SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
September 30, 1995 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of Registrant as specified in its Charter)
Michigan 38-1971791
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
211 South Rose Street, Kalamazoo, Michigan 49007
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
616-376-9000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at
Common Stock, October 31, 1995
$10 Par Value 63,278,737<PAGE>
FIRST OF AMERICA BANK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
No.
Consolidated Balance Sheets (Unaudited),
September 30, 1995 and December 31, 1994 1
Consolidated Statements of Income
(Unaudited) - Three and Nine Months Ended
September 30, 1995 and 1994 . . . . . . . 2
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended September
30, 1995 and 1994 . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . 4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION . . . . . . . . . . 17<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Unaudited)
September 30, December 31,
($ in thousands) 1995 1994
- ---------------------------------------- ------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 929,544 1,060,788
Federal funds sold and other short term investments 219,416 55,271
Securities:
Held to maturity, market value of $2,844,543 at
September 30, 1995 and $2,942,793 at Dec. 31, 1994 2,860,150 3,112,876
Available for sale, amortized cost of $2,180,660 at
September 30, 1995 and $2,694,929 at Dec. 31, 1994 2,182,333 2,587,626
Loans (net of unearned income):
Consumer 4,722,224 5,799,025
Commercial 2,615,550 2,344,969
Commercial real estate 3,704,193 3,423,268
Residential real estate 5,144,243 5,237,400
Loans held for sale, market value of $146,952 at
September 30, 1995 and $30,310 at Dec. 31, 1994 145,355 30,196
----------- ------------
Total loans 16,331,565 16,834,858
Less: Allowance for loan losses 238,948 228,115
----------- ------------
Net loans 16,092,617 16,606,743
Premises and equipment, net 469,852 476,165
Other assets 657,121 669,233
----------- ------------
Total assets $ 23,411,033 24,568,702
=========== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 2,843,857 2,810,203
Interest bearing 16,622,475 17,390,063
----------- ------------
Total deposits 19,466,332 20,200,266
Securities sold under repurchase agreements 278,273 583,184
Other short term borrowings 1,147,688 1,299,555
Long term debt 490,403 681,236
Other liabilities 263,465 225,573
----------- ------------
Total liabilities 21,646,161 22,989,814
----------- ------------
SHAREHOLDERS' EQUITY
Common equity 1,764,872 1,578,888
----------- ------------
Total liabilities and shareholders' equity $ 23,411,033 24,568,702
=========== ============
See accompanying notes to consolidated financial statements.
</TABLE>
1<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
------------------------ -----------------
($ in thousands, except per share data) 1995 1994 1995 1994
- ------------------------------------- --------- --------- -------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 363,889 329,175 1,113,079 930,064
Investment securities 76,392 87,442 242,128 235,461
Other interest income 1,718 526 3,825 1,722
--------- --------- --------- ---------
Total interest income 441,999 417,143 1,359,032 1,167,247
--------- --------- --------- ---------
INTEREST EXPENSE
Deposits 185,787 146,674 544,166 404,762
Short term borrowings 19,672 20,677 80,741 40,328
Long term debt 11,970 9,923 37,041 20,517
--------- --------- --------- ---------
Total interest expense 217,429 177,274 661,948 465,607
--------- --------- --------- ---------
NET INTEREST INCOME 224,570 239,869 697,084 701,640
Provision for loan losses 21,368 21,238 63,878 64,347
--------- --------- --------- ---------
NET INTEREST INCOME AFTER
PROVISION FOR LOAN LOSSES 203,202 218,631 633,206 637,293
--------- --------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts 25,297 22,988 74,731 65,588
Investment securities transactions, net 457 978 (925) 9,693
Trust and financial services revenue 24,365 20,364 69,399 61,334
Bank card revenue 20,044 11,276 41,925 30,994
Mortgage banking revenue 8,993 5,234 24,492 18,998
Other operating income 13,040 10,245 35,726 30,894
--------- --------- --------- ---------
Total non-interest income 92,196 71,085 245,348 217,501
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Personnel 102,698 108,346 328,853 321,841
Occupancy, net 15,794 15,929 47,164 45,769
Equipment 14,906 14,228 44,153 40,991
Outside data processing 4,524 4,649 13,998 13,599
Amortization of intangibles 5,260 4,539 15,880 11,149
Other operating expense 50,115 59,145 166,830 175,745
--------- --------- --------- ---------
Total non-interest expense 193,297 206,836 616,878 609,094
--------- --------- --------- ---------
INCOME BEFORE TAXES 102,101 82,880 261,676 245,700
Income tax expense 35,387 26,475 90,987 77,771
--------- --------- --------- ---------
NET INCOME $ 66,714 56,405 170,689 167,929
========= ========= ========= =========
PER COMMON AND COMMON
EQUIVALENT SHARE $ 1.05 .96 2.69 2.82
See accompanying notes to consolidated financial statements.
</TABLE>
2<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
(Unaudited)
Nine Months Ended
September 30,
------------------------
($ in thousands) 1995 1994
- ------------------------------ ---------- ----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 170,689 167,929
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 35,696 33,939
Provision for loan losses 63,878 64,347
Provision for deferred taxes (4,365) (6,339)
Amortization of intangibles 15,880 11,149
(Gain) loss on the sale of securities available for sale (2,887) (9,693)
(Gain) loss on the sale of mortgage loans held for sale (15,146) (10,036)
(Gain) loss on the sale of other assets (3,131) (208)
Proceeds from the sales of mortgage loans held for sale 644,751 882,934
Net other decrease (increase) in mortgage loans held for sale (744,764) (544,002)
Change in assets and liabilities net of acquisitions:
(Increase)decrease in interest and other
income receivable (31,600) (23,291)
(Increase)decrease in other assets (129,847) 26,084
Increase(decrease) in taxes payable 29,765 (4,877)
Increase(decrease) in interest and
other expense payable 75,717 5,069
Increase(decrease) in other liabilities (82,999) (16,815)
---------- ----------
NET CASH FROM OPERATING ACTIVITIES 21,637 576,190
---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from maturities of investment securities held
to maturity 296,260 352,176
Purchases of investment securities held to maturity (126,979) (1,630,368)
Proceeds from the sale of securities available for sale 776,619 1,516,122
Proceeds from the maturities of securities available for sale 369,101 704,565
Purchases of securities available for sale (550,382) (1,696,882)
Proceeds from the securitization of loans 498,588 --
Net other (increase) decrease in loans & leases 66,819 (1,553,065)
Premises and equipment purchased (92,963) (58,012)
Proceeds from the sale of premises and equipment 66,711 2,741
(Acquisition)/sale of affiliates, net of cash acquired 373 319,316
---------- ----------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,304,147 (2,043,407)
CASH FLOWS FROM FINANCING ACTIVITIES: ---------- ----------
Net increase(decrease) in short term deposits (452,945) 393,424
Net increase(decrease) in time deposits (280,989) 255,754
Net increase(decrease) in short term borrowings (456,778) 539,465
Proceeds from issuance of long term debt 25,004 697,838
Repayments of long term debt (213,382) (201,608)
Proceeds from issuance of common stock 1,640 241
Payments for purchase and retirement of common stock -- (103,707)
Dividends paid (79,578) (71,218)
---------- ----------
NET CASH PROVIDED BY FINANCING ACTIVITIES (1,457,028) 1,510,189
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ---------- ----------
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD (131,244) 42,972
1,060,788 903,517
CASH AND CASH EQUIVALENTS AT END OF PERIOD ---------- ----------
929,544 946,489
See accompanying notes to consolidated financial statements. ========== ==========
</TABLE>
3<PAGE>
NOTE 1: GENERAL
The accompanying interim financial statements are unaudited. In
the opinion of management, all adjustments necessary for a fair
presentation of the consolidated financial statements have been
included and all such adjustments are of a normal recurring
nature. Certain amounts included in the prior period financial
statements have been reclassified to conform with the current
financial statement presentation.
NOTE 2: NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
September 30,
-------------------------
(in thousands) 1995 1994
- ----------------------------- ----------- ---------
<S> <C> <C>
Non-accrual loans $ 102,112 108,938
Restructured loans 7,782 5,885
Other real estate owned 31,691 40,669
----------- ---------
Total non-performing assets $ 141,585 155,492
============ ==========
</TABLE>
NOTE 3: ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(in thousands) 1995 1994 1995 1994
- ------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
Balance, beginning of period $235,939 204,465 228,115 188,664
Provision charged against income 21,368 21,238 63,878 64,347
Recoveries 15,209 10,076 42,115 28,381
Loans charged off (33,568) (22,209) (95,160) (70,016)
Allowance of acquired/(sold) banks -- 26 -- 2,220
--------- -------- -------- --------
Balance, end of period $238,948 213,596 238,948 213,596
========= ======== ======== ========
</TABLE>
On January 1, 1995, First of America adopted Financial Accounting
Standards Board Statement No. 114, "Accounting by Creditors for
Impairment of a Loan," as amended by Statement No. 118,
"Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures." First of America's non-performing
loan policies, which address nonaccrual and restructured loans,
indicate that such loans meet the definitions set forth for
"impaired loans" in Statement No. 114. Therefore, commercial and
commercial mortgage loans meeting the definition of nonaccrual
and restructured are reported as impaired loans for disclosure
purposes.
On January 1, 1995, First of America identified $82.8 million of
impaired loans under the guidelines of Statement No. 114. This
resulted in an allowance for impaired loan losses of $17.4
million which was transferred from the general allowance. At
September 30, 1995, the recorded investment in loans considered
to be impaired under Statement No. 114 was $81.8 million with an
average recorded investment in impaired loans during the quarter
of approximately $81.4 million. Included in the impaired loans
total were $37.6 million of impaired loans for which the related
specific allowance for loan losses was $15.6 million. The
remaining $44.2 million of impaired loans did not require a
4<PAGE>
specific allowance for loan losses according to Statement No.
114. For the quarter, First of America recognized interest
income on impaired loans of $566 thousand.
NOTE 4: COMMON STOCK AND CALCULATION OF EARNINGS PER SHARE
At September 30, 1995 and 1994, there were 63,274,924 and
58,400,656 common shares outstanding, respectively. At the same
dates, there were 100,000,000 authorized shares of $10 par value
common stock. Common and common equivalent earnings per share
amounts were calculated by dividing net income applicable to
common stock by the weighted average number of common and common
equivalent shares outstanding during the respective periods
adjusted for outstanding stock options.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
-------------------------- -------------------------
1995 1994 1995 1994
------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Average common and common
equivalents shares outstanding 63,586,615 58,847,754 63,445,753 59,586,028
</TABLE>
NOTE 5: MERGERS AND ACQUISITIONS
<TABLE>
<CAPTION>
Date of Total Assets Financial
($ in thousands) Acquisition Acquired Reporting Value
- --------------------------------- ---------------- ----------- --------------
<S> <C> <C> <C>
West Suburban Financial Corp. August 4, 1995 $ 12 --
Underwriting Consultants, Inc. February 1, 1995 1,256 --
New England Trust Company January 1, 1995 1,576 1,092
Presidential Holding Corporation December 31, 1994 256,352 6,714
F&C Bancshares, Inc. December 31, 1994 379,791 35,064
First Park Ridge Corporation October 1, 1994 327,391 75,890
LGF Bancorp, Inc. May 1, 1994 412,336 61,902
Goldome Federal Savings Bank April 15, 1994 376,858 60,015
(Florida offices)
</TABLE>
5<PAGE>
<TABLE>
Item 2. Managements' Discussion and Analysis of Financial Condition and Results of Operations
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary: The following table sets forth the period to period changes in the principal items
included in the consolidated statement of income for the three, six and nine months
ended September 30, 1995, compared with the corresponding 1994 periods. The bracketed
amounts represent decreases.
Three Months Ended Nine Months Ended
September 30, September 30,
1995 vs 1994 1995 vs 1994
-------------------- --------------------
($ in thousands) Change Percent Change Percent
- ----------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest and fee income on loans $ 34,714 10.5 % $ 183,015 19.7 %
Interest income on investments (11,050) (12.6) 6,667 2.8
Interest income on federal funds sold and
other short term investments 1,192 226.6 2,103 122.1
--------- --------- --------- ---------
Total interest income 24,856 6.0 191,785 16.4
--------- --------- --------- ---------
Interest expense on deposits 39,113 26.7 139,404 34.4
Interest expense on borrowed funds 1,042 3.4 56,937 93.6
--------- --------- --------- ---------
Total interest expense 40,155 22.7 196,341 42.2
--------- --------- --------- ---------
Net interest income (15,299) (6.4) (4,556) (0.6)
Provision for loan losses 130 0.6 (469) (0.7)
Non-interest income 21,111 29.7 27,847 12.8
Non-interest expense (13,539) (6.5) 7,784 1.3
--------- --------- --------- ---------
Income before tax expense 19,221 23.2 15,976 6.5
Applicable income tax expense 8,912 33.7 13,216 17.0
--------- --------- --------- ---------
Net income $ 10,309 18.3 % $ 2,760 1.6 %
========= ========= ========= =========
</TABLE>
HIGHLIGHTS
Net income for the third quarter was $66.7 million, up 18.3
percent from $56.4 million a year ago. Earnings per share for
the quarter were $1.05 per share, up 9.4 percent from the $0.96
reported for the third quarter of 1994. Non-interest income
growth, the FDIC insurance premium reduction and lower operating
costs combined to offset the impact of a lower net interest
margin. Year-to-date income was $170.7 million, or $2.69 per
share, and $167.9 million, or $2.82 per share, for 1994.
Return on average assets for the quarter and year-to-date periods
was 1.13 percent and 0.95 percent compared with 0.96 percent and
1.01 percent a year ago. Return on average equity for the same
periods was 15.17 percent and 13.62 percent compared with 15.06
percent and 14.81 percent.
Total assets were $23.4 billion, down slightly from a year ago
due in part to the securitization of $500 million in credit card
receivables completed in June. Total loans increased 3.5 percent
from a year ago as loans added from acquisitions and internal
loan growth offset the previously mentioned securitization.
Total deposits decreased 0.7 percent. Excluding acquisitions
deposits would have decreased 5.4 percent.
INCOME ANALYSIS - THIRD QUARTER AND YEAR-TO-DATE COMPARISON
Net interest income (FTE) decreased 6.4 percent over the year ago
6<PAGE>
quarter and 0.8 percent for the year-to-date period. The lower
net interest margin was the main reason for the quarter decline
as average earning assets remained level quarter-to-quarter.
Year-to-date, the higher level of average earning assets offset
the lower net interest margin. The current quarter's net
interest margin was down from a year ago, 4.23 percent compared
with 4.51 percent, but was approximately nine basis points higher
than the second quarter margin when adjusted for the credit card
securitization. The year-to-date net interest margin was 4.27
percent compared with 4.65 percent a year ago. The lower margins
for 1995 were the result of the rapidly rising interest rate
environment during 1994 and the acquisitions completed during the
fourth quarter of 1994. The securitization lowered the current
quarter's margin by approximately 12 basis points and the year-
to-date margin by approximately 5 basis points. Table 1 provides
detail on the yields earned on interest earning assets and the
average rates paid on interest-bearing liabilities for the last
six quarters.
The provision for loan losses was level with a year ago for both
periods and exceeded net charge-offs by $3.0 million and $10.8
million, respectively. As a percent of average loans, net
charge-offs were 0.45 percent and 0.43 percent for the current
year periods compared with 0.31 percent and 0.37 percent for the
1994 periods. Year-to-date, net charge-offs within the consumer
installment and revolving portfolios were $51.9 million or 1.30
percent of average loans versus $31.9 million or 0.79 percent of
average loans a year ago. Charge-offs and recoveries by
portfolio type are detailed in Table 3.
Total non-interest income was up 29.7 percent for the quarter and
12.8 percent year-to-date over 1994. The primary sources of fee
income -- service charges on deposit accounts, trust and
financial services revenue, credit card fees and mortgage banking
revenue -- all increased over ten percent for the quarter and
year-to-date comparisons. Service charges on deposit accounts
increased 10.0 percent over 1994's third quarter and 13.9 percent
for the nine month period due to the implementation of new fee
structures.
Traditional trust fees were up 14.0 percent for the quarter and
10.7 percent year-to-date. Trust assets under management
increased 18.4 percent since last year, totalling $15.4 billion,
as a result of rising market values on securities and the January
1, 1995 acquisition of the New England Trust Company which had
over $600 million in assets under management. Other financial
services revenue, generated from brokerage and investment
management services, increased 35.0 percent and 20.1 percent over
the comparable year ago periods.
Mortgage banking revenue increased 71.8 percent and 28.9 percent
for the comparable periods with gains on the sale of mortgages
totalling $6.0 million, up 198.2 percent, for the quarter and
$15.1 million year-to-date, up 50.9 percent. Of the year-to-date
increase, $2.7 million is attributed to the adoption of Financial
Accounting Standards Board Statement No. 122, "Accounting for
Mortgage Servicing Rights an amendment of FASB Statement No. 65."
At September 30, 1995, the servicing portfolio for outside
investors was $3.2 billion, level with a year ago. Loan
originations at $492 million were down slightly from the year ago
quarter, but represented the highest quarterly level of
originations to date for 1995.
Credit card fees, including the servicing fees earned on the
securitized receivables, increased 77.8 percent and 35.3 percent.
During June, First of America securitized $500 million in credit
card receivables. This transaction added to non-interest income
but lowered the net interest margin; net income was basically
unaffected. The securitization added $9.2 million in net
servicing fees to the quarter and $10.7 million year-to-date.
The managed credit card portfolio, which includes the securitized
receivables, was $1.3 billion at September 30, 1995, up slightly
from a year ago.
7<PAGE>
Total non-interest expense was $193.3 million for the quarter,
down 6.5 percent from last year's $206.8 million. Year-to-date,
non-interest expense was up 1.3 percent. Included in year-to-
date non-interest expense was an $8.9 million reduction in FDIC
premiums and $12.6 million in one-time charges related to the
internal restructuring begun a year ago.
As a percent of average assets, personnel costs excluding
severance, declined each quarter during 1995, demonstrating the
positive impact that the restructuring is having on the company's
cost structure. At September 30, 1995, full time equivalent
employees (FTEs) totalled 12,550, down 6.8 percent from a year
ago. The lower number of FTEs was achieved despite the 340 FTEs
added from the acquisitions completed since last September.
For 1995 both the burden and efficiency ratios improved due to
lower operating expenses and higher revenue. The burden ratio
for the quarter was 1.72 percent versus 2.31 percent a year ago.
On a year-to-date basis, excluding restructuring costs, the
burden ratio was 2.00 percent versus 2.37 percent. The
efficiency ratio, which was negatively impacted by the lower net
interest margin, was 60.29 percent for the quarter compared with
65.63 percent and year-to-date, excluding restructuring costs,
improved to 63.32 percent versus 65.36 percent.
ASSET QUALITY AND CREDIT RISK PROFILE
First of America's loan portfolio has no significant
concentrations of credit to any specific borrower or within any
geographic region, thereby minimizing credit risk exposure. Also
minimizing credit risk are First of America's conservative
lending policies and loan review process. In addition, First of
America's loan customers are largely consumers, individual
homeowners and small to mid-sized businesses. At September 30,
1995, the loan portfolio was comprised of residential mortgages
(32.4 percent), consumer loans (28.9 percent), commercial
mortgages (22.7 percent) and commercial loans (16.0 percent).
The allowance for loan losses was 1.46 percent of total loans at
September 30, 1995 compared with 1.35 percent a year ago. The
allowance coverage of non-performing loans which showed
additional improvement over a year ago was 217.43 percent
compared with 186.02 percent. Non-performing loans and loans 90
days past due are detailed by portfolio in Table 4.
FUNDING, LIQUIDITY AND INTEREST RATE RISK
First of America continues to monitor appropriate interest rate
risk, provide liquidity and moderate changes in the market value
of the investment securities portfolio through a centralized
funds management division.
Liquidity is measured by a financial institution's ability to
raise funds through deposits, borrowed funds, capital and the
sale of assets. First of America relies primarily upon core
deposits for its liquidity. At September 30, 1995, core deposits
equalled 95.6 percent of total deposits. First of America does
not issue negotiated CD's in the national money markets, and the
level of purchased funds is 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.
First of America's interest rate risk policy is to minimize the
effect on net income resulting from a change in interest rates
through asset/liability management at all levels in the company.
Each banking affiliate completes an interest analysis quarterly
using an asset/liability model, and a consolidated analysis is
then completed using the affiliates' data.
The difference between rate sensitive assets and liabilities,
8<PAGE>
including the impact of off-balance sheet interest rate swaps, is
presented in Table 5. The GAP reports' reliability in measuring
the risk to income from a change in interest rates is tested
through the use of simulation models. The most recent simulation
model, using various interest rate shock scenarios, 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 simulation
models provide a more accurate measurement of the company's
interest rate risk position than the GAP tables.
To manage interest rate sensitivity First of America and its
subsidiaries have entered into interest rate swaps as a hedge
against certain debt and deposit liabilities. 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. Gains or losses on the termination
of interest rate swaps are deferred and amortized over the
remaining lives of the designated balance sheet liability. When
the swap becomes uncovered during the swap agreement period, the
swap is immediately marked-to-market with a corresponding charge
to current earnings.
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. The following table outlines First of America's
outstanding interest rate swaps at September 30, 1995.
9<PAGE>
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
($ in thousands)
Net Interest Income
Weighted Average Average Impact for the
Notional Fair Market Average Rate Received Rate Paid Nine Months Ended
Hedged Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed September 30,
- ------------------------ --------- ------------ -------------- --------------- --------------- ---------------------
<S> <C> <C> <C> <C> <C> <C>
Rising Rate CDs -- -- -- -- -- $(1,158)
Market Rate CDs * $ 22,066 1,658 3.0 -- -- (739)
FHLB Advance -- -- -- -- -- 25
FirstRate Fund deposits 12,000 (30) 10.5 5.88%/variable 6.03/fixed (3)
Bank notes 10,000 43 10.8 5.84%variable 6.23/fixed 33
Long term debt 75,000 (844) 15.4 5.30%/fixed 5.88/variable (738)
- ------------------------ --------- ------------ -------------- --------------- --------------- ---------------------
Total $119,066 827 12.2 $(2,580)
========================= ========== ============= ============== =====================
* This represents a basis swap.
</TABLE>
At September 30, 1995, First of America had $277 thousand in
deferred swap losses from sales and terminations that are being
amortized into earnings over the remaining life of the hedged
liabilities. At September 30, 1994, outstanding swaps totalled
$836.0 million in notional amounts and had added $1.3 million to
net interest income for the nine months ended September 30, 1994.
These swaps had a negative replacement value of $14.2 million.
First of America also utilizes interest rate caps to manage its
interest rate risk. Interest rate caps are agreements to
make/receive payments for interest rate differentials between an
index rate and a specified maximum rate, computed on notional
amounts. At September 30, 1995, First of America had outstanding
interest rate cap agreements with notional amounts totalling $125
million, which were designated to certain FirstRate Fund
deposits. First of America had no outstanding interest rate cap
agreements at September 30, 1994.
At September 30, 1995, Securities Held to Maturity totalled $2.9
billion, with a resulting net unrealized loss of $15.6 million.
The net unrealized loss in the Held to Maturity portfolio last
year was $110.0 million. In accordance with Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," Securities Available
for Sale are carried at market value which totalled $2.2 billion
at September 30, 1995. The $1.7 million net unrealized gain in
Securities Available for Sale resulted in a corresponding, after-
tax market value adjustment to equity of $1.1 million. At
December 31, 1994, the negative market value adjustments to
securities and equity from the Securities Available for Sale
portfolio were $107.3 million and $92.3 million, respectively.
CAPITAL STRENGTH
Total shareholders' equity increased 17.5 percent from a year ago
to $1.8 billion at September 30, 1995. The increase in equity
was due to $115.0 million in net earnings retention, $118.8
million from acquisitions and a $45.1 million positive change
from the FAS No. 115 adjustment. The book value per share rose
to $27.89 from the $25.72 reported a year ago.
First of America continues to maintain, both on a consolidated
level and an affiliate basis, capital levels within the
parameters of "well capitalized" as defined by regulatory
guidelines. The consolidated total capital to risk adjusted
assets ratio at September 30, 1995 was 12.72 percent, the tier I
ratio was 9.29 percent and the tier I leverage ratio was 6.59
percent.
10<PAGE>
LOOKING AHEAD
There is pending legislation in Congress which would assess a
one-time premium on thrift deposits insured by the Savings
Association Insurance Fund of which First of America has
approximately $4.5 billion. This one-time charge could result in
a $38 million pre-tax charge, based on an assessment of $.85 per
$100 of deposits, to the fourth quarter earnings or later,
depending upon passage of final legislation. The premium rate on
these deposits is expected to match the lower bank deposit rate
after the one-time charge.
IN CONCLUSION
First of America's goal when beginning its internal restructuring
over a year ago was to streamline operations and to make the
delivery of services more efficient, thereby reducing ongoing
non-interest expense by five percent, or $8 to $10 million per
quarter. The third quarter results indicate that First of
America has attained its goal. Excluding the impact of
acquisitions and the FDIC rate reduction, third quarter's non-
interest expense was down approximately $9 million over the year
ago quarter. This achievement indicates First of America's
committment to its long term goals of a return on assets of 1.25
percent or higher, an efficiency ratio of 60 percent or lower and
a return on equity of 17 percent to 18 percent.
11<PAGE>
<TABLE>
<CAPTION>
TABLE 1
CONSOLIDATED YIELD ANALYSIS (a)
1995 1994
---------------------------- -----------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 June 30
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Prime Rate (b) 8.8 % 9.0 8.9 8.1 7.5 6.9
EARNING ASSETS
Money Market Investments 6.74 % 5.96 5.18 3.77 3.51 2.83
U.S. Government and agencies
securities 5.89 5.90 5.90 5.81 5.70 5.61
State and municipal securities 8.55 8.94 8.71 8.57 8.73 8.43
Other securities 6.36 6.33 6.32 6.21 6.16 6.00
-------- -------- -------- -------- -------- --------
Total securities 6.07 6.06 6.08 5.98 5.89 5.79
-------- -------- -------- -------- -------- --------
Consumer loans 9.57 9.83 9.58 9.19 9.14 8.98
Commercial loans 9.17 9.33 9.25 8.70 8.32 7.99
Commercial real estate loans 9.30 9.40 9.35 8.99 8.69 8.47
Residential real estate loans 7.95 7.95 7.84 7.76 7.71 7.66
-------- -------- -------- -------- -------- --------
Total loans 8.92 9.06 8.95 8.65 8.51 8.36
-------- -------- -------- -------- -------- --------
Total earning assets 8.24 % 8.32 8.20 7.94 7.77 7.63
======== ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES
Time deposits:
CD's - less than 12 months 5.45 % 5.19 4.79 4.46 4.20 4.29
CD's - 12 months or more 5.68 5.55 5.26 4.79 4.55 4.43
CD's - $100,000 or more 5.80 6.10 5.72 5.05 4.53 3.71
Other time deposits 5.67 5.71 5.46 5.27 5.17 5.07
Other core deposits:
Savings deposits and NOW 1.74 1.71 1.70 1.84 1.49 1.49
Money market savings and checking 3.91 3.98 4.01 3.39 3.06 2.50
-------- -------- -------- -------- -------- --------
Total deposits 4.40 4.35 4.16 3.81 3.51 3.31
-------- -------- -------- -------- -------- --------
Short term borrowings 6.38 6.09 5.96 5.32 4.71 4.13
Long term debt 7.36 7.53 7.66 7.15 6.78 6.86
-------- -------- -------- -------- -------- --------
Total borrowed funds 6.72 6.44 6.39 5.93 5.23 4.70
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 4.64 % 4.65 4.45 4.06 3.72 3.44
======== ======== ======== ======== ======== ========
NET INTEREST MARGIN
Interest income to average earning
assets 8.24 % 8.32 8.20 7.94 7.77 7.63
Interest expense to average earning
assets 4.01 % 4.06 3.91 3.55 3.26 2.98
Net interest margin 4.23 % 4.26 4.29 4.39 4.51 4.65
(a) Fully taxable equivalent, based on a marginal federal income tax rate of 35%.
(b) The First National Bank of Chicago Corporate Base Rate.
</TABLE>
12<PAGE>
<TABLE>
<CAPTION>
TABLE 2
ANALYSIS OF NET INTEREST INCOME
Third Quarter 1995 Versus Third Quarter 1995 Versus
($ in thousands) Third Quarter 1994 Second Quarter 1995
- ------------------------------ -------------------------------- --------------------------------
CHANGES IN RATE AND VOLUME Total Change Due To Total Change Due To
INCREASE (DECREASE): Change Volume Rate Change Volume Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans (FTE) $ 34,897 18,733 16,164 (14,462) (11,474) (2,988)
Taxable securities (10,132) (12,955) 2,823 (4,748) (4,982) 234
Tax exempt securities (FTE) (1,457) (1,342) (115) (254) (340) 86
Money market investments 1,192 516 676 719 567 152
------- ------- ------- ------- ------- -------
Total Interest Income 24,500 4,952 19,548 (18,745) (16,229) (2,516)
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing deposits 39,113 1,198 37,915 3,979 (241) 4,220
Short term borrowings (1,005) (7,141) 6,136 (12,350) (14,071) 1,721
Long term borrowings 2,047 1,141 906 (466) (327) (139)
------- ------- ------- ------- ------- -------
Total Interest Expense 40,155 (4,802) 44,957 (8,837) (14,639) 5,802
------- ------- ------- ------- ------- -------
Change in net interest income (FTE) $ (15,655) 9,755 (25,410) (9,908) (1,590) (8,318)
======= ======= ======= ======= ======= =======
NOTE: The change in income attributable to volume is calculated by multiplying the change in volume times
the prior year's rate. The change in income attributable to rate is calculated by multiplying the change in rate
times the prior year's volume. Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. Fully
taxable equivalent income on certain tax exempt loans and securities is calculated using a 35% tax rate.
</TABLE>
13<PAGE>
<TABLE>
<CAPTION>
TABLE 3
SUMMARY OF LOAN LOSS EXPERIENCE
($ in thousands) 1995 1994
- ----------------------------- ---------------------------------- -----------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 June 30
ALLOWANCE FOR LOAN LOSSES --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, at beginning of period $ 235,939 230,524 228,115 213,596 204,465 194,745
Provision charged against income 21,368 22,000 20,510 22,224 21,238 22,501
Allowance of acquired (sold) banks -- -- -- 9,200 26 2,194
Recoveries:
Commercial 1,925 1,375 1,626 2,243 1,555 2,265
Commercial mortgage 911 456 884 426 403 480
Residential mortgage 10 19 27 40 95 75
Consumer installment 10,510 10,043 8,093 4,891 5,963 4,803
Consumer revolving 1,853 2,183 2,200 2,153 2,060 2,009
--------- --------- --------- --------- --------- ---------
Total recoveries 15,209 14,076 12,830 9,753 10,076 9,632
--------- --------- --------- --------- --------- ---------
Charge-offs:
Commercial 1,792 1,177 1,119 2,621 3,612 3,449
Commercial mortgage 1,067 2,220 627 2,882 1,121 2,619
Residential mortgage 238 73 73 212 373 254
Consumer installment 20,386 15,133 16,554 10,260 7,598 8,831
Consumer revolving 10,085 12,058 12,558 10,683 9,505 9,454
--------- --------- --------- --------- --------- ---------
Total charge-offs 33,568 30,661 30,931 26,658 22,209 24,607
--------- --------- --------- --------- --------- ---------
Net charge-offs 18,359 16,585 18,101 16,905 12,133 14,975
--------- --------- --------- --------- --------- ---------
Balance, at end of period $ 238,948 235,939 230,524 228,115 213,596 204,465
========= ========= ========= ========= ========= =========
Average loans outstanding (net of
unearned income) $16,337,833 16,848,514 16,855,909 16,112,582 15,484,765 14,777,048
CHARGE-OFFS AND RECOVERIES RATIOS
Net charge-offs to average loans (a) 0.45 % 0.39 0.44 0.42 0.31 0.41
Net charge-offs to period end
allowance (a) 30.48 28.19 31.84 29.40 22.54 29.38
Earnings coverage of net charge-offs 6.73 x 6.57 5.15 5.89 8.58 6.69
Recoveries to total charge-offs 45.31 % 45.91 41.48 36.59 45.37 39.14
Provision to average loans (a) 0.52 0.52 0.49 0.55 0.54 0.61
Allowance to total period end loans 1.46 1.43 1.36 1.36 1.35 1.34
(a) Annualized
ALLOWANCE FOR LOAN LOSS SUMMARY
At December 31, 1994 1993 1992 1991 1990 1989
- ----------------------------- --------- --------- --------- --------- --------- ---------
Balance, at beginning of period $ 188,664 176,793 174,882 137,012 126,175 133,609
Provision charged against income 86,571 84,714 78,809 71,030 44,782 43,805
Allowance of acquired/(sold) banks 11,420 50 (372) 27,094 11,185 2,324
Recoveries 38,134 35,863 33,640 30,280 28,470 27,728
Less: Charge-offs 96,674 108,756 110,166 90,534 73,600 81,291
--------- --------- --------- --------- --------- ---------
Balance, at end of period $ 228,115 188,664 176,793 174,882 137,012 126,175
========= ========= ========= ========= ========= =========
</TABLE>
14<PAGE>
<TABLE>
<CAPTION>
TABLE 4
MEASUREMENT OF ASSET QUALITY
($ in thousands) 1995 1994
- ----------------------------- ------------------------------ --------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 Jun. 30 Mar. 31 Dec. 31 Sept. 30 June 30
NON-PERFORMING ASSETS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 26,231 21,880 21,203 22,156 22,884 24,584
Commercial mortgage 48,658 55,339 53,270 56,917 68,294 75,316
Residential mortgage 23,595 25,155 18,368 16,118 16,709 14,739
Revolving mortgage 622 426 492 482 389 333
Consumer installment 3,006 1,477 981 1,141 662 1,131
Consumer revolving -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total non-accrual loans $ 102,112 104,277 94,314 96,814 108,938 116,103
--------- --------- --------- --------- --------- ---------
Renegotiated loans:
Commercial $ 6,643 3,306 3,310 411 427 469
Commercial mortgage 219 503 514 3,327 4,335 8,084
Residential mortgage 920 917 960 1,056 1,065 1,074
Revolving mortgage -- -- -- -- -- --
Consumer installment -- -- -- 58 58 59
Consumer revolving -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total renegotiated loans $ 7,782 4,726 4,784 4,852 5,885 9,686
--------- --------- --------- --------- --------- ---------
Total non-performing loans $ 109,894 109,003 99,098 101,666 114,823 125,789
--------- --------- --------- --------- --------- ---------
Other real estate owned $ 31,691 33,376 40,349 38,662 40,669 42,467
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 141,585 142,379 139,447 140,328 155,492 168,256
========= ========= ========= ========= ========= =========
Loans past due 90 days or more:
Commercial $ 1,589 1,360 674 1,709 1,578 915
Commercial mortgage 1,884 1,297 1,838 1,956 2,120 1,680
Residential mortgage 3,879 3,001 2,593 711 1,189 2,027
Revolving mortgage 610 390 395 370 542 434
Consumer installment 10,244 7,661 5,947 7,178 4,839 780
Consumer revolving 4,713 6,136 6,276 6,284 5,168 4,927
--------- --------- --------- --------- --------- ---------
Total loans past due 90 days or more $ 22,919 19,845 17,723 18,208 15,436 10,763
========= ========= ========= ========= ========= =========
ASSET QUALITY RATIOS
Non-performing assets as a % of total assets 0.60 % 0.60 0.57 0.57 0.66 0.73
Non-performing assets as a % of
total loans + OREO 0.87 % 0.86 0.82 0.83 0.98 1.10
Allowance coverage of non-performing loans 217.43 % 216.45 232.62 224.38 186.02 162.55
NONPERFORMING ASSET SUMMARY
At December 31, 1994 1993 1992 1991 1990 1989
- ------------------------------ --------- --------- --------- --------- --------- ---------
Non-accrual loans $ 96,814 121,186 126,619 116,995 76,533 55,556
Renegotiated loans 4,852 10,879 20,669 16,837 12,234 14,762
Other real estate owned 38,662 50,595 48,699 34,601 17,620 16,759
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 140,328 182,660 195,987 168,433 106,387 87,077
========= ========= ========= ========= ========= =========
Loans past due 90 days or more $ 18,208 23,462 20,887 32,499 31,380 20,901
</TABLE>
15<PAGE>
<TABLE>
<CAPTION>
TABLE 5
INTEREST RATE SENSITIVITY
September 30, 1995
0 to 0 to 0 to 0 to 0 to
($ in millions) 30 Days 60 Days 90 Days 180 Days 365 Days
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Other earning assets $ 218 220 222 222 222
Investment securities (1) 213 287 451 680 1,221
Loans, net of unearned income (2) 5,000 5,517 6,038 7,057 8,808
--------- --------- --------- --------- ---------
Total rate sensitive assets (RSA) $ 5,431 6,024 6,711 7,959 10,251
========= ========= ========= ========= =========
LIABILITIES (3)
Money market type deposits $ 2,763 2,763 3,800 3,800 3,800
Other core savings and time deposits 799 1,377 1,880 3,331 5,267
Negotiated deposits 457 578 679 814 864
Borrowings 763 908 944 1,241 1,455
Interest rate swap agreements 12 (53) (53) (28) (50)
Interest rate cap agreements 125 125 -- -- 1
--------- --------- --------- --------- ---------
Total rate sensitive liabilities (RSL) $ 4,919 5,698 7,250 9,158 11,336
========= ========= ========= ========= =========
GAP (RSA - RSL) $ 512 326 (539) (1,199) (1,085)
========= ========= ========= ========= =========
RSA divided by RSL 110.40 % 105.73 92.56 86.92 90.43
GAP divided by total assets 2.19 1.39 (2.30) (5.12) (4.63)
Assumptions:
(1) Maturities of rate sensitive securities are based on contractual maturities and estimated prepayments.
(2) Maturities of rate sensitive loans are based on contractual maturities, estimated prepayments and
estimated repricing impact.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest rate caps are based on contractual
maturities and estimated repricing.
</TABLE>
16<PAGE>
II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement regarding computation of per share
earnings.
The computation of common and common
equivalents per share is described in Note 4
to the Consolidated Financial Statements of
this report.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
Registrant during the three months ended September
30, 1995.
17<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, First of America has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRST OF AMERICA BANK CORPORATION
REGISTRANT
Date: November 9, 1995 /s/ Thomas W. Lambert
Thomas W. Lambert
Executive Vice President
and Chief Financial Officer
(Principal Financial and Accounting
Officer)
18<PAGE>
EXHIBIT
(27) Financial Data Schedule
19<PAGE>
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 929,544
<INT-BEARING-DEPOSITS> 145,862
<FED-FUNDS-SOLD> 73,554
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 0
<INVESTMENTS-CARRYING> 2,860,150
<INVESTMENTS-MARKET> 2,844,543
<LOANS> 16,331,565
<ALLOWANCE> 238,948
<TOTAL-ASSETS> 23,411,033
<DEPOSITS> 19,466,332
<SHORT-TERM> 1,425,961
<LIABILITIES-OTHER> 263,465
<LONG-TERM> 490,403
<COMMON> 632,749
0
0
<OTHER-SE> 1,126,973
<TOTAL-LIABILITIES-AND-EQUITY> 23,411,033
<INTEREST-LOAN> 1,113,079
<INTEREST-INVEST> 242,128
<INTEREST-OTHER> 3,825
<INTEREST-TOTAL> 1,359,032
<INTEREST-DEPOSIT> 544,166
<INTEREST-EXPENSE> 117,782
<INTEREST-INCOME-NET> 697,084
<LOAN-LOSSES> 63,878
<SECURITIES-GAINS> (925)
<EXPENSE-OTHER> 616,878
<INCOME-PRETAX> 261,676
<INCOME-PRE-EXTRAORDINARY> 170,689
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,689
<EPS-PRIMARY> 2.69
<EPS-DILUTED> 2.69
<YIELD-ACTUAL> 4.27
<LOANS-NON> 102,112
<LOANS-PAST> 22,919
<LOANS-TROUBLED> 7,782
<LOANS-PROBLEM> 32,023
<ALLOWANCE-OPEN> 228,115
<CHARGE-OFFS> 95,160
<RECOVERIES> 42,115
<ALLOWANCE-CLOSE> 238,948
<ALLOWANCE-DOMESTIC> 238,948
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 62,064
</TABLE>
