANN, age 56, is President and Chief Operating Officer of
First of America. Mr. Chormann has been employed by First of America and its
predecessor since 1959. He became a director of First of America in 1984 and
serves on the Executive and Public Policy Committees of the Board and on First
of America's Unified Trust Committee. He beneficially owns 15,376 shares of
First of America Common Stock. He has been granted options under the Restated
First of America Bank Corporation 1987 Stock Option Plan which are presently
exercisable with respect to 57,567 common shares. Mrs. Chormann owns 2,683
common shares of which Mr. Chormann disclaims beneficial ownership.
Additionally, Mr. Chormann has an account in a salary deferral savings plan, the
earnings on a portion of which are determined as if deferred salary payments and
earnings thereon were invested in First of America Common Stock. His account,
which is payable to him in cash, includes the current equivalent value of 16,808
common shares.
JOEL N. GOLDBERG, age 56, is President of Thomas Jewelry Company, Inc. in
Pontiac, Michigan, a retail and wholesale jewelry company. Mr. Goldberg became a
director of First of America in 1985. He serves on the Audit Committee. He
beneficially owns 115,880 shares of First of America Common Stock.
JAMES S. WARE, age 58, is Chairman, President and Chief Executive Officer of
Durametallic Corporation, Kalamazoo, Michigan, a manufacturer of seals for
industrial machinery. He has been a director of First of America since 1991. He
chairs the Nominating and Compensation Committee and serves on the Executive
Committee. He owns 2,893 shares of First of America Common Stock.
JOHN L. ZABRISKE, age 54, is Chairman and Chief Executive Officer of The
Upjohn Company, a manufacturer of pharmaceutical and other products. Formerly,
Mr. Zabriske was Executive Vice President of Merck & Co., Inc., also a
manufacturer of pharmaceutical and other products. He became a director of First
of America on February 16, 1994. Mr. Zabriske serves on the Audit Committee.
DIRECTORS NOT STANDING FOR REELECTION WHOSE TERMS END IN 1995
JOHN W. BROWN, age 59, is Chairman and Chief Executive Officer of Stryker
Corporation, Kalamazoo, Michigan, a manufacturer of surgical and medical
products. Mr. Brown was appointed as a director of First of America in 1992. He
serves on the Nominating and Compensation Committee. Mr. Brown owns 3,500 shares
of First of America Common Stock.
CLIFFORD L. GREENWALT, age 61, has been President and Chief Executive Officer
and a director of CIPSCO Incorporated, a utility holding company, since its
formation in October 1990. He has also been President and Chief Executive
Officer of Central Illinois Public Service Company, Springfield, Illinois, a
subsidiary of CIPSCO, since August of 1989, being Senior Vice
President-Operations previously. He is also a director of Central Illinois
Public Service Company and Electric Energy, Inc. He became a director of First
of America in 1989. He serves on the Audit, Nominating and Compensation and
Public Policy Committees. Mr. Greenwalt owns 5,522 shares of First of America
Common Stock jointly with Mrs. Greenwalt. Mrs. Greenwalt owns another 3,539
common shares of which Mr. Greenwalt disclaims beneficial ownership.
DOROTHY A. JOHNSON, age 53, is President and Chief Executive Officer of the
Council of Michigan Foundations, Grand Haven, Michigan, an association of
foundations and corporations making charitable contributions. Mrs. Johnson
became a director of First of America in 1985. She chairs the Public Policy
Committee and serves on the Executive and Nominating and Compensation
Committees. She owns 14,256 shares of First of America Common Stock.
MARTHA M. MERTZ, age 51, is Chief Executive Officer and owner of
Mayhood/Mertz Realtors, Inc. in Okemos, Michigan. She became a director of First
of America Bank -- Central in 1985 and a director of First of America Bank
Corporation in August 1993. Ms. Mertz serves on the Audit Committee. She owns
951 shares of First of America Common Stock.
2
<PAGE> 7
JAMES W. WOGSLAND, age 62, is Vice Chairman of Caterpillar, Inc., Peoria,
Illinois. He is also a director of Caterpillar, Inc. He was Executive Vice
President of Caterpillar from 1987 to 1990. He is also a director of Protection
Mutual Insurance Co. and CIPSCO Incorporated. He became a director of First of
America in 1989. He serves on the Nominating and Compensation Committee. Mr.
Wogsland owns 4,679 shares of First of America Common Stock.
WALTER J. WOLPIN, age 62, is President of the Wolpin Co., Wolpin
Broadcasting, Twin W Realty and Weber/Wolpin Realty. Mr. Wolpin became a
director of First of America in 1992. He serves on the Audit Committee. As a
trustee he has voting and investment power with respect to 7,087 shares of First
of America Common Stock. Mr. Wolpin also owns an additional 4,748 common shares
and Mrs. Wolpin owns 10,584 shares of First of America Common Stock.
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1996
JOSEPH J. FITZSIMMONS, age 59, is a Vice President of Bell & Howell Company
and Chairman and a director of University Microfilms International, Ann Arbor,
Michigan, a division of Bell & Howell. Mr. Fitzsimmons is also a director of
Medsat Systems. He has been a director of First of America since 1991. He serves
on the Nominating and Compensation Committee. He owns 501 shares of First of
America Common Stock in a retirement account.
ROBERT L. HETZLER, age 48, is President and Chief Executive Officer of
Monitor Sugar Company, Bay City, Michigan. Mr. Hetzler became a director in
1987. He chairs the Audit Committee and serves on the Executive Committee. Mr.
Hetzler owns 400 shares and an additional 4,547 common shares which are held
jointly by him and Mrs. Hetzler.
J. MICHAEL KEMP, age 50, is President and Chief Executive Officer of Howard &
Howard Attorneys, P.C., Bloomfield Hills, Kalamazoo, and Lansing, Michigan and
Peoria, Illinois. Mr. Kemp became a director of First of America in 1984. He
serves on the Executive and Public Policy Committees. He owns 640 shares of
First of America Common Stock. He also owns jointly with his spouse 29,649
common shares and he owns 276 common shares in a retirement trust. He shares,
with two other co-trustees, voting and investment power with respect to 60,000
common shares.
RICHARD KRAFFT, JR., age 64, is President and Treasurer of the Star of the
West Milling Company, Frankenmuth, Michigan, a wheat milling and grain and bean
processing company. He is also a director of Michigan Millers Mutual Insurance
Company and Monitor Sugar Company. He became a director of First of America in
1986 and serves on the Nominating and Compensation Committee. He owns 11,376
shares of First of America Common Stock. Mr. Krafft will be ineligible under the
Bylaws to serve as a director after September 30, 1994 and will retire by that
date.
F. KARL NEUMANN, age 63, is President and Chief Executive Officer of the
Michigan Hospital Association Insurance Company, Lansing, Michigan. Mr. Neumann
became a director of First of America in 1980 and serves on the Nominating and
Compensation Committee. He owns 4,671 shares of First of America Common Stock
jointly with Mrs. Neumann.
DANIEL R. SMITH, age 59, is Chairman and Chief Executive Officer of First of
America. He has been employed by First of America and its predecessor since
1955. He became a director of First of America in 1982. He chairs the Executive
Committee and serves on the Public Policy Committee and on First of America's
Unified Trust Committee. He owns 39,249 shares of First of America Common Stock.
Mrs. Smith owns 2,296 common shares of which Mr. Smith disclaims beneficial
ownership. He has been granted options under the Restated First of America Bank
Corporation 1987 Stock Option Plan which are presently exercisable with respect
to 96,017 common shares.
As of February 1, 1993 the directors and executive officers of First of
America as a group had sole voting and investment power with respect to 364,095
shares of First of America Common Stock and shared voting and investment power
with respect to 104,937 common shares. In addition, the executive officers hold
options under the Restated First of America Bank Corporation 1987 Stock Option
Plan which are presently exercisable for an aggregate of 250,967 common shares.
The individual shareholdings of David B. Wirt, Thomas W. Lambert, George S.
Nugent and John B. Rapp, executive officers who are not Directors of First of
America, were 14,421, 10,871, 31,468, and 14,629, respectively.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors has a standing Executive Committee, a standing Audit
Committee, a standing Nominating and Compensation Committee and a standing
Public Policy Committee. Directors serve on the committees as indicated in the
preceding paragraphs. On January 19, 1994 the Board of Directors adopted a
resolution combining the previous Director Nominating and Management Succession
3
<PAGE> 8
Committee and the Compensation Committee. The combined committee has the powers
and authority previously vested in the two committees combined, as described
below.
The Executive Committee met once during 1993. Its principal function is to
exercise all powers and authority of the Board of Directors in the management
and affairs of First of America between meetings of the Board of Directors
including the right to declare dividends and to authorize the issuance of stock
but excluding the power and authority to amend the Articles of Incorporation or
Bylaws of First of America, to adopt an agreement of merger or consolidation, to
recommend to shareholders the sale of substantially all of First of America's
assets or dissolution of First of America, to fill vacancies on the Board of
Directors or to fix compensation of the directors for serving on the Board or a
committee.
The Audit Committee met four times during 1993. Its principal function is to
recommend to the full Board the engagement or discharge of the independent
auditors, to direct and supervise investigations into matters relating to audit
functions, to review with the independent auditors the plan and results of the
audit engagement and managements responses, to review the scope, adequacy and
results of First of America's internal auditing procedures and to solicit
recommendations for improvement, to provide oversight for internal audit and
loan review, to review services to be performed by the independent auditors, to
review the degree of independence of the auditors, to review the adequacy of
First of America's system of internal accounting controls, to provide guidance
for the audit committees of affiliate banks, to review with management and the
auditors the adequacy of financial disclosure and provide added assurance of the
integrity of the financial information, and to report to the full Board on its
actions and findings.
The previously existing Compensation Committee met five times during 1993.
Its principal function was to approve and recommend to the Board of Directors
all executive compensation and benefit programs from time to time available to
officers and employees of First of America and the chief executive officer of
each affiliate, and the desirability of adopting, amending, or terminating any
management compensation or employee benefit plan or program of any kind of First
of America or any affiliate. The Compensation Committee has administrative
functions over employee incentive programs, which include selection of
participants and establishment of goals and criteria for awards and other
matters (see "Compensation Committee Report on Executive Compensation"). The
Compensation Committee is the administrator of The Restated First of America
Bank Corporation 1987 Stock Option Plan and determines the key employees to whom
options will be granted, the number of shares covered by each option, the
exercise price and other matters.
The previously existing Director Nominating and Management Succession
Committee met three times during 1993. Its principal functions were to review
the qualifications and determine the eligibility of and recommend to the Board
of Directors individuals who may be appointed by the Board to fill vacancies
thereon and individuals who will constitute the nominees of the Board for
election by shareholders, to consider the performance of incumbent directors in
determining whether to nominate them for reelection, and to evaluate the
performance of top management officers of First of America for purposes of
developing and periodically reviewing management succession plans for
recommendation to the full Board. The new Nominating and Compensation Committee
will consider persons recommended by shareholders. Such shareholder
recommendations must be in writing setting forth the name, address, principal
occupation and qualifications of the proposed nominee and must be delivered or
mailed to the chairman, president, or secretary of First of America not later
than the close of business on December 31 of any year preceding the year for
which nomination is proposed if written proxy solicitation on behalf of the
Board of Directors is sought.
The Public Policy Committee met four times in 1993. Its principal function is
to oversee compliance by First of America and its affiliate organizations with
the federal Community Reinvestment Act, federal affirmative action requirements
and comparable state laws. It also oversees charitable giving by First of
America and its affiliate organizations and makes recommendations to the Board
with respect to these functions and related matters.
The Board of Directors met eight times in 1993. All incumbent Directors
attended 75 percent or more of the aggregate total number of meetings of the
Board of Directors and the total number of meetings held by all committees of
the Board on which they served except for Ms. Johnson.
Directors receive an annual retainer of $15,000.00 plus $900.00 for each
Board and Committee meeting attended. The chair of each standing committee also
receives $3,000.00 per year. Directors who are employees of First of America do
not receive additional compensation for service as directors.
4
<PAGE> 9
EXECUTIVE COMPENSATION
The following information about First of America's method of compensating its
executive officers is intended to both comply with the disclosure rules of the
Securities and Exchange Commission ("SEC") and provide shareholders with a
better understanding of the corporation's objectives, policies and arrangements
for executive compensation. The SEC's rules prescribe the format and scope of
this discussion, but the corporation has endeavored to make it understandable
and helpful to shareholders.
SUMMARY COMPENSATION TABLE
The following table presents, for the fiscal years shown, the annual and
long-term cash and other compensation paid to, or accrued for, each of First of
America's five most highly compensated executive officers, including the chief
executive officer (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
--------------------------------------- ------------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY ($) BONUS COMPENSATION AWARD OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR (1)(2) ($) ($)(3) ($)(4) (#) ($) ($)(5)
- ------------------- ---- ---------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Smith 1993 625,000 285,000 14,000 198,748
Chairman and Chief 1992 575,547 310,797 16,250 0
Executive Officer 1991 540,600 229,755 17,850 226,075
Richard F. Chormann 1993 420,000 167,580 8,400 115,320
President and Chief 1992 393,046 185,717 9,900 0
Operating Officer 1991 365,600 135,958 10,750 130,078
Thomas W. Lambert 1993 252,200 86,253 4,100 56,910
Executive Vice 1992 235,181 95,250 4,800 0
President 1991 210,600 67,129 5,100 58,024
and Chief Financial
Officer
David B. Wirt 1993 252,200 86,253 4,100 56,910
Executive Vice 1992 235,181 95,250 4,800 0
President 1991 210,600 67,129 5,100 59,649
John B. Rapp 1993 220,000 71,940 3,300 49,963
Executive Vice 1992 207,185 74,276 3,900 0
President 1991 185,600 58,116 4,150 53,257
</TABLE>
- -------------------------------------------
(1) Deferred compensation included.
(2) 1991 and 1992 reflect partial year adjustments for the elimination of
perquisites for automobiles, as well as country club and dining club membership
fees.
(3) There were no other significant compensation items required to be disclosed
as other annual compensation for the years shown.
(4) The corporation's long-term compensation arrangement does not provide for
restricted stock awards.
(5) There were no items of other compensation for the years shown.
5
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information concerning the stock options granted
to the Named Executives under The Restated First of America Bank Corporation
1987 Stock Option Plan (the "Stock Option Plan") during 1993 and the potential
realizable value for the stock options granted based on future market
appreciation assumptions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(1)
--------------------------------------------------------------- ----------------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE OR
UNDERLYING OPTIONS GRANTED BASE PRICE
OPTIONS GRANTED TO EMPLOYEES IN ($/SH) EXPIRATION
NAME (#)(2)(3) FISCAL YEAR(2) (4) DATE 0% ($) 5% ($) 10% ($)
- -------------------- --------------- --------------- ----------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Smith 14,000 7.95% 40.00 10/19/2003 0 352,185 892,500
Chairman and Chief
Executive Officer
Richard F. Chormann 8,400 4.77% 40.00 10/19/2003 0 211,310 535,500
President and Chief
Operating Officer
Thomas W. Lambert 4,100 2.33% 40.00 10/19/2003 0 103,140 261,375
Executive Vice
President
and Chief Financial
Officer
David B. Wirt 4,100 2.33% 40.00 10/19/2003 0 103,140 261,375
Executive Vice
President
John B. Rapp 3,300 1.88% 40.00 10/19/2003 0 83,015 210,375
Executive Vice
President
All shareholders N/A N/A N/A N/A 0 1,497,649,300 3,794,719,400
</TABLE>
- -------------------------------------------
(1) The potential realizable value is reported net of the option exercise price,
but before income taxes associated with exercise. The estimated amounts
presented represent assumed annual compounded rates of appreciation from the
date of grant through the expiration of the options. Actual gains on exercise,
if any, are dependent on the future performance of the corporation's common
shares. The 5% and 10% rates of appreciation would result in per share prices of
$65.16 and $103.75, respectively. The amounts shown for "All shareholders" are
based on 59,525,010 shares (number of fully diluted shares outstanding as of
February 1, 1994). This presentation is not intended to forecast possible future
appreciation of the corporation's common shares.
(2) The Stock Option Plan provides for limited stock appreciation rights in the
event of a change of control, liquidation or dissolution of the corporation.
Upon the occurrence of any one of these events, unexercised options previously
granted are canceled, and in lieu of further rights under the option, the
optionee will receive in cash the difference between the fair market value and
the exercise price multiplied by the number of shares to which the option
relates.
(3) The options were granted on October 20, 1993, and become exercisable for
one-third of the shares after one year, two-thirds of the shares after two years
and all shares after three years.
(4) The exercise price shown represents the average of the highest and lowest
market prices reported on the New York Stock Exchange on the date prior to the
grant ($39.9375) rounded to $40.00 as permitted by the Stock Option Plan.
6
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES
The following table presents information about the exercise, by the Named
Executives, of stock options previously granted under the Stock Option Plan
during 1993. Also shown are the number of shares covered by, and the estimated
value of, unexercised options at December 31, 1993.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED ($) EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) (1) UNEXERCISABLE UNEXERCISABLE(2)
- ----------------------------- --------------- ------------------ ------------------- ---------------------
<S> <C> <C> <C> <C>
Daniel R. Smith 0 N/A 96,017 / 30,783 1,739,190 / 143,035
Chairman and Chief
Executive Officer
Richard F. Chormann 0 N/A 57,567 / 18,583 1,043,588 / 86,650
President and Chief
Operating Officer
Thomas W. Lambert 0 N/A 21,700 / 9,000 379,988 / 41,575
Executive Vice President and
Chief Financial Officer
David B. Wirt 0 N/A 22,400 / 9,000 389,888 / 41,575
Executive Vice President
John B. Rapp 0 N/A 16,567 / 7,283 272,875 / 33,800
Executive Vice President
</TABLE>
- -------------------------------------------
(1) The value realized equals the average of the highest and lowest per share
price of the corporation's common shares reported on the New York Stock Exchange
on the date of exercise less the exercise price.
(2) The estimated value of the unexercised option shares was based on the
closing price reported on the New York Stock Exchange on December 31, 1993 of
$39.25.
7
<PAGE> 12
LONG-TERM INCENTIVE PLAN-AWARDS IN LAST FISCAL YEAR
The following table reflects the estimated future payouts under First of
America's Long-Term Incentive Compensation Plan based on the Named Executive's
target awards and the minimum threshold and maximum amounts for the three-year
performance cycle beginning January 1, 1993. These estimated payments are
contingent upon attaining the corporation's earnings per share performance goals
during the performance cycle shown. The corporation's Long-Term Incentive
Compensation Plan is more fully described in the Compensation Committee Report
on Executive Compensation under the caption "Long-Term Incentive Compensation."
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK PRICE-BASED PLAN(1)
PERIOD UNTIL ---------------------------------------
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT ($) ($) ($)
- ------------------------ --------------- ------------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Daniel R. Smith None 1/1/93 - 12/31/95 43,750 218,750 284,375
Chairman and Chief
Executive Officer
Richard F. Chormann None 1/1/93 - 12/31/95 25,200 126,000 163,800
President and Chief
Operating Officer
Thomas W. Lambert None 1/1/93 - 12/31/95 12,610 63,050 81,965
Executive Vice President
and Chief Financial
Officer
David B. Wirt None 1/1/93 - 12/31/95 12,610 63,050 81,965
Executive Vice President
John B. Rapp None 1/1/93 - 12/31/95 11,000 55,000 71,500
Executive Vice President
</TABLE>
- -------------------------------------------
(1) The minimum incentive award shown under the column titled "Threshold"
represents the estimated payment that would be awarded if 80% achievement of the
corporation's internal earnings per share goal is attained for the performance
cycle. The "Target" and "Maximum" estimated payments would be awarded if 100%
and 120% achievement of the corporation's earnings per share goals are attained
for the performance cycle, respectively. The estimated future payouts under the
threshold, target and maximum award columns were computed based on the Named
Executive's 1993 base salary. Actual incentive payments made, if any, will be
determined using the Named Executive's average base salary over the three year
performance cycle.
8
<PAGE> 13
RETIREMENT PROGRAM
The benefits shown in the table below are the estimated combined annual
benefits payable at normal retirement age of 65 to a participant in the First of
America Bank Corporation Employees' Retirement Plan ("Retirement Plan"), a
qualified non-contributory defined benefit plan, and First of America's two
supplemental retirement plans ("Supplemental Plans"), unfunded non-qualified
plans, on a straight life annuity basis before reduction for social security
benefits, as further described below.
ESTIMATED ANNUAL BENEFITS PAYABLE ON RETIREMENT AT AGE 65
<TABLE>
<CAPTION>
YEARS OF CREDITED SERVICE
AVERAGE -------------------------------------------
ANNUAL 20 25 30 35
COMPENSATION YEARS YEARS YEARS YEARS
- ----------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 200,000 80,000 100,000 120,000 140,000
300,000 120,000 150,000 180,000 210,000
400,000 160,000 200,000 240,000 280,000
500,000 200,000 250,000 300,000 350,000
600,000 240,000 300,000 360,000 420,000
700,000 280,000 350,000 420,000 490,000
800,000 320,000 400,000 480,000 560,000
900,000 360,000 450,000 540,000 630,000
1,000,000 400,000 500,000 600,000 700,000
1,100,000 440,000 550,000 660,000 770,000
1,200,000 480,000 600,000 720,000 840,000
</TABLE>
The retirement benefit formula for the Retirement Plan is based on a
participant's years of service with the corporation or subsidiary multiplied by
two percent of the covered compensation which is his or her highest average
monthly base salary plus the Annual Plan incentive payment, less any portion of
such salary or Annual Plan incentive payment deferred at the participant's
election under a deferred compensation arrangement, during any 60 consecutive
months preceding retirement minus 50 percent of the primary social security
benefit, prorated for service of less than 35 years. Employees who were employed
before January 1, 1985 (this includes all of the Named Executives) will be
entitled to receive on retirement, the higher of the benefits computed under the
Retirement Plan now in effect or under the Retirement Plan in effect before
January 1, 1985, which provided for a benefit equal to two percent of the final
average monthly earnings times years of credited service, but not exceeding 50
percent of final average monthly earnings. The Supplemental Plans provide
participants with a benefit in addition to that provided by the Retirement Plan
so that the combined retirement benefit equals the benefit which the participant
would have received from the Retirement Plan but for certain limitations under
the Internal Revenue Code and the deferral of salary under a deferred
compensation arrangement.
The current covered compensation and years of credited service for the Named
Executives are as follows: Mr. Smith -- $824,180, 38 years; Mr.
Chormann -- $535,663, 34 years; Mr. Lambert -- $297,841, 30 years; Mr.
Wirt -- $299,720, 28 years; and Mr. Rapp -- $259,325, 27 years.
MANAGEMENT CONTINUITY AGREEMENTS
First of America has entered into Management Continuity Agreements with the
Named Executives and other senior officers. Each Management Continuity Agreement
provides that in the event of a change in control of First of America before
July 19, 1995, the employment of the officer who is a party to the Agreement may
not be terminated except for cause during the three-year period following the
change in control (as defined in the Agreement). During the three-year period,
First of America or its successor may not, without the officer's agreement,
reduce his salary or change his title or area of responsibility or relocate his
office or the head office of First of America. In the event the officer is
terminated or resigns following other action by First of America or its
successor referred to in the preceding sentence, he is entitled to regular
salary payments and inclusion in employee benefit plans as follows. If the
termination or resignation occurs within the first year after the change in
control, then regular salary payments and inclusion in employee benefit plans
continue for three years after the termination or resignation. If the
termination or resignation occurs within the second year after the change in
control, then regular salary payments and inclusion in employee benefit plans
continue for two years after the termination or resignation. If the termination
or resignation occurs within the third year after the change in control, then
regular salary payments and inclusion in employee benefit plans continue for one
year after the termination or resignation. Following the officer's death, his
surviving spouse will receive only his regular
9
<PAGE> 14
salary payments for one year. In the event the officer becomes permanently
disabled, he will receive his regular salary payments through the six-month
period beginning on the date salary continuation payments under First of
America's short term disability policy cease, less any payments received during
that period under First of America's Long-Term Disability Plan. In addition, the
officer will receive benefits under the corporate dental and health plans for
one year from the date he becomes permanently disabled. While the amount of any
benefits from the Management Continuity Agreement will be dependent on salary
levels and other factors and events in the future, current annual salary levels
for the Named Executives are Mr. Smith -- $675,000, Mr. Chormann -- $453,600,
Mr. Lambert -- $265,000, Mr. Wirt -- $265,000 and Mr. Rapp -- $230,000. First of
America has established a trust which will fund benefits accruing under the
Agreements and other benefit plans in the event of a change in control of First
of America.
First of America's purpose in entering into the Agreements with the officers
selected is to provide financial security to those officers following a change
in control and to provide an additional current inducement for them to remain
employed by First of America. With continuation of these officer's employment
reasonably assured, First of America and its shareholders may be more assured
that these officers will act, with respect to a possible change in control, for
the benefit of First of America and the shareholders and without concern for
their own financial security.
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
OVERVIEW
OBJECTIVES. First of America's executive compensation program is intended to
attract, retain, motivate and reward highly qualified executive officers to
achieve the corporation's business objectives. This executive compensation
program is integrated with First of America's annual and long-term business
plans in order to establish a strong link between executive compensation and
corporate performance. The Nominating and Compensation Committee of First of
America's Board of Directors (the "Compensation Committee") believes that a
significant and direct relationship between executive compensation and corporate
performance as well as its strategic objectives will enhance long-term
performance and increase shareholder value. The Compensation Committee also
believes that stock ownership by executive officers and stock-based compensation
arrangements which align the executive officer's interests with those of First
of America shareholders are beneficial in enhancing shareholder value. Based on
these premises, under the direction and oversight of the Compensation Committee,
First of America has implemented an executive compensation program that
encourages and facilitates stock ownership by executive management and under
which more than half of the compensation of First of America's executive
officers is variable and directly dependent upon corporate financial
performance. The Compensation Committee recognizes that the Omnibus Budget
Reconciliation Act (OBRA) of 1993 establishes a $1 million annual limitation for
tax years beginning after 1993 on the tax deduction available to the corporation
for compensation paid to any executive under certain nonperformance based
compensation plans. It is generally the corporation's intention to pay
compensation which is tax deductible. Going forward the Compensation Committee
will evaluate future compensation as it relates to OBRA requirements.
COMPONENTS OF COMPENSATION. The major components of First of America's
executive compensation program consist of a formal base salary program, the
Annual and Long-Term Incentive Compensation Plans ("Annual Plan" and "Long-Term
Plan") and the Stock Option Plan. The program also includes participation by
executive officers in various indirect compensation plans and arrangements, most
of which are available on the same terms to all employees of First of America
and its affiliates. These plans and arrangements include a pension plan, a
supplemental/excess benefit retirement plan, 401(k) and supplemental savings
plans, term life and long-term disability insurance, and medical and dental care
plans. Indirect compensation of executive officers through these plans and
arrangements is considered by the Compensation Committee to be part of the
executive officer's total compensation. The primary components of First of
America's executive compensation program are described below in combination with
a discussion of the relationship of the compensation program to First of
America's performance (see "Relationship of Executive Compensation to Corporate
Performance").
COMPENSATION COMMITTEE RESPONSIBILITY
GENERAL. The Compensation Committee is responsible for the establishment and
administration of all significant compensation programs, including those
covering executive officers. Under First of America's executive compensation
program, the Compensation Committee, with assistance from First of America's
management, reviews, and when appropriate, approves and recommends to the Board
of Directors changes to the components of the executive compensation program
based on their relationship to corporate performance and the competitive market
for recruitment and retention of executive personnel. In administering the
program, the Compensation Committee also
10
<PAGE> 15
reviews the performance of First of America's executive officers, including the
Named Executives, and their contributions to the corporation's performance
results to determine their compensation levels under the various components of
the program, including base salaries, incentive payments under the Annual and
Long-Term Plans, and option grants under the Stock Option Plan.
PEER COMPARISONS. The Compensation Committee is also responsible for
selecting the peer groups to which its executive compensation and corporate
performance, for purposes of its executive compensation, are compared. The peer
groups consist of comparably sized U.S. bank holding companies within
established asset range parameters and, as a result, the bank holding companies
which comprise the peer groups will vary from year to year. First of America
targets its executive compensation levels, including the base salaries and
incentive compensation target award opportunities at the median or average
competitive levels of the applicable peer universe. The defined peer group for
each of the executive compensation plans differs from the composition of bank
holding companies included in the KBW 50 Index referenced under the Performance
Graph appearing later in this document. The KBW 50 Index consists of fifty of
the largest U.S. bank holding companies, including the money center banks, many
of which are substantially larger than First of America. First of America limits
its peer groups for compensation comparisons to smaller select groups of
comparably sized peer U.S. bank holding companies, substantially all of which
are also included under the KBW 50 Index.
The Compensation Committee considers that these peer groups represent the
primary competitors in the banking industry for financial performance
measurement reasons as well as employee recruitment and retention. The
composition of the peer groups used for determining external performance goals
are established by the Compensation Committee at the beginning of the particular
year for the Annual Plan and at the beginning of each three year performance
period for the Long-Term Plan. The peer group for the Annual Plan in 1993
consisted of similarly situated U.S. bank holding companies with assets of $10
to $30 billion. The Long-Term Plan peer group for the 1991-1993 performance
period consisted of similarly situated bank holding companies with assets of $8
to $25 billion at the beginning of that performance period. The 1993 peer group
for base salary and other compensation comparisons consisted of a narrower range
of fourteen comparably sized U.S. bank holding companies with assets of $13 to
$26 billion, selected such that First of America's asset level is positioned at
the median of the asset range. The narrower asset range for the peer group of
bank holding companies utilized for base salary comparisons more accurately
reflects the prevailing competitive market for qualified executives at other
comparably sized bank holding companies with similar responsibilities than would
a peer group such as the KBW 50 Index with a broader asset range.
RELATIONSHIP OF EXECUTIVE COMPENSATION TO CORPORATE PERFORMANCE
SALARY. First of America's executive officers' salaries, including the Named
Executives, are determined in accordance with a formal base salary program,
which is approved and periodically reviewed by the Compensation Committee. This
program provides formalized salary adjustment guidelines and base salary range
parameters to guide the Compensation Committee's decision making concerning
executive base salary levels. The base salary ranges are mainly determined by
the employee's internal position responsibility and external market comparisons
with the prevailing base salary levels of similar positions with comparable
responsibilities in other comparably-sized bank holding companies, with equal
consideration being given to both factors. The midpoints of the salary ranges
are targeted at the median or average competitive levels of the peer group, and
executives are expected to achieve the midpoint of their salary range over a
reasonable time interval. Current base salaries for the executive officer group
as a whole are slightly above the midpoints of their applicable salary ranges.
Base salary comparisons are made to the median or average competitive levels of
the peer group without regard to the fact that First of America does not provide
such company-paid perquisites as personal automobiles or club memberships as is
the practice for many of the peer organizations.
The base salary program is performance-based, with executive base salary
increases and progression within the assigned salary ranges entirely dependent
upon individual performance. Management performance plans with individually
defined objectives are established for the executive officers, and base salary
decisions are principally based on the assessment of the executive's actual
performance results relative to the objectives defined in the performance plan.
These objectives consist of both personal objectives unique to the individual
executive and common corporate profit plan or business plan goals many of which
are shared by the executive officers as a group.
The base salaries of executive officers for 1993 were determined by the
Compensation Committee in February 1993 based on 1992 performance
considerations. In reviewing the base salary recommendations for the executive
officers, the Compensation Committee first considered the salary increase
guidelines in effect for 1993 and then the individual performance of the
executive officers relative to their personal objectives as well as general
consideration of common corporate performance factors, as deemed appropriate.
The common corporate performance factors included, on an equal basis, 1992's
return on common equity ("ROE") of 17.31 percent and fully diluted earnings per
share ("EPS") of $3.68, on an ongoing operating basis, which excludes the
following substantial non-recurring items: the
11
<PAGE> 16
one-time merger costs associated with the Security Bancorp merger, the
write-down of intangible assets and the implementation of the Financial
Accounting Standards Board Statement No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("Ongoing Operations"). The
Compensation Committee's general consideration of corporate performance also
included the successful integration of Security Bancorp and Champion Federal
into the corporation, which it anticipated would provide enhanced earnings
potential, expanded market share and new product opportunities. Finally, other
factors considered were the conversions and functional consolidations which
resulted in substantial cost savings and efficiencies and helped the corporation
achieve its short and long-term business objectives. These common corporate
performance factors were considered in conjunction with the individual
performance assessment of the executive officers.
The Compensation Committee's determination of base salary adjustments has
added significance, because the target incentive awards and payments under both
the Annual and Long-Term Plans and stock option grants under the Stock Option
Plan are based on a percentage of salary (see "Annual Incentive Compensation,"
"Long-Term Incentive Compensation," and "Stock Options," below).
ANNUAL INCENTIVE COMPENSATION. The Annual Plan is intended to reward
executive officers for achievement of ROE goals. Annual bonuses paid to First of
America's executive officers, including the Named Executives, are determined in
accordance with the corporation's Annual Plan. The Compensation Committee is
responsible for reviewing and approving incentive payments under the Annual
Plan. Target incentive awards for a given year are set based on a percentage of
the participant's current base salary. Incentive payments are then based on a
comparison of First of America's ROE with the corporation's internal annual
profit plan ROE goal and with the median ROE of a selected peer group of
comparably sized bank holding companies. The internal and external ROE goals are
weighted equally for purposes of determining awards under the Annual Plan. The
target amounts are paid if both the internal and external ROE goals are fully
(100 percent) achieved. No incentive payments are made unless First of America's
ROE is at least 80 percent of the internal goal or at least 90 percent of the
external goal. The maximum annual incentive payment is limited to 160 percent of
the executive officer's target award level if First of America's ROE equals or
exceeds 120 percent of both the internal and external ROE goals. The highest
target award opportunity of 40 percent of base salary is provided to the
Chairman and CEO of the corporation, which results in a maximum annual incentive
opportunity of 64 percent of his base salary.
For 1993, the corporation's ROE exceeded 103 percent of the composite of the
internal and external ROE goals, which resulted in annual incentive award
payments of 114 percent of participants' target awards, including the Named
Executives. Performance results under the pre-established internal ROE goal of
18.49 percent amounted to 97 percent, while the corporate ROE attainment
relative to the external ROE goal of 16.40 percent equaled 110 percent of the
goal.
LONG-TERM INCENTIVE COMPENSATION. First of America's Long-Term Plan is
designed to motivate and reward its executive officers for achievement of
specific EPS growth goals over a three year performance cycle. The Compensation
Committee is responsible for overseeing the administration of the Long-Term Plan
which includes the review and approval of incentive awards payable under the
Plan. The Long-Term Plan target award levels and actual incentive payments are
based on a percentage of the executive officer's average base salary payable
over rolling three year performance cycles, with a new performance cycle
becoming effective each year.
The Long-term Plan was amended effective January 1, 1992, to include both an
internal EPS growth goal, based on the corporation's EPS growth objectives, and
an external EPS growth goal which measures the corporation's EPS growth relative
to the EPS growth of a peer group of comparably sized bank holding companies.
The internal and external EPS growth goals are weighted equally for purposes of
determining incentive payments under the Long-Term Plan. For performance periods
ending December 31, 1994, and beyond, long-term incentive payments are based on
a comparison of First of America's compounded annual EPS growth rate achieved
over the three year performance cycle, compared to the corporation's internal
EPS growth goal for the period as well as the external EPS growth goal which is
110 percent of the median compounded EPS growth rate for a peer group of
comparably sized bank holding companies over the same performance cycle.
The internal long-term EPS growth goal is established at the beginning of
each three year performance period, while the external EPS growth goal is
determined following the close of every three year performance period based on
the median EPS growth results of the applicable peer group during that period.
No incentive payments will be made for the three year performance cycles ending
December 31, 1994 and December 31, 1995, unless First of America's compounded
annual EPS growth rate is at least 80 percent of the internal EPS growth goal
for the period, and at least 90 percent of the external peer group EPS growth
goal for the same performance cycle. The maximum long-term incentive payments
are limited to 130 percent of the executive officer's target award level for
corporate EPS growth results which equal or exceed 120 percent of both the
internal and external EPS growth goals. The highest target award opportunity of
35 percent of average base salary during the performance period is provided for
the Chairman and CEO of the corporation, which limits his maximum potential
incentive award opportunity to 45.5 percent of his average base salary for the
given period.
12
<PAGE> 17
The Long-term Plan results and incentive payments for the most recent
performance period ending December 31, 1993, were determined only under the
external peer group EPS growth goal. During this period, the corporation
achieved a compounded annual EPS growth rate of 16.48 percent compared to the
external EPS growth goal of 16.57 percent based on the peer group results over
this same period. The corporate EPS performance achievement of 99.46 percent
relative to the external EPS growth goal resulted in an incentive award payment
of 97.84 percent of each participant's, including the Named Executives, target
award opportunity for this period.
STOCK OPTIONS. Stock options granted to and exercised by First of America's
executive officers, including those Named Executives shown in the Summary
Compensation Table, the Option Grants in Last Fiscal Year Table, the Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table,
were granted and exercised under the Stock Option Plan. The Stock Option Plan
provides for the issuance of shares of First of America Common Stock upon
exercise of non-statutory stock options granted to a broad range of management
level employees of the corporation and its subsidiaries at prices not less than
the fair market value of First of America Common Stock as of the grant date.
Options granted under the Stock Option Plan vest over a three year period such
that one-third of the option shares may be exercised after one year from the
grant date, two-thirds after two years and all shares granted after three years.
The Compensation Committee determines the participants to whom options are
granted and the number of shares for which the options are exercisable. Through
the grant of stock options, the Compensation Committee intends to align the
long-term interests of First of America's executive officers with those of its
shareholders with the intended effect of further motivating executive officers
to enhance shareholder value.
Stock option grant allocations under the Stock Option Plan are determined and
principally based on a specific grant allocation formula subject to
discretionary adjustment by the corporate Chairman and CEO and the Compensation
Committee. Any discretionary adjustments (positive or negative) from the formula
allocation are based on individual employee performance considerations and would
be recommended by the Chairman and CEO (for participants other than himself) for
review and approval by the Compensation Committee.
Stock option grants under the option allocation formula are determined by a
percentage of the participant's base salary divided by the current market price
of the corporation's common stock on the date preceding the option grant. The
percentage of the base salary applied in the formula for determining the number
of option shares to be granted varies by position level within the organization,
and is based on median competitive practices of peer U.S. bank holding companies
which offer both stock option plans and long-term performance-based incentive
plans as part of their long-term compensation programs. The salary multiples
range from a maximum of 90 percent of base salary for the corporate Chairman and
CEO to 50 percent for the remaining executive officer group. These salary
multiples are at or slightly below peer average multiples. The Compensation
Committee's objective is to provide competitive long-term compensation
opportunities for its executive employees between the combination of the stock
option grants under the Stock Option Plan and long-term incentive awards under
the Long-term Plan.
Stock options are granted at the then current fair market value, and the
future value to be realized from options granted under the Stock Option Plan is
dependent upon the extent to which First of America's performance is reflected
in the market price of its common stock at the time the options are exercised in
the future. The date of exercise, and, thus the time frame within which value
may be realized and the relationship of that value to the corporation's
performance, will be determined by the individual option holder. The Stock
Option Plan does not permit the adjustment of the exercise price, except to
recognize changes in capitalization, such as stock splits and dividends,
following the option grant.
OTHER COMPENSATION ARRANGEMENTS. First of America maintains certain
broad-based employee benefit plans, such as the 401(k) plan, in which the
corporation's executive officers may participate on the same terms as other
employees who meet applicable eligibility criteria, subject to legal limitations
on the amounts that may be contributed or the benefits that may be payable under
the plans. The corporation maintains companion supplemental savings and excess
benefit retirement plans to offset the Internal Revenue Service's maximum
benefit or contribution limitations on the executive officer's participation
under the tax-qualified plans. There are no matching contributions for executive
officers under the 401(k) and supplemental savings plans, because of plan
exclusions for participants in the Long-Term Plan. Also, no company paid
automobiles or club memberships are provided by the corporation to the Named
Executives. Benefits under these and the corporation's other executive
compensation arrangements not discussed above are not directly related to First
of America's corporate performance.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER
The Compensation Committee reviews Daniel R. Smith's performance and base
salary as Chairman and Chief Executive Officer ("CEO") annually, and recommends
adjustments in his salary based on this performance review for approval by the
corporate Board of Directors. Mr. Smith's base salary as Chairman and CEO is
determined by the Compensation Committee within a defined salary range which is
13
<PAGE> 18
established by the Compensation Committee in advance of formulating any base
salary increase recommendations. The salary range is based on prevailing
competitive market levels for chief executive officer positions in other
comparably sized multifaceted, independent banking institutions. Specifically,
the midpoint of Mr. Smith's salary range is targeted at the average competitive
market level for comparable CEO positions in other peer U.S. bank holding
companies as described earlier in the report. Within this assigned salary range,
the Compensation Committee approved an increase in Mr. Smith's 1993 base salary
from $577,700 to $625,000, which represents an 8.2 percent adjustment. The
Compensation Committee's decision on this salary increase was based on its
positive assessment of Mr. Smith's personal performance as Chairman and CEO and
the corporate performance results during 1992. It also takes into consideration
a desire to recognize his past contributions to the corporation's success and to
increase his base salary closer to the prevailing market levels of his peers in
other banking institutions. Mr. Smith's 1993 base salary of $625,000 was
slightly below the midpoint of his 1993 salary range.
The decision regarding Mr. Smith's 1993 base salary was based, in part, on
the corporation's financial performance for 1992, giving particular
consideration to the strong earnings achieved from Ongoing Operations. The
Compensation Committee also generally considered such additional factors as Mr.
Smith's performance over the last several years as Chief Executive Officer,
corporate growth, and the successful integration of Champion Federal and
Security Bancorp into the corporation. It also considered the completion of
several major conversions and functional consolidations which provided
significant, immediate synergies and cost efficiencies, and prepared the
corporation for future growth opportunities. The Compensation Committee further
considered Mr. Smith's leadership of the corporation and stature within the
community and the banking industry. In recognition of Mr. Smith's achievements
and abilities, he was elected President of the American Bankers Association for
the 1993-1994 term, which is perceived as a positive reflection on the
corporation. In the Compensation Committee's collective judgement, the
corporation exceeded its primary business objectives for 1992, and Mr. Smith's
contributions toward the corporation's overall success warranted the 1993 base
salary increase.
Mr. Smith's 1993 incentive award payments were determined in accordance with
the terms and established plan formulas under both the Annual and Long-term
Incentive Plans which were described earlier in this document. Mr. Smith's
Annual Plan award of $285,000 was computed based on the Corporate ROE results of
97 percent relative to the internal ROE profit plan goal of 18.49 percent and
the external peer group ROE goal of 110 percent. The composite performance
results under the Annual Plan of 103 percent resulted in an award payment of
45.6 percent of his 1993 base salary.
His Long-term Incentive Plan award for the three year performance cycle
ending December 31, 1993, amounted to $198,748 and was calculated under the plan
formula for the external EPS growth goal in the same fashion as for all other
Long-term Plan participants. The corporation's growth in EPS was 16.48 percent
over this performance period compared to the peer group EPS growth goals of
16.57 percent. These EPS growth results produced an incentive award of 34.2
percent of his average base salary of $580,384 during the performance period.
Mr. Smith's 1993 stock option grant of 14,000 shares under the Stock Option
Plan was determined in accordance with the option allocation formula based on
his 1993 base salary of $625,000, his salary multiple of 90 percent and the then
current market price per share in the same fashion as other participants without
adjustment by the Compensation Committee. Mr. Smith did not exercise any of his
stock options during 1993 and, therefore, did not derive any income under this
plan.
Submitted by the Compensation Committee of the Board of Directors.
James S. Ware, Chairman(1) Dorothy A. Johnson
John W. Brown Richard Krafft, Jr.
Joseph J. Fitzsimmons F. Karl Neumann
Clifford L. Greenwalt James W. Wogsland
Lawrence C. Hoff(3) Elizabeth S. Upjohn(2)
- -------------------------------------------
(1) Appointed Committee Chairman on January 19, 1994.
(2) Retired from the Board of Directors and the Committee on June 30, 1993.
(3) Chairman of the Compensation Committee through January 19, 1994 and retired
from the Board of Directors on January 31, 1994.
14
<PAGE> 19
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return for First of America Common Stock, based on the market price of the
common stock and assuming reinvestment of dividends, with the KBW 50 Index, a
published industry index prepared by Keefe, Bruyette & Woods, Inc., banking
industry specialists, and the Standard & Poor 500 Total Return Stock Index. The
KBW 50 Index is a market-capitalization-weighted bank total return stock index
that includes all money-center and most major regional banks. The KBW 50 was
chosen for comparison purposes because it encompasses virtually all of the
comparably sized bank holding companies in the peer groups used by the
Compensation Committee for determining compensation paid to First of America's
executive officers.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) FOA mm KBW 50 mm S&P 500 mm
<S> <C> <C> <C>
1988 100.00 100.00 100.00
1989 112.40 118.91 131.69
1990 106.77 86.39 127.60
1991 154.71 135.15 166.47
1992 207.28 172.21 179.16
1993 223.13 181.75 197.21
</TABLE>
INTEREST OF MANAGEMENT IN CERTAIN TRANSACTIONS
Various of the directors and executive officers of First of America and
members of their families and organizations of which they are executive officers
or partners or in which they beneficially own 10 percent or more of the stock
and trusts in which they have a substantial beneficial interest or serve as
trustee are at present, as in the past, customers of the subsidiaries of First
of America. As customers they were at various times during 1993 indebted to the
bank subsidiaries of First of America. All such indebtedness is pursuant to
loans which were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
J. Michael Kemp, a director of First of America, is President and Chief
Executive Officer of Howard & Howard Attorneys, P.C. which in 1993 received
payments from First of America and its subsidiaries for legal services in the
amount of $5,755,280. The payments are comparable to payments that would have
been paid to non-affiliated persons for similar services.
15
<PAGE> 20
(2) APPROVAL OF AMENDMENTS TO THE RESTATED FIRST OF AMERICA
BANK CORPORATION 1987 STOCK OPTION PLAN
The Board of Directors unanimously recommends that the shareholders approve
amendments to The Restated First of America Bank Corporation 1987 Stock Option
Plan. The Restated Plan was adopted by the Board of Directors on January 16,
1991 and approved by First of America's shareholders on April 17, 1991.
Two amendments to the Restated Plan are proposed for shareholder approval.
First, the Board of Directors has amended the Restated Plan to extend from one
year to three years the period during which optionees may exercise options
following their death, disability or retirement. Second, the Board has amended
the Restated Plan to authorize the Nominating and Compensation Committee of the
Board of Directors (the "Committee"), in its discretion, to 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
optionee's death, disability or retirement. These amendments (the "Amendments")
are included in the following description of the Restated Plan. The Restated
Plan as amended by the Amendments is hereinafter referred to as the "Plan." The
Restated Plan itself does not require shareholder approval of the Amendments.
However, Rule 16b-3 under the Securities Exchange Act of 1934 ("Exchange Act")
requires shareholder approval of the Amendments in order that grants of options
under the Plan to those officers of First of America who are subject to Section
16 of the Exchange Act be exempt from the short-swing trading liability
provisions of Section 16(b) .
DESCRIPTION OF THE PLAN
The following description of the Plan is a summary of its terms and is
qualified in its entirety by the Plan, a copy of which is attached hereto as
"Appendix A".
PURPOSE. The purpose of the 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 by those employees. Upon the
recommendation of the Committee, which was advised by an independent consultant,
First of America's Board of Directors originally adopted the plan in 1987 in
order to improve the competitiveness of its compensation arrangements for its
management personnel.
SHARES SUBJECT TO THE PLAN. Under the Plan, up to 1,700,000 authorized but
unissued or reacquired shares of First of America Common Stock may be issued
upon the exercise of nonstatutory stock options. The Plan and grants under the
Plan are subject to customary anti-dilution provisions for appropriate and
equitable adjustment in the number of shares subject to the Plan and subject to
outstanding options to reflect events such as a stock dividend or split, a
capital reorganization, a reclassification of shares, a consolidation or merger
or a transfer of substantially all the assets of First of America. If an option
expires or terminates for any reason without having been fully exercised, the
unissued shares subject to the unexercised portion of the option are available
for further grant under the Plan.
ADMINISTRATION. The Plan is administered by the Committee, which consists of
directors who are not also officers of First of America and therefore are
ineligible to receive option grants under the Plan. The current members of the
Committee are: Ware (Chairman), Brown, Fitzsimmons, Greenwalt, Johnson, Krafft,
Neumann, and Wogsland. Subject to the eligibility and other provisions of the
Plan, the Committee is authorized to determine the employees to be granted
options, the times at which options are to be granted and the number of shares
subject to each option, the terms and form of the option agreement and
appropriate and equitable anti-dilution action. The Committee is also authorized
to adopt rules and interpret the provisions of the Plan and options granted
under the Plan.
The Board of Directors may terminate the Plan at any time and may amend it in
any respect, except that, without shareholder approval, the Board may not amend
the Plan so as to increase the number of shares which may be covered by options
granted under the Plan. Unless sooner terminated by the Board of Directors, the
Plan will terminate on December 9, 1997, ten years after its original adoption
by the Board. The termination shall not affect the validity of any option
outstanding on the date of termination.
ELIGIBILITY. Persons eligible for the grant of options are those employees of
First of America and its subsidiaries determined by the Committee to be key
management employees. While it is not possible to indicate the number, names or
positions of officers or employees who may be selected for the grant of options
in the future, in 1993 options were granted to 147 key management employees. It
is likely that grants in the future will be to employees holding similar
positions and, if First of America continues to expand its activities, to a
larger number of employees.
STOCK OPTIONS. Stock options granted under the Plan have exercise prices not
less than the fair market value of the stock at the date of grant, determined on
the basis of the market price for the previous trading day, and a term of ten
years after the date of grant. An employee
16
<PAGE> 21
may receive more than one option grant. The Committee, which is authorized to
determine the terms of the option agreement, has determined that the terms
applicable to the options granted are such that not more than one-third of the
shares covered by an option granted may be purchased after the expiration of one
year after the date of grant and on or before expiration of two years after the
date of grant, not more than two-thirds of the shares may be purchased after the
expiration of two years after the date of grant, and all shares may be purchased
after expiration of three years after the date of grant until expiration of the
option ten years after the date of grant. The consideration received by First of
America for the grant of options under the Plan may include the continued
employment of the optionee.
Payment for shares on exercise of an option may, at the election of the
optionee, be either in cash or by delivery of shares of First of America Common
Stock which have been held for one year and valued at fair market value on the
date of exercise or by a combination of both cash and Common Stock. All options,
whether previously granted or granted in the future, are exercisable only while
an optionee is an employee of First of America or a subsidiary and, pursuant to
the first of the Amendments (see Section 9(b), (c) and (d) of Appendix A),
during the three-year period following the optionee's death, disability (as
defined in the Plan) or retirement, but in no case beyond the ten year option
period. Pursuant to the other of the Amendments (see Section 9(f) of Appendix
A), the Plan authorizes the Committee, in its discretion, to grant options and
amend previously granted options to provide for a post-death, disability, and
retirement exercise period of up to five years. Further, under extraordinary
circumstances, the Committee may determine that an optionee whose employment is
involuntarily terminated prior to the date an option is fully exercisable may
exercise the option fully within the three-month period following the date of
termination. Options granted under the Plan are not transferable otherwise than
by will or the laws of descent and distribution and may during optionee's
lifetime be exercised only by the optionee.
LIMITED STOCK APPRECIATION RIGHTS. The Plan provides participants with
limited stock appreciation rights in the event of a change in control,
liquidation or dissolution of First of America. Upon the occurrence of any one
of these events, unexercised options previously granted are canceled, and in
lieu of further rights under the option, the optionee will receive in cash the
difference between the fair market value and the exercise price multiplied by
the number of shares to which the unexercised portion of the option relates.
The Plan generally defines change in control as follows: (1) five days before
expiration of a tender or exchange offer that would have the effect of giving a
person, entity or group beneficial ownership of 25 percent or more of First of
America's voting stock; (2) consummation of a merger, consolidation or sale of
substantially all assets of First of America approved by its shareholders; (3)
the acquisition of beneficial ownership of 25 percent or more of First of
America's voting stock by a person, entity or group; or (4) a change in the
composition of a majority of the Board of Directors in any period of two
consecutive years without certain prior approval of or participation by the
Board in such change.
The limited stock appreciation rights could have the effect of making it more
expensive to effect a change in control of First of America involving the
removal of executive officers (some of whom are also directors) and thus could
be viewed as having anti-takeover effects. However, the Board of Director's
purpose in providing for these rights was to provide a measure of security to
Plan participants that First of America's obligations to them will be satisfied
in the event of a change in control, liquidation or dissolution and thereby to
enhance the compensatory purpose served by the Plan.
FEDERAL INCOME TAX CONSEQUENCES
The federal income tax consequences described below are based on laws,
regulations and interpretations in effect on the date of this Proxy Statement.
Future changes could affect the described tax consequences. Tax consequences
under state and local laws may not be the same as under federal law.
NONSTATUTORY STOCK OPTIONS. Options under the Plan are nonqualified options
in that they are not qualified for special federal tax treatment as incentive
stock options under Section 422 of the Internal Revenue Code. An optionee will
not recognize income and the corporation will not be entitled to a deduction at
the time an option is granted. An optionee generally will recognize ordinary
income, and the corporation will be entitled to a deduction for federal income
tax purposes subject to satisfaction of income tax withholding requirements,
upon the exercise of a nonstatutory stock option. The amount of income
recognized and deduction allowed upon the exercise of a nonstatutory stock
option is measured by the excess, if any, of the fair market value of the shares
at the time of exercise over the exercise price. The capital gain holding period
of the shares acquired will begin one day after the date the option is
exercised. When an optionee disposes of shares acquired by the exercise of the
option, any amount received in excess of the fair market value of the shares on
the date of exercise will be treated as short-term or long-term capital gain,
depending upon the holding period of the shares. If the amount received is less
than the market value of the shares on the date of exercise, the loss will be
treated as short-term or long-term capital loss, depending upon the holding
period of the shares.
17
<PAGE> 22
LIMITED STOCK APPRECIATION RIGHTS. An optionee who receives a related limited
stock appreciation right will not recognize income and the corporation will not
be allowed a deduction at the time options including such limited stock
appreciation rights are granted. The amount of cash received upon payment of
appreciation will be ordinary income to the optionee and will be allowed as a
deduction for federal income tax purposes to the corporation.
USE OF SHARES TO EXERCISE OPTIONS. If the fair market value of the shares
received on exercise of the option equals the fair market value of the shares
surrendered, a tax free exchange results with the basis of the stock received
equal to the basis of the stock surrendered. If the fair market value of the
stock received exceeds the fair market value of the stock surrendered, (i) the
number of shares surrendered will be deemed exchanged tax free for a like number
of shares received and the basis of the shares so received will be the same as
the basis of the shares delivered, and (ii) the balance of the shares received
will be treated as compensation for services at fair market value which
constitutes both the basis for the shares and the taxable amount.
ADDITIONAL INFORMATION
As of December 31, 1993, 954,633 shares were covered by options granted under
the Plan, at exercise prices averaging $27.24 per share and with expiration
dates ranging from December 8, 1997 to October 19, 2003. As of February 1, 1994,
the closing market price per share of First of America Common Stock was $37.25.
Information with respect to options granted to the Chief Executive Officer
and the other Named Executives is set forth in the Summary Compensation, Option
Grants in Last Fiscal Year, and Aggregated Option Exercises and Fiscal Year End
Value tables appearing under the caption "Executive Compensation" earlier in
this document. In 1993, options covering 39,600 common shares were granted to
the seven executive officers of the corporation, including the Named Executives,
and options covering 136,400 shares were granted to all employees, other than
executive officers, as a group.
No information can be provided with respect to option grants, if any, that
may be made in the future under the Plan. Future grants are within the
discretion of the Committee, which has made no decisions as to future grants or
the recipients thereof.
VOTE REQUIRED
In accordance with SEC Rule 16b-3 under the Exchange Act, an affirmative vote
of the holders of a majority of the shares of First of America Common Stock
present or represented and entitled to vote at the Annual Meeting is required to
approve the Amendments to the Plan. Abstentions and broker non-votes with
respect to approval of the Amendments will be counted as present or represented
and will therefore count toward the establishment of a quorum, but abstentions
will have the same effect as votes against approval of the Amendments and broker
non-votes will have no effect on the outcome of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE
AMENDMENTS TO THE PLAN.
(3) SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee (which consisted of the
following outside Directors: Mr. Hetzler, Chairman, Messrs. Barfield, Goldberg,
Greenwalt, Ware, Wolpin, and Ms. Mertz), the Board of Directors has, selected
the accounting firm of KPMG Peat Marwick as the principal independent auditors
for First of America for the current fiscal year. This selection is subject to
ratification by the vote of a majority of the shares of common stock voting at
the Annual Meeting. Ratification of the selection of auditors is being submitted
to the shareholders of First of America because the Board of Directors believes
it is an important corporate decision in which shareholders should participate.
KPMG Peat Marwick is a well-known firm of independent auditors and has been
auditing and certifying financial statements of banks and bank holding companies
for many years. KPMG Peat Marwick has been performing services of an accounting
and auditing nature for First of America since its organization in 1971. First
of America has been informed that neither the firm nor any of its partners has
any financial interest, direct or indirect, in First of America or in the
securities of First of America or its affiliated banks or companies, and that no
partner of the firm was connected with First of America or its affiliates as
promoter, underwriter, voting trustee, director, officer or employee. If the
selection is rejected, or if KPMG Peat Marwick shall decline to act, resign or
otherwise become incapable of acting, or if their employment is otherwise
discontinued, the Board of Directors will select other auditors for the period
remaining until the 1994 Annual Meeting of Shareholders when selection of
auditors shall be subject to ratification by the shareholders at the Annual
Meeting.
18
<PAGE> 23
Representatives of KPMG Peat Marwick are expected to be present at the Annual
Meeting and will have the opportunity to make a statement and respond to
appropriate questions.
OTHER MATTERS
Management does not know of any matters to be presented at the Annual Meeting
other than those mentioned above. However, if any other matters properly come
before the meeting or any adjournment thereof, the holders of the proxies are
authorized to vote thereon at their discretion.
Section 16(a) of the Securities Exchange Act of 1934 requires First of
America's directors and certain officers, and persons who own more than ten
percent of a registered class of First of America's equity securities, to file
with the SEC and the New York Stock Exchange initial reports of ownership and
reports of changes in ownership of First of America Common Stock and other
equity securities of First of America. These officers, directors and greater
than ten-percent shareholders are required by SEC regulation to furnish First of
America with copies of these reports.
To First of America's knowledge, based solely on review of the copies of such
reports furnished to First of America and written representations that no other
reports were required, during the fiscal year ended December 31, 1993 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except that
Messrs. Smith, Chormann, Lambert, Nugent, Rapp and Wirt and Mr. Richard D. Klein
each filed two late reports with respect to one transaction and each timely
filed one report that inadvertently included certain information in error. These
inadvertent discrepancies were corrected promptly upon being brought to these
persons' attention.
ADDITIONAL INFORMATION
First of America files an annual report with the SEC on Form 10-K. A copy of
the Form 10-K report for the year ended December 31, 1993 is available without
charge on written request of any person, including any beneficial owner, to whom
this Proxy Statement is addressed from George S. Nugent, Secretary, First of
America Bank Corporation, 211 South Rose Street, Kalamazoo, Michigan 49007.
SHAREHOLDER PROPOSALS
Shareholder proposals must be received by First of America no later than
November 17, 1994, for possible inclusion in the proxy materials relating to the
next annual meeting.
By Order of the Board of Directors,
/s/ George S. Nugent
George S. Nugent
Executive Vice President & Secretary
19
<PAGE> 24
APPENDIX A
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.
A-1
<PAGE> 25
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.
A-2
<PAGE> 26
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.
A-3
<PAGE> 27
APPENDIX B
FIRST OF AMERICA BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
and
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 28
<TABLE>
<CAPTION>
Table of Contents
Page
-----
<S> <C>
The Business of First of America Bank Corporation......................................................... B-1
Management's Discussion and Analysis...................................................................... B-2
Mergers and Acquisitions................................................................................. B-2
1993 Highlights.......................................................................................... B-2
Income Analysis.......................................................................................... B-5
Credit Risk Profile...................................................................................... B-11
Funding, Liquidity and Interest Rate Risk................................................................ B-15
Capital Strength......................................................................................... B-19
In Conclusion............................................................................................ B-20
Statement of Management Responsibility.................................................................... B-21
Letter of Audit Committee Chairman........................................................................ B-21
Report of Independent Auditors............................................................................ B-22
Consolidated Financial Statements
Consolidated Balance Sheets.............................................................................. B-23
Consolidated Statements of Income........................................................................ B-24
Consolidated Statements of Changes in Shareholders' Equity............................................... B-25
Consolidated Statements of Cash Flows.................................................................... B-26
Notes to Consolidated Financial Statements............................................................... B-27
Supplemental Information.................................................................................. B-48
</TABLE>
THE BUSINESS OF FIRST OF AMERICA BANK CORPORATION
Customer-focused community banking, state-of-the-art technology, a broad
range of financial services with a growing national distribution and a plan to
build upon these strengths through strategic acquisitions -- with 20 affiliate
banks and over $21 billion in assets -- this is First of America today.
Expanding upon the key components of our banking philosophy, core community
banking, with 572 offices, customer-oriented technology and high profit margin,
fee-based businesses, we will continue to build our company to bring greater
value to our shareholders.
B-1
<PAGE> 29
APPENDIX B
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following financial review compares the performance of First of America,
on a consolidated basis, for the three years ended December 31, 1993, and should
be read in conjunction with the consolidated financial statements and notes
thereto.
Mergers and Acquisitions
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
Business Combinations TABLE I
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1993 1992
- -----------------------------------------------------------------------------------------------
Assets Assets
Affiliate Acquired Affiliate Acquired
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Kewanee Investing Security Bancorp,
Company, Inc................... $ 29,776 Inc............................. $2,716,029
Citizens Federal Bank First Petersburg
(14 branches).................. 499,337 Bancshares, Inc................. 50,100
----------
Pioneer Mortgage Company
(five offices)................. --
--------
$529,113 $2,766,129
<CAPTION>
1991
- -----------------------------------------------
Assets
Affiliate Acquired
- -----------------------------------------------
<S> <C>
Champion Federal Savings
and Loan Association........... $2,147,780
Morgan Community
Bancorp, Inc................... 41,961
Home Federal Savings
Bank, F. A..................... 136,840
----------
$2,326,581
</TABLE>
- --------------------------------------------------------------------------------
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.
B-2
<PAGE> 30
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 $1.60, on an annualized basis, a 14.3 percent increase. This increase
represents the largest percentage increase since 1986 and indicates the Board's
continued confidence in the current and future profitability of First of
America.
<TABLE>
[EARNINGS PER [RETURN ON AVERAGE
SHARE GRAPH] TOTAL EQUITY GRAPH]
<S> <C> <C>
Return on average total
equity measures what a
company earns on its
Over the last five years, shareholders' investment.
fully diluted earnings First of America's 1993
per share grew at a 14.8% return on equity of
annual compound growth 17.50% exceeded its Peer
rate. Group average of 15.60%
</TABLE>
- --------------------------------------------------------------------------------
Note: The Peer Group averages were calculated by First of America and include
BancOne, Boatmen's Bancshares, Inc., Comerica, Firstar, First Bank Systems,
Marshall and Ilsley, Michigan National, National City Corporation, NBD Bancorp,
Northern Trust, Norwest, Old Kent Corporation and Society Corporation.
B-3
<PAGE> 31
Selected Financial Data TABLE II
($ in thousands, except per share data)
<TABLE>
<CAPTION>
5 Year Year ended December 31,
Compound --------------------------------------------------------------------------------------------
Growth Rate 1993 1992 1991 1990 1989 1988
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
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
------------ ----------- ----------- ----------- ----------- -----------
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) -- -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income........... 15.3% $ 247,385 147,524 159,464 154,528 151,508 121,573
- ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable
to common stock..... 18.7% $ 241,232 135,015 144,028 137,818 132,897 102,348
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets......... 7.7% $ 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442 14,661,163
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
equity.............. 7.7% $ 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442 14,661,163
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
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
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fully taxable equivalent; based on a marginal federal income tax rate of 35%
for 1993 and 34% for prior years.
B-4
<PAGE> 32
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.
B-5
<PAGE> 33
- --------------------------------------------------------------------------------
Average Balances/Net Interest Income/Average Rates TABLE IV
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1993 1992
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average
Balance Expense Paid Balance Expense Paid Balance
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments............ $ 93,662 2,854 3.05% $ 233,757 9,090 3.89% $ 273,208
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 4,537,814 262,871 5.79 3,898,195 274,048 7.03 3,267,738
State and municipal securities(1)... 530,407 42,605 8.03 493,785 46,369 9.39 580,307
Total loans(1)(2)................... 13,875,584 1,225,736 8.83 13,435,991 1,291,724 9.61 11,276,061
----------- --------- ----------- --------- -----------
Total earning assets/total interest
income(1).......................... 19,037,467 1,534,066 8.06 18,061,728 1,621,231 8.98 15,397,314
----------- --------- ----------- --------- -----------
Less allowance for loan losses...... 182,594 176,595 139,332
Cash and due from banks............. 839,506 818,279 785,798
Other assets........................ 850,783 870,879 754,446
- -------------------------------------------------------------------------------------------------------------------------------
Total............................... $20,545,162 $19,574,291 $16,798,226
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ $ 3,137,831 66,088 2.11% $ 2,820,091 86,568 3.07% $ 2,375,565
Money market savings and checking
account............................ 3,852,780 95,314 2.47 3,972,004 128,820 3.24 3,829,647
Time deposits....................... 8,638,044 409,097 4.74 8,520,485 476,215 5.59 6,804,895
----------- --------- ----------- --------- -----------
Total interest-bearing deposits..... 15,628,655 570,499 3.65 15,312,580 691,603 4.52 13,010,107
Short term borrowings............... 575,074 18,546 3.22 216,352 8,104 3.75 177,834
Long term debt...................... 272,297 19,904 7.31 248,032 21,593 8.71 176,780
----------- --------- ----------- --------- -----------
Total interest-bearing
liabilities/total interest
expense............................ 16,476,026 608,949 3.70 15,776,964 721,300 4.57 13,364,721
----------- --------- ----------- --------- -----------
Demand deposits..................... 2,463,534 2,301,768 2,064,849
Other liabilities................... 191,922 198,633 148,626
Non-redeemable preferred stock...... 74,586 140,952 165,730
Common shareholders' equity......... 1,339,094 1,155,974 1,054,300
- -------------------------------------------------------------------------------------------------------------------------------
Total............................... $20,545,162 $19,574,291 $16,798,226
- -------------------------------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------------------------------
1991 1990 1989
Average Average
Interest Rate Interest Rate Interest
Income/ Earned/ Average Income/ Earned/ Average Income/
Expense Paid Balance Expense Paid Balance Expense
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments............ 17,679 6.47% $ 462,816 38,941 8.41% $ 512,705 48,495
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 274,884 8.41 3,041,910 265,876 8.74 3,057,965 263,608
State and municipal securities(1)... 56,640 9.76 599,891 59,607 9.94 503,035 51,497
Total loans(1)(2)................... 1,217,808 10.80 10,359,695 1,188,213 11.47 9,507,486 1,115,708
--------- ----------- --------- ----------- ---------
Total earning assets/total interest
income(1).......................... 1,567,011 10.18 14,464,312 1,552,637 10.74 13,581,191 1,479,308
--------- ----------- --------- ----------- ---------
Less allowance for loan losses...... 129,067 126,793
Cash and due from banks............. 803,022 787,677
Other assets........................ 665,238 630,537
- -------------------------------------------------------------------------------------------------------------------------------
Total............................... $15,803,505 $14,872,612
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ 105,904 4.46% $ 2,334,355 111,322 4.77% $ 2,443,718 119,194
Money market savings and checking
account............................ 186,406 4.87 3,419,159 197,699 5.78 2,897,483 169,971
Time deposits....................... 469,094 6.89 6,260,473 493,857 7.89 5,743,946 470,441
--------- ----------- --------- ----------- ---------
Total interest-bearing deposits..... 761,404 5.85 12,013,987 802,878 6.68 11,085,147 759,606
Short term borrowings............... 9,424 5.30 257,243 18,836 7.32 315,251 26,293
Long term debt...................... 16,082 9.10 199,592 19,428 9.73 205,895 20,720
--------- ----------- --------- ----------- ---------
Total interest-bearing
liabilities/total interest
expense............................ 786,910 5.89 12,470,822 841,142 6.74 11,606,293 806,619
--------- ----------- --------- ----------- ---------
Demand deposits..................... 2,068,642 2,049,283
Other liabilities................... 136,245 140,256
Non-redeemable preferred stock...... 178,605 194,069
Common shareholders' equity......... 949,191 882,711
- -------------------------------------------------------------------------------------------------------------------------------
Total............................... $15,803,505 $14,872,612
- -------------------------------------------------------------------------------------------------------------------------------
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%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
1989
- ----------------------------------------------
Average
Rate
Earned/
Paid
- ----------------------------------------------
<S> <C>
ASSETS:
Money market investments............ 9.46%
Investment securities:
U.S. Treasury, federal agencies and
other.............................. 8.62
State and municipal securities(1)... 10.24
Total loans(1)(2)................... 11.74
Total earning assets/total interest
income(1).......................... 10.89
Less allowance for loan losses......
Cash and due from banks.............
Other assets........................
- ----------------------------------------------
Total...............................
- ----------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts............ 4.88%
Money market savings and checking
account............................ 5.87
Time deposits....................... 8.19
Total interest-bearing deposits..... 6.85
Short term borrowings............... 8.34
Long term debt...................... 10.06
Total interest-bearing
liabilities/total interest
expense............................ 6.95
Demand deposits.....................
Other liabilities...................
Non-redeemable preferred stock......
Common shareholders' equity.........
- ----------------------------------------------
Total...............................
- ----------------------------------------------
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.
B-6
<PAGE> 34
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 $209.9 million in 1991. Non-interest income which has grown
at an average compounded rate of 14.3 percent over the last five years, now
represents 24.0 percent of total revenue (net interest income (FTE) plus
non-interest income) versus 22.5 percent for 1989. Table V presents the major
components of non-interest income from 1989 to 1993.
B-7
<PAGE> 35
<TABLE>
<CAPTION>
Non-Interest Income and Non-Interest Expense TABLE V
($ 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.
B-8
<PAGE> 36
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 $6.1 billion a year ago. The
outstanding servicing portfolio has an average interest rate of 7.80 percent and
an average original term of 19.2 years.
B-9
<PAGE> 37
<TABLE>
<CAPTION>
Nonbank Services TABLE VI
($ 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
B-10
<PAGE> 38
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.
<TABLE>
<S> <C>
Efficiency ratio -- The efficiency ratio measures [EFFICIENCY RATIO GRAPH]
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 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 to
Consolidated Financial Statements included later in
this document. The lower the ratio, the
more efficiently
resources are being
utilized to produce
revenue. First of
America has improved its
Credit Risk Profile efficiency ratio through
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.
</TABLE>
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 $13.8 billion a year ago.
<TABLE>
<CAPTION>
Components of the Loan Portfolio TABLE VII
($ in thousands)
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 $1.4 billion at
year-end 1993 and were spread among such diverse property types as retail,
residential rental, office rental and industrial. First of America has no
foreign loans, no highly leveraged transactions and no syndicated purchase
participations. Approximately 36.4 percent of total commercial loans, including
commercial mortgages and construction loans, were made to customers in the
metropolitan areas of Detroit, Grand Rapids and Indianapolis, compared with 37.4
percent a year ago. The remainder of the commercial portfolio was spread among
suburban and rural communities throughout Michigan (31.3 percent), Illinois
(31.1 percent) and Indiana (1.2 percent). Maturity and rate sensitivity of
selected loan categories is presented in Table VIII.
B-11
<PAGE> 39
<TABLE>
<CAPTION>
Maturity and Rate Sensitivity of Selected Loans TABLE VIII
($ in thousands)
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.
B-12
<PAGE> 40
[NON-PERFORMING ASSETS AS A
PERCENT OF LOANS PLUS OREO]
Asset Quality -- Total
non-performing loans, other real estate
owned and other loans of concern for
the past five years are detailed in
Table IX. Total non-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 $168.4
million at year-end 1991. Except for
the southeast Michigan region, all
geographic areas served by the company An example of First of
showed improvement in their asset America's asset quality has
quality during 1993. Non-performing been its non-performing
assets in the southeast Michigan assets as a percent of total
region represented 1.30 percent of its loans plus OREO ratio which
total assets for 1993 compared with 1.08 has averaged 1.15 percent
percent for 1992. For the company as a over the last five years.
whole this ratio was 0.86 percent, 0.97 The Peer Group ratio over
percent and 0.87 percent, respectively the last five years averaged
for 1993, 1992 and 1991. 1.94 percent.
<TABLE>
<CAPTION>
Risk Elements in the Loan Portfolio TABLE IX
($ 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 $37.7 million. While management has identified these loans as requiring
additional monitoring, they do not necessarily represent future non-performing
loans.
Net charge-offs as a percent of average loans was 0.53 percent for 1993, 0.57
percent for 1992 and 0.53 percent for 1991. Over the last five years, First of
America's net charge-offs as a percent of average loans has averaged 0.53
percent which compares favorably to the 0.64 percent experienced by its Peer
Group. The Peer Group's net charge-offs as a percent of average loans for 1993
was 0.51 percent.
The allowance for loan losses is determined by management, taking into
consideration past charge-off experience, estimated loss exposure on specific
loans and the current and projected economic climate. Quarterly each affiliate
evaluates the adequacy of its allowance for loan loss and their recommendations
are reviewed by corporate loan review management. Management's allocation of the
allowance for loan losses over the last five years is presented in Table X. The
amounts indicated for each loan type include amounts allocated for specific
loans as well as a general allocation.
B-13
<PAGE> 41
The allowance coverage of non-performing loans at year-end 1993 was 143
percent compared with 120 percent at year-end 1992 and 131 percent at year-end
1991. It was management's determination that the level of the allowance was
adequate to absorb potential loan losses. Other ratios measuring asset quality
and the adequacy of the allowance for loan losses are presented in Table XI.
<TABLE>
<CAPTION>
Allocation of Allowance for Loan Losses TABLE X
($ 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>
B-14
<PAGE> 42
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 $177.7 million in 1991. The
dividends paid from subsidiaries met all regulatory requirements.
<TABLE>
<CAPTION>
Deposits TABLE XII
($ in thousands)
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 $3.5 billion at
year-end 1992. Also in accordance with Statement No. 115, Securities Available
for Sale include only those securities which would be available to be sold prior
to final maturity in response to liquidity or asset/liability management needs.
Table XIV details the components of the Securities Held to Maturity and
Securities Available for Sale portfolios and the amortized cost and market
values of the portfolios classified by maturity at December 31, 1993. Amortized
cost and average maturities for these portfolios are detailed in Table XV.
B-15
<PAGE> 43
<TABLE>
<CAPTION>
Securities Held to Maturity TABLE XIV
Maturity Distribution and Portfolio Yields
($ 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% $1,872,326 1,856,623 6.26%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.............. 101.26% 100.85%
- ----------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Securities Available for Sale
Maturity Distribution and Portfolio Yields
($ 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................. $ 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....................... $ -- -- --% $3,261,481 3,212,687 5.72 %
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost............. --% 101.52%
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
B-16
<PAGE> 44
<TABLE>
<CAPTION>
Securities Held to Maturity TABLE XV
($ 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 $34,987 in 1991.
<TABLE>
<CAPTION>
Securities Available for Sale
($ in thousands)
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 $125 million as a hedge against long term debt and the remainder as a
hedge against certain deposits. First of America had no outstanding interest
rate swap agreements at December 31, 1992.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities.
Table XVI presents First of America's Gap position at December 31, 1993, for one
year and shorter periods, and Table XVII details the company's five year Gap
position. The Gap reports' reliability in measuring the risk to income from a
change in interest rates is tested through the use of simulation models. The
most recent simulation models show that less than one percent of First of
America's annual net income is at risk if interest rates were to move up or down
an immediate one percent. Management has determined that these simulations
provide a more accurate measurement of the company's interest rate risk
positions than the following Gap tables.
B-17
<PAGE> 45
Interest Rate Sensitivity -- Short Term TABLE XVI
($ in millions)
<TABLE>
<CAPTION>
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>
Interest Rate Sensitivity -- Long Term TABLE XVII
($ in millions)
<TABLE>
<CAPTION>
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>
B-18
<PAGE> 46
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 $441,000 prepayment penalty.
Additional information relating to First of America's various long term debt
agreements is provided in Note 11 of the Notes to Consolidated Financial
Statements included later in this document.
Risk-Based Capital TABLE XVIII
($ in thousands)
<TABLE>
<CAPTION>
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.
B-19
<PAGE> 47
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.
B-20
<PAGE> 48
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
B-21
<PAGE> 49
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
B-22
<PAGE> 50
Consolidated Balance Sheets
($ in thousands)
<TABLE>
<CAPTION>
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....................................................... $21,230,471 20,146,767
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-23
<PAGE> 51
<TABLE>
<CAPTION>
Consolidated Statements of Income
($ 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.
B-24
<PAGE> 52
Consolidated Statements of Changes in Shareholders' Equity
($ in thousands except per share data)
<TABLE>
<CAPTION>
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.
B-25
<PAGE> 53
<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.
B-26
<PAGE> 54
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
B-27
<PAGE> 55
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
B-28
<PAGE> 56
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.
B-29
<PAGE> 57
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
$289,582,000 at December 31, 1993 and 1992, respectively.
B-30
<PAGE> 58
NOTE 5: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1993, 1992 and 1991:
<TABLE>
<CAPTION>
Fair Value of
Noncash Assets Liabilities Common
($ 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................................................................. $1,856,623 1,872,326 3,489,626 3,543,395
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-31
<PAGE> 59
The following table details the gross unrealized gains and losses for
Securities Held to Maturity at December 31, 1993 and 1992.
<TABLE>
<CAPTION>
1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ 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............................................................................................. $1,137,420 1,154,276
- ---------------------------------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 60
The following table details the gross unrealized gains and losses on
Securities Held for Sale at December 31, 1992.
<TABLE>
<CAPTION>
1992
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Gross Gross
Unrealized Unrealized
($ in thousands) Gains Losses
- ---------------------------------------------------------------------------------------------------------------------------------
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
B-33
<PAGE> 61
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 $21,226,000
in 1991.
B-34
<PAGE> 62
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1993.
<TABLE>
<CAPTION>
($ 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 $58,575,000 plus 50 percent of consolidated
net income. The indebtedness of subsidiary banks is subordinated to the claims
of its depositors and certain other creditors. Management has determined that
First of America is in compliance with all of its loan covenants.
B-35
<PAGE> 63
Maturities of outstanding indebtedness at December 31, 1993 follow.
<TABLE>
<CAPTION>
Total Principal
($ 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
B-36
<PAGE> 64
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
B-37
<PAGE> 65
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>
B-38
<PAGE> 66
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.
B-39
<PAGE> 67
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 $4,807,000.
The following table presents the plan's funded status reconciled with amounts
recognized in First of America's Consolidated Balance Sheet at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<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.
B-40
<PAGE> 68
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>
B-41
<PAGE> 69
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 $1,373,000, respectively.
B-42
<PAGE> 70
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December 31,
1993 and 1992 are presented below:
<TABLE>
<CAPTION>
December 31,
---------------------
($ 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
B-43
<PAGE> 71
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.
B-44
<PAGE> 72
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.
B-45
<PAGE> 73
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.................................................................... 1,583,234 1,479,296
Other Assets.................................................................................. 226,209 130,364
- -----------------------------------------------------------------------------------------------------------------------------
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.................................................................. $1,833,188 1,625,684
- -----------------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
---------------------------------
($ 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>
B-46
<PAGE> 74
<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>
B-47
<PAGE> 75
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.
B-48
<PAGE> 76
Quarterly Information (Unaudited)
($ in millions except per share data)
<TABLE>
<CAPTION>
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>
B-49
<PAGE> 77
DIRECTORS
Jon E. Barfield
President
Bartech, Inc., Livonia
John W. Brown
Chairman, President and
Chief Executive Officer
Stryker Corporation, Kalamazoo
Richard F. Chormann
President and Chief Operating Officer
First of America Bank Corporation
Kalamazoo
Joseph J. Fitzsimmons
Chairman
University Microfilms International,
Ann Arbor
Joel N. Goldberg
President
Thomas Jewelry Company, Pontiac
Clifford L. Greenwalt
President and Chief Executive Officer
Central Illinois Public Service Company
Springfield, Illinois
Robert L. Hetzler
President and Chief Executive Officer
Monitor Sugar Company, Bay City
Dorothy A. Johnson
President and Chief Executive Officer
Council of Michigan
Foundations, Grand Haven
J. Michael Kemp
President and Chief Executive Officer
Howard & Howard Attorneys, P.C.
Bloomfield Hills
Richard Krafft, Jr.
President and Treasurer
Star of the West Milling Company
Frankenmuth
Martha M. Mertz
Chief Executive Officer
Mayhood/Mertz Realtors, Inc., Okemos
F. Karl Neumann
President and Chief Executive Officer
Michigan Hospital
Association Insurance Company
Lansing
Daniel R. Smith
Chairman and Chief Executive Officer
First of America Bank Corporation
Kalamazoo
James S. Ware
Chairman, President and Chief Executive Officer
Durametallic Corporation, Kalamazoo
James W. Wogsland
Vice Chairman and Director
Caterpillar, Inc., Peoria, Illinois
Walter J. Wolpin
President, The Wolpin Company,
Wolpin Broadcasting and
Twin-W Realty Company
Detroit
John L. Zabriske
Chairman and Chief Executive Officer
Upjohn Company, Kalamazoo
SENIOR OFFICERS
Daniel R. Smith
Chairman and Chief Executive Officer
Richard F. Chormann
President and Chief Operating Officer
Thomas W. Lambert
Executive Vice President and
Chief Financial Officer
George S. Nugent
Executive Vice President,
Chief Service Officer and Secretary
John B. Rapp
Executive Vice President
David B. Wirt
Executive Vice President
Mervin D. Burtis
Senior Vice President -
Audit and Loan Review
Donald J. Kenney
Senior Vice President - Automation and
Operations, and Retail Credit
Bruce J. McCall
Senior Vice President - Marketing
Richard K. McCord
Senior Vice President -
Corporate Development
Samuel G. Stone
Senior Vice President and Treasurer
Kevin T. Thompson
Senior Vice President - Controller
Richard V. Washburn
Senior Vice President - Human Resources
Dean R Williams
Senior Vice President
[RECYCLED PAPER LOGO]
<PAGE> 78
- --------------------------------------------------------------------------------
PROXY
FIRST OF AMERICA BANK CORPORATION
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS OF
FIRST OF AMERICA BANK CORPORATION FOR USE ONLY AT THE ANNUAL MEETING
OF SHAREHOLDERS TO BE HELD ON APRIL 20, 1994 AND ANY ADJOURNMENT
THEREOF.
The undersigned, being a shareholder of FIRST OF AMERICA BANK
CORPORATION ("FOA"), hereby authorizes Thomas W. Lambert and George S.
Nugent, and each of them, as proxies, with the full power of
substitution, to represent the undersigned at the Annual Meeting of
Shareholders of FOA to be held at the Fetzer Business Development
Center, Western Michigan University, Wilbur Street and Marion Avenue,
Kalamazoo, Michigan on April 20, 1994 at 9:00 a.m., local time, and at
any adjournment of said meeting, and thereat to act with respect to
all votes that the undersigned would be entitled to cast, if then
personally present, as appears on the reverse side of this proxy.
In their discretion, the proxies are authorized to vote with
respect to matters incident to the conduct of the meeting and upon
such other matters as may properly come before the meeting. This proxy
may be revoked at any time before it is exercised.
Shares of Common Stock of FOA will be voted as specified. If no
specification is made, shares will be voted FOR the nominees for
director named below, FOR approval of the amendments to The Restated
First of America Bank Corporation 1987 Stock Option Plan and FOR
ratification of the selection of KPMG Peat Marwick and IN ACCORDANCE
WITH THE DISCRETION OF THE PROXIES as to any other matter which may
properly come before the meeting.
/X/ Please mark your votes as in this example.
<TABLE>
<S> <C> <C>
1. ELECTION OF DIRECTORS / / FOR / / WITHHELD as To all Nominees
</TABLE>
Nominees: Jon E. Barfield, Richard F. Chormann, Joel N. Goldberg,
James S. Ware, John L. Zabriske
(INSTRUCTION: To withhold authority to vote for any individual
nominee, mark FOR above and write nominee's name below.)
--------------------------------------------------------------------
(Continued on the other side)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
2. APPROVAL OF AMENDMENTS TO THE RESTATED FIRST OF AMERICA BANK
CORPORATION 1987 STOCK OPTION PLAN.
/ / FOR / / AGAINST / / ABSTAIN
3. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK AS INDEPENDENT
AUDITORS FOR FOA.
/ / FOR / / AGAINST / / ABSTAIN
The undersigned hereby acknowledges receipt of a Notice of Annual
Meeting of Shareholders of FOA called for April 20, 1994 and a Proxy
Statement for the Annual Meeting prior to the signing of this proxy.
Please mark, sign, date
and promptly return this
proxy card using the
enclosed envelope.
Dated: , 1994
Please sign exactly as
your name(s) appear(s)
on this proxy. When
signing in a
representing capacity,
please give title.
- --------------------------------------------------------------------------------
<PAGE> 79
APPENDIX
DESCRIPTION OF GRAPHIC MATERIAL
Page Number Graphic Material
- ----------- ----------------
B-3 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.
B-3 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 15.60
The graph also shows First of America's 1992 return on
average total equity of 16.42 percent based on ongoing
operations.
B-11 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.
B-13 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
B-20 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.
