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[LOGO]
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Annual Meeting of Shareholders
April 19, 1995
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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 (AMENDMENT NO. )
Filed by the registrant /X/
Filed by a party other than the registrant / /
Check the appropriate box:
/ / Preliminary proxy statement / / Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
First of America Bank Corporation
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(Name of Registrant as Specified in Its Charter)
First of America Bank Corporation
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
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)
or Item 22(a)(2) of Schedule 14A.
/ / $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 transaction applies:
- --------------------------------------------------------------------------------
(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee
is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/ / Fee paid previously with preliminary materials.
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/ / 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 registration statement number, or
the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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DANIEL R. SMITH FIRST OF AMERICA BANK
CORPORATION
Chairman and Chief 211 South Rose St.
Executive Officer Kalamazoo, Michigan 49007
Telephone 616-376-9000
(LETTERHEAD)
March 15, 1995
Dear Shareholder:
You are cordially invited to attend the Annual Meeting of Shareholders to be
held April 19, 1995, 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, 1994 highlights, six year financial
summary, condensed financial statements and other information. With the Summary
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 six
directors and ratification of the selection of KPMG Peat Marwick LLP 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 A
attached.
I hope you will take the time to read the Summary Annual Report and I hope
to see you on April 19.
Sincerely,
/s/ DR SMITH
----------------------------------
Daniel R. Smith
Chairman and Chief Executive Officer
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[LOGO]
211 SOUTH ROSE STREET
KALAMAZOO, MICHIGAN 49007
(616) 376-9000
NOTICE OF ANNUAL SHAREHOLDERS MEETING
APRIL 19, 1995
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 19, 1995 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 six Directors to serve until the 1998 Annual Meeting of
Shareholders and until their successors have been elected and qualified.
(2) Ratification of the selection of KPMG Peat Marwick LLP, Certified Public
Accountants, as independent auditors for First of America.
(3) 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, 1995,
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/ DAVID B. WIRT
-----------------------------------
David B. Wirt
Executive Vice President & Secretary
Date: March 15, 1995
Kalamazoo, Michigan
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[FIRST OF AMERICA 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 19, 1995 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. 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
15, 1995.
Common shareholders of record at the close of business on February 21, 1995
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, 1995, there were 63,184,969
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 1998.
Except as otherwise specified in the proxy, proxies will be voted for
election of the six 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
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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 six 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 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.
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 Common Stock beneficially owned as of February 1, 1995. As of February
1, 1995, none of these persons owned one percent or more of the outstanding
shares. The information that follows is based in part on information supplied by
these persons.
NOMINEES FOR DIRECTORS FOR THREE-YEAR TERMS ENDING IN 1998
JOHN W. BROWN, age 60, 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 62, 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. 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 9,548 shares of
First of America Common Stock jointly with Mrs. Greenwalt. Mrs. Greenwalt owns
another 3,721 common shares of which Mr. Greenwalt disclaims beneficial
ownership. Mr. Greenwalt will be ineligible under the Bylaws to serve as a
director after January 31, 1998, and will retire by that date.
DOROTHY A. JOHNSON, age 54, 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 16,509 shares of First of America Common Stock.
MARTHA MAYHOOD MERTZ, age 52, is Chief Executive Officer and owner of
Mayhood/Mertz Realtors, Inc, in Okemos, Michigan. She became a director of First
of America in August 1993. Ms. Mertz serves on the Audit Committee. She owns
1,614 shares of First of America Common Stock.
JAMES W. WOGSLAND, age 63, 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 5,876 shares of First of America Common Stock. Mr. Wogsland will
be ineligible under the Bylaws to serve as a director after April 30, 1996, and
will retire by that date.
WALTER J. WOLPIN, age 63, 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 4,743 common shares
and Mrs. Wolpin owns 10,584 shares of First of America Common Stock. Mr. Wolpin
will be ineligible under the Bylaws to serve as a director after January 31,
1997, and will retire by that date.
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DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1996
JOSEPH J. FITZSIMMONS, age 60, is a Vice President of Bell & Howell Company
and Chairman and a director of UMI, Inc., Ann Arbor, Michigan, a division of
Bell & Howell. Mr. Fitzsimmons is also a director of Bartech, Inc. He has been a
director of First of America since 1991. He serves on the Nominating and
Compensation Committee. He owns 1,040 shares of First of America Common Stock in
a retirement account.
ROBERT L. HETZLER, age 49, is President and Chief Executive Officer of
Monitor Sugar Company, Bay City, Michigan. Mr. Hetzler became a director of
First of America in 1987. He chairs the Audit Committee and serves on the
Executive Committee. Mr. Hetzler owns 900 shares and an additional 5,098 common
shares which are held jointly by him and Mrs. Hetzler.
F. KARL NEUMANN, age 64, 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 5,054 shares of First of America Common Stock
jointly with Mrs. Neumann. Mr. Neumann will be ineligible under the Bylaws to
serve as a director after October 31, 1995 and will retire by that date.
DANIEL R. SMITH, age 60, 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 36,849 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 112,050 common shares. Additionally, Mr. Smith 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 7,893 common shares.
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1997
JON E. BARFIELD, age 43, is President of Bartech, Inc., a provider of
technical staffing services, Utility Support Services, Inc., a contract meter
reading and energy audit firm, and Staffing Trends, Inc., a provider of
temporary employment services, all in Livonia, Michigan. He is a director of
Tecumseh Products Company, Tecumseh, Michigan. Mr. Barfield became a director of
First of America Bank Corporation in August 1993. He serves on the Audit and
Public Policy Committees. Mr. Barfield owns 2,000 shares of First of America
Common Stock.
RICHARD F. CHORMANN, age 57, 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 14,907 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 67,250 common shares. Mrs. Chormann owns 2,841
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 21,735
common shares.
JOEL N. GOLDBERG, age 57, 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 115,962 shares of First of America Common Stock.
JAMES S. WARE, age 59, 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
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Nominating and Compensation Committee and serves on the Executive Committee. He
owns 3,855 shares of First of America Common Stock.
JOHN L. ZABRISKIE, age 55, is Chairman and Chief Executive Officer of The
Upjohn Company, a manufacturer of pharmaceutical and other products. Formerly,
Mr. Zabriskie was Executive Vice President of Merck & Co., Inc., also a
manufacturer of pharmaceutical and other products. He is a director of the
Kellogg Company, Battle Creek, Michigan. He has been a director of First of
America since 1994. He serves on the Audit Committee. He owns 1,720 shares of
First of America Common Stock.
As of February 1, 1995 the directors and executive officers of First of
America as a group had sole voting and investment power with respect to 314,358
shares of First of America Common Stock and shared voting and investment power
with respect to 26,814 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 334,985 common shares.
The individual shareholdings of David B. Wirt, Thomas W. Lambert and John B.
Rapp, Named Executives who are not directors of First of America, were 15,984,
13,871, 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, and a standing Nominating and Compensation Committee. The Board also
has a Public Policy Committee. Directors serve on the committees as indicated in
the preceding paragraphs.
The Executive Committee met four times during 1994. 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 certain agreements 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 or to fill
vacancies on the Board of Directors.
The Audit Committee met five times during 1994. 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 management's 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 to provide added assurance of
the integrity of the financial information, and to report to the full Board on
its actions and findings.
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The Nominating and Compensation Committee met six times during 1994. Its
principal function is to approve and recommend to the Board of Directors all
executive compensation and benefit programs 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 First of America or any affiliate. The
Nominating and Compensation Committee has administrative functions over
management incentive programs, which include selection of participants and
establishment of goals and criteria for awards and other matters (see
"Nominating and Compensation Committee Report on Executive Compensation"). The
Nominating and Compensation Committee is the administrator of the corporation's
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.
In addition, the Nominating and Compensation Committee reviews the
qualifications and determines the eligibility of and recommends 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 and considers the performance of incumbent directors in
determining whether to nominate them for reelection. In addition, it evaluates
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 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 1994. 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 1994. 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. Mertz.
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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
AWARDS
ANNUAL COMPENSATION ------------------------ 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)
- ----------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Smith 1994 675,000 148,500 -0- -0- 25,000 -0- -0-
Chairman and Chief 1993 625,000 285,000 -0- -0- 14,000 198,748 -0-
Executive Officer 1992 575,547 310,797 -0- -0- 16,250 -0- -0-
Richard F. Chormann 1994 453,600 87,318 -0- -0- 14,000 -0- -0-
President and Chief 1993 420,000 167,580 -0- -0- 8,400 115,320 -0-
Operating Officer 1992 393,046 185,717 -0- -0- 9,900 -0- -0-
Thomas W. Lambert 1994 265,000 43,725 -0- -0- 6,900 -0- -0-
Executive Vice 1993 252,200 86,253 -0- -0- 4,100 56,910 -0-
President 1992 235,181 95,250 -0- -0- 4,800 -0- -0-
and Chief Financial
Officer
David B. Wirt 1994 265,000 43,725 -0- -0- 6,900 -0- -0-
Executive Vice 1993 252,200 86,253 -0- -0- 4,100 56,910 -0-
President 1992 235,181 95,250 -0- -0- 4,800 -0- -0-
and Secretary to the
Board
John B. Rapp 1994 230,000 49,335 -0- -0- 5,250 -0- -0-
Executive Vice 1993 220,000 71,940 -0- -0- 3,300 49,963 -0-
President 1992 207,185 74,276 -0- -0- 3,900 -0- -0-
</TABLE>
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(1) Deferred compensation is included.
(2) There were no other significant compensation items required to be disclosed
as other annual compensation for the years shown.
(3) The corporation's long-term compensation arrangement does not provide for
restricted stock awards.
(4) The corporation does not provide any other compensation.
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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 1994 and the
potential realizable value for the stock options granted based on future market
appreciation assumptions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
---------------------------------------------------------------
NUMBER OF % OF TOTAL POTENTIAL REALIZABLE VALUE AT
SECURITIES OPTIONS GRANTED EXERCISE OR ASSUMED ANNUAL RATES OF STOCK
UNDERLYING TO BASE PRICE PRICE APPRECIATION FOR OPTION TERM(1)
OPTIONS GRANTED 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 25,000 8.45% $ 33.00 10/19/2004 -0- 518,840 1,314,840
Chairman and Chief
Executive Officer
Richard F. Chormann 14,000 4.73% $ 33.00 10/19/2004 -0- 290,550 736,310
President and Chief
Operating Officer
Thomas W. Lambert 6,900 2.33% $ 33.00 10/19/2004 -0- 143,200 362,900
Executive Vice
President
and Chief Financial
Officer
David B. Wirt 6,900 2.33% $ 33.00 10/19/2004 -0- 143,200 362,900
Executive Vice
President
and Secretary to the
Board
John B. Rapp 5,250 1.77% $ 33.00 10/19/2004 -0- 108,960 276,120
Executive Vice
President
All shareholders -0- 1,311,088,100 3,322,897,500
</TABLE>
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(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
$53.75 and $85.59, respectively. The amounts shown for "All shareholders" are
based on 63,184,969 shares (number of shares outstanding as of February 1,
1995). This presentation is not intended to forecast possible future
appreciation of the corporation's common shares.
(2) The Stock Option Plan provides for limited stock appreciation rights in the
event of a change in control, which the Stock Option Plan defines the same as in
the Management Continuity Agreements (see "Management Continuity Agreements"),
liquidation or dissolution of the corporation. Upon the occurrence of any one of
these events, unexercised options previously granted are canceled, and in lieu
of further rights under the option, the optionee will receive in cash the
difference between the fair market value and the exercise price multiplied by
the number of shares to which the option relates.
(3) The options were granted on October 19, 1994, and become exercisable for
one-third of the shares after one year, two-thirds of the shares after two years
and all shares after three years.
(4) The exercise price shown represents the average of the highest and lowest
market prices reported on the New York Stock Exchange on the date prior to the
grant.
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AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table presents information about the exercise, by the Named
Executives, of stock options previously granted under the Stock Option Plan
during 1994. Also shown are the number of shares covered by, and the estimated
value of, unexercised options at December 31, 1994.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
--------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($)(1) UNEXERCISABLE UNEXERCISABLE(2)
- ------------------------------------ --------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Daniel R. Smith -0- -0- 112,050 / 39,750 879,450 / 0
Chairman and Chief
Executive Officer
Richard F. Chormann -0- -0- 67,250 / 22,900 528,300 / 0
President and Chief
Operating Officer
Thomas W. Lambert 3,000 59,439 23,367 / 11,233 145,513 / 0
Executive Vice President and
Chief Financial Officer
David B. Wirt 800 15,440 26,267 / 11,233 180,938 / 0
Executive Vice President and
Secretary to the Board
John B. Rapp -0- -0- 20,350 / 8,750 126,338 / 0
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 Friday, December 30,
1994 of $30.00.
8
<PAGE> 13
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table reflects the estimated future payouts under First of
America's Long-Term Incentive Compensation Plan based on the Named Executive's
target awards and the minimum threshold and maximum amounts for the three-year
performance cycle beginning January 1, 1994. These estimated payments are
contingent upon attaining the corporation's earnings per share performance goals
during the performance cycle shown. The corporation's Long-Term Incentive
Compensation Plan is more fully described in the Nominating and Compensation
Committee Report on Executive Compensation under the caption "Long-Term
Incentive Compensation."
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK PRICE-BASED PLAN (1)
PERIOD UNTIL ---------------------------------------
NUMBER OF MATURATION OR TARGET MAXIMUM
NAME UNITS PAYOUT THRESHOLD ($) ($)
- ----------------------------- --------------- ------------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Daniel R. Smith None 1/1/94 - 12/31/96 59,065 236,250 307,125
Chairman and Chief
Executive Officer
Richard F. Chormann None 1/1/94 - 12/31/96 34,020 136,080 176,905
President and Chief
Operating Officer
Thomas W. Lambert None 1/1/94 - 12/31/96 16,565 66,250 86,125
Executive Vice President
and Chief Financial
Officer
David B. Wirt None 1/1/94 - 12/31/96 16,565 66,250 86,125
Executive Vice President
and Secretary to the Board
John B. Rapp None 1/1/94 - 12/31/96 14,375 57,500 74,750
Executive Vice President
</TABLE>
- -------------------------------------------
(1) The minimum incentive award shown under the column titled "Threshold"
represents the estimated payment that would be awarded if 85% achievement of the
corporation's internal earnings per share goal is attained for the performance
cycle. The "Target" and "Maximum" estimated payments will be awarded if 100% and
120% achievement of the corporation's earnings per share goals are attained for
the performance cycle. The estimated future payouts under the threshold, target
and maximum award columns were computed based on the Named Executive's 1994 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.
9
<PAGE> 14
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.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
REMUNERATION --------------------------------------------------------------------------------
(1) 15 20 25 30 35
- ------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
$200,000 60,000 80,000 100,000 120,000 140,000
$300,000 90,000 120,000 150,000 180,000 210,000
$400,000 120,000 160,000 200,000 240,000 280,000
$500,000 150,000 200,000 250,000 300,000 350,000
$600,000 180,000 240,000 300,000 360,000 420,000
$700,000 210,000 280,000 350,000 420,000 490,000
$800,000 240,000 320,000 400,000 480,000 560,000
$900,000 270,000 360,000 450,000 540,000 630,000
$1,000,000 300,000 400,000 500,000 600,000 700,000
$1,100,000 330,000 440,000 550,000 660,000 770,000
$1,200,000 360,000 480,000 600,000 720,000 840,000
</TABLE>
- -------------------------------------------
(1) Average annual compensation as provided by the Retirement Plan and the
Supplemental Plans.
The Retirement Plan benefit formula is based on a participant's earnings and
years of service with the corporation or subsidiary. The Retirement Plan benefit
formula is 70 percent of the participant's 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 monthly
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, 39 years; Mr. Chormann --
$535,664, 35 years; Mr. Lambert -- $297,841, 31 years; Mr. Wirt -- $299,720, 29
years; and Mr. Rapp -- $259,325, 28 years.
MANAGEMENT CONTINUITY AGREEMENTS
First of America has entered into Management Continuity Agreements with the
Named Executives and other senior corporate and affiliate officers. The
Management Continuity Agreements were amended and restated effective February
15, 1995 to provide that in the event of a change in control of First of America
before February 15, 2000, the employment of the officer covered by the Agreement
may not be terminated except for cause during the three-year period following
the change in control. The agreement 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
10
<PAGE> 15
(4) a change in 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. During the three-year period, First
of America or its successor may not, without the officer's consent, reduce the
officer's salary or change the officer's title or scope of responsibility or
relocate his or her office or the head office of First of America. In the event
an executive is terminated or resigns following other action by First of America
or its successor referred to in the preceding sentence after a change in
control, the officer 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, the surviving spouse will continue
to receive the regular salary payments for one year. In the event the officer
becomes permanently disabled, the regular salary payments will be continued
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 of the officer's permanent disability.
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 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.
DIRECTOR COMPENSATION
Directors receive an annual retainer of $19,000 plus $1,100 for each Board
and committee meeting attended. The chair of each committee also receives $3,000
per year. Directors who are employees of First of America do not receive
additional compensation for service as directors.
NOMINATING AND 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 "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 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 Committee, First of America has implemented an executive
compensation program that encourages and facilitates stock ownership by
executive management and under which, over the long-term, more than half of the
compensation of First of America's executive officers is variable and directly
dependent upon corporate financial performance.
The Committee recognizes that the Omnibus Budget Reconciliation Act (OBRA)
of 1993 established a $1 million annual limitation on the tax deduction
available to the corporation for compensation paid to any executive under
certain nonperformance
11
<PAGE> 16
based compensation plans. It is generally the corporation's intention to pay
compensation which is tax deductible. The chairman and CEO of the corporation is
the only Named Executive whose earnings might subject the corporation to the
potential loss of the income tax deduction for earnings in excess of the $1
million cap at this time. However, the chairman and CEO has elected to defer a
substantial portion of his 1995 earnings which will reduce his total earnings
below the tax deduction limit.
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 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").
NOMINATING AND COMPENSATION COMMITTEE RESPONSIBILITY
GENERAL. The 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 Committee, with assistance from First of America's management,
reviews, and when appropriate, approves or recommends to the Board of Directors
adoption of new executive compensation programs and changes to existing
components of the executive compensation program based on their relationship to
corporate performance and the competitive market for recruitment, remuneration
and retention of executive personnel. In administering the compensation program,
the Committee also 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 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
U.S. bank holding companies, substantially all of which are also included under
the KBW 50 Index.
The Committee considers that these peer groups represent the primary
competitors in the banking industry for financial performance measurement
reasons as well as employee recruitment, remuneration and retention. The
composition of the peer groups used for determining external performance goals
are established by the 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 measurement of peer financial performance
results under the Annual Plan in 1994 consisted of similarly situated U.S. bank
holding companies with assets of $10 to $40 billion. The Long-Term Plan peer
group for measurement of peer EPS performance results during the 1992-1994
performance period consisted of similarly situated U.S. bank holding companies
with assets of $10 to $30 billion at the beginning of that performance period.
The 1994 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 $14 to $34 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
its broader asset range.
12
<PAGE> 17
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 Committee. This program
provides formalized salary adjustment guidelines and base salary range
parameters to guide the 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 below 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 annually 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 1994 were determined by the
Committee in February, 1994 based on 1993 performance considerations. In
reviewing the base salary recommendations for the executive officers, the
Committee first considered the salary increase guidelines in effect for 1994 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, 1993's return on common equity ("ROE") of
18.01 percent and fully diluted earnings per share ("EPS") of $4.14, which
nearly equalled First of America goals for those performance measures for 1993.
A discussion of those measures of First of America's performance for 1994 is set
forth below (see "Annual Incentive Compensation" and "Long-term Incentive
Compensation"). 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 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 a broad
range of First of America's and its affiliates' employees, including executive
officers, for achievement of specific 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 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 U.S. bank holding companies. The internal and external ROE
goals are weighted equally for purposes of determining awards for corporate
participants 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 paid to corporate participants 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 and would be paid if First of America's
ROE performance 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.
13
<PAGE> 18
During 1994, First of America's reported earnings were reduced by one-time
costs of $16 million associated with the acquisitions made during the year as
well as $3.9 million in severance expenses related to the corporate
restructuring. As contemplated by the Annual Plan, the Committee adjusted the
corporation's 1994 ROE results to exclude certain of these unplanned,
nonrecurring expenses for purposes of determining the 1994 incentive awards
payable under the Plan. The Committee made these adjustments because of the
relatively broad based participation under the Annual Plan and the fact that
these costs were not considered under the 1994 profit plan. By adjusting the ROE
results, the Committee believes that the incentive awards more accurately
reflect the participants' contributions toward core earnings performance for the
year. For purposes of comparison to the internal ROE goal of 17.76 percent, the
Committee adjusted the corporation's ROE to exclude the acquisition related
expenses because these expenses were not included under the 1994 profit plan.
The Corporation's adjusted ROE of 15.10 percent was 85 percent of the internal
goal which resulted in award payments of 25 percent of the participants' annual
target award level for this component of the Plan. The Committee also adjusted
the corporation's ROE for purposes of comparison to the external peer group ROE
goal. This ROE adjustment excluded the unplanned severance expense incurred in
December, 1994 due to the timing of this expense. The corporation's adjusted ROE
performance of 14.60 percent was 90 percent of the external peer group goal of
16.22 percent and resulted in award payments of 30 percent of the participants'
annual target award for this portion of the Plan.
Based on the foregoing, the corporation's consolidated performance was 87.5
percent of the composite of the internal and external ROE goals. This resulted
in annual incentive award payments of 55 percent of each corporate participant's
annual target award opportunity. Based on peer group data available for 1993 and
estimates for 1994, these awards, including the chairman and CEO's, were well
below the median level of similar compensation paid by a selected group of
comparably sized U.S. bank holding companies.
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 goals over a three year performance cycle. The 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 includes both an internal EPS 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 goals
are weighted equally for purposes of determining incentive payments under the
Long-Term Plan. Long-term incentive payments are based on a comparison of First
of America's actual EPS achievement for the three year performance cycle,
compared to the corporation's internal EPS goal for the period as well as the
external EPS growth goal which is 110 percent of the median compounded annual
EPS growth rate for a peer group of comparably sized U.S. bank holding companies
over the same performance cycle.
The internal long-term EPS 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. Incentive
awards under the internal and external EPS goals are computed and paid
independently of one another. No incentive payments will be made for the three
year performance cycles ending December 31, 1995 and December 31, 1996, unless
First of America's EPS growth achievement is at least 85 percent of the internal
EPS goal for the period, or 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.
The Long-Term Plan results for the performance period ending December 31,
1994 were determined under both the internal and external EPS goals. No
incentive award was payable under the Long-Term Plan for this period because the
corporation did not achieve the minimum EPS performance threshold of $4.27 under
the internal EPS goal or the minimum threshold of 14.56 percent compounded
annual EPS growth under the external peer group goal as of the end of the
performance 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
14
<PAGE> 19
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 Committee determines the participants to whom options are granted and the
number of shares for which the options are exercisable as well as the vesting
terms of the options granted. The Committee also generally considers the amounts
and terms of prior stock option grants. Through the grant of stock options, the
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 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 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 last business day 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 120 percent of base
salary for the corporate chairman and CEO to 75-85 percent for the remaining
executive officer group. These salary multiples, and therefore, the number of
options awarded, are below the average for comparable positions in the peer
group. The 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 the 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 restore benefits limited by 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, club memberships or any other major
perquisites 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 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 Committee within a defined salary range which is established
by the 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
15
<PAGE> 20
comparable CEO positions in other peer U.S. bank holding companies as described
earlier in the report. Within this assigned salary range, the Committee approved
an increase in Mr. Smith's 1994 base salary from $625,000 to $675,000. The
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 1993. It also takes into consideration a
desire to recognize his past contributions to the corporation's success and to
increase his base salary to the prevailing market levels of his peers in other
banking institutions. Mr. Smith's 1994 base salary of $675,000 was at the
midpoint of his 1994 salary range.
The decision regarding Mr. Smith's 1994 base salary was based, in part, on
the corporation's financial performance for 1993, giving particular
consideration to the strong earnings achieved during that year. The Committee
also generally considered such additional factors as Mr. Smith's performance as
CEO and corporate growth over the last several years. The Committee further
considered Mr. Smith's leadership of the corporation and stature within the
community and the banking industry. Mr. Smith served as President of the
American Bankers Association for the 1994 term, which is perceived as a positive
reflection on the corporation. In the Committee's collective judgement, the
corporation exceeded its primary business objectives for 1993, and Mr. Smith's
contributions toward the corporation's overall success warranted the 1994 base
salary increase.
Mr. Smith's 1994 annual incentive award was determined in accordance with
the Annual Plan formulas and performance results described earlier in this
report. Mr. Smith's Annual Plan award of $148,500 was computed based on the
adjusted Corporate ROE performance of 85 percent relative to the internal ROE
profit plan goal of 17.76 percent and 90 percent relative to the external peer
group ROE goal of 16.22 percent. The composite performance results of 87.5
percent under the Annual Plan resulted in an award payment of 22 percent of his
1994 base salary.
Mr. Smith did not receive any Long-Term Plan award for the three year
performance period ending December 31, 1994. The corporation did not achieve the
minimum performance achievement threshold under either the internal or external
EPS goal and therefore, no incentive award was payable under the Long-Term Plan.
Mr. Smith's 1994 stock option grant of 25,000 shares under the Stock Option
Plan was determined in accordance with the option allocation formula based on
his 1994 base salary of $675,000, a salary multiple of 120 percent and the then
current market price per share in the same fashion as other participants by the
Committee. Mr. Smith did not exercise any of his stock options during 1994 and,
therefore, did not derive any income under this plan.
Submitted by the Nominating and Compensation Committee of the Board of
Directors.
<TABLE>
<S> <C>
James S. Ware, Chairman(1) Dorothy A. Johnson
John W. Brown Richard Krafft, Jr.(2)
Joseph J. Fitzsimmons F. Karl Neumann
Clifford L. Greenwalt James W. Wogsland
Lawrence C. Hoff(3)
</TABLE>
- -------------------------------------------
(1) Appointed Committee Chairman on January 19, 1994.
(2) Retired from the Board of Directors and the Committee on September 30, 1994.
(3) Chairman of the Compensation Committee through January 19, 1994 and retired
from the Board of Directors on January 31, 1994.
16
<PAGE> 21
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's 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
Nominating and Compensation Committee for determining compensation paid to First
of America's executive officers.
<TABLE>
<CAPTION>
Measurement Period
(Fiscal Year Covered) FOA KBW 50 S&P 500 .
<S> <C> <C> <C>
1989 100.00 100.00 100.00
1990 94.99 71.81 96.89
1991 137.64 113.66 126.41
1992 184.41 144.84 136.05
1993 198.51 152.86 149.76
1994 158.83 145.06 151.74
</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 1994 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.
(2) SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee (which consisted of the
following outside Directors: Mr. Hetzler, Chairman, Messrs. Barfield, Goldberg,
Greenwalt, Wolpin, Zabriskie, and Ms. Mertz), the Board of Directors has
selected the accounting firm of KPMG Peat Marwick LLP 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 LLP 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 LLP has
been performing services of an accounting and auditing nature for First of
America since its
17
<PAGE> 22
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 LLP 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 1996 Annual Meeting of Shareholders
when selection of auditors shall again be subject to ratification by the
shareholders.
Representatives of KPMG Peat Marwick LLP 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 described 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, 1994 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except that a
report timely filed on behalf of Donald J. Kenney failed to report certain
holdings due to a clerical error and one report with respect to one transaction
was filed late on behalf of Robert L. Hetzler. 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, 1994 is available without
charge on written request of any person, including any beneficial owner, to whom
this Proxy Statement is addressed from David B. Wirt, 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 16, 1995, for possible inclusion in the proxy materials relating to the
next annual meeting.
By Order of the Board of Directors,
/S/ DAVID B. WIRT
-----------------------------------
David B. Wirt
Executive Vice President & Secretary
18
<PAGE> 23
APPENDIX A
FIRST OF AMERICA BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Business of First of America Bank Corporation.............................................. A-1
Management's Discussion and Analysis........................................................... A-2
Mergers and Acquisitions..................................................................... A-2
1994 Highlights.............................................................................. A-3
Income Analysis.............................................................................. A-5
Credit Risk Profile.......................................................................... A-11
Funding, Liquidity and Interest Rate Risk.................................................... A-14
Capital Strength............................................................................. A-17
In Conclusion................................................................................ A-18
Statement of Management Responsibility......................................................... A-19
Letter of Audit Committee Chairman............................................................. A-19
Report of Independent Auditors................................................................. A-20
Consolidated Financial Statements
Consolidated Balance Sheets.................................................................. A-21
Consolidated Statements of Income............................................................ A-22
Consolidated Statements of Changes in Shareholders' Equity................................... A-23
Consolidated Statements of Cash Flows........................................................ A-24
Notes to Consolidated Financial Statements................................................... A-25
Supplemental Information....................................................................... A-47
</TABLE>
THE BUSINESS OF FIRST OF AMERICA BANK CORPORATION
First of America Bank Corporation, headquartered in Kalamazoo, Michigan, is
one of the largest bank holding companies in the Midwest with $17 billion in
loans and $20 billion in deposits. First of America serves over 3.2 million
households in Michigan, Illinois, Indiana and Florida. The banks engage in
commercial banking, retail banking and provide trust and other financial
services. The corporation also has mortgage origination offices in North
Carolina, South Carolina, Missouri and Arizona. Based on total assets, First of
America is ranked 32nd among banking companies in the United States.
A-1
<PAGE> 25
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following financial review discusses the performance of First of
America, on a consolidated basis, for the three years ended December 31, 1994,
and should be read in conjunction with the consolidated financial statements and
notes thereto.
MERGERS AND ACQUISITIONS
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
BUSINESS COMBINATIONS TABLE I
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
Presidential Holding Kewanee Investing Company,
Corporation.............. $ 256,352 Inc........................ $ 29,776 Security Bancorp, Inc...... $2,716,029
Citizens Federal Bank First Petersburg
F & C Bancshares, Inc. .... 379,791 (14 Branches).............. 499,337 Bancshares, Inc.......... 50,100
----------
Pioneer Mortgage Co.
First Park Ridge Corp. .... 327,391 (five offices)............. --
--------
LGF Bancorp, Inc. ......... 412,336
Goldome Federal
Branches (36)............ 376,858
----------
$1,752,728 $529,113 $2,766,129
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
During 1994, First of America added over $700 million in assets and nine
offices to its Illinois franchise and entered new markets in Florida. On May 1,
1994, First of America completed the acquisition of LGF Bancorp, Inc., an
Illinois thrift holding company, and on October 1, 1994, completed the
acquisition of First Park Ridge Corporation, a three bank holding company
located in suburban Chicago. The Florida expansion included three acquisitions:
on April 15, 1994, First of America acquired from the Resolution Trust
Corporation, Goldome Federal's Florida branches which included $376 million in
deposits; and at December 31, 1994, First of America completed the acquisitions
of F&C Bancshares, Inc. and its principal subsidiary, First Federal Savings Bank
of Charlotte County, along with Presidential Holding Corporation and its
principal subsidiary, Presidential Bank, FSB. First of America's Florida
franchise ended the year with $1.2 billion in total assets and $1.0 billion in
total deposits.
A-2
<PAGE> 26
1994 HIGHLIGHTS
Net income for 1994 was $220.5 million, down 10.9 percent compared with the
$247.4 million reported in 1993, and earnings per share were $3.69 versus $4.14
a year ago. The current year's results were impacted by 1994's rising interest
rate environment which contributed to the lower net interest margin, 4.58
percent compared with 4.86 percent in 1993, and lower non-interest income. Non-
interest expense growth, mainly due to costs related to the company's expansion
into Florida, also contributed to the lower level of earnings. Benefitting from
a low interest rate environment, 1993's results included record gains on the
sale of mortgages and securities. Reported net income for 1992 was $147.5
million, or $2.46 per fully diluted share, and was impacted by three
non-recurring 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).
Also lagging last year's results, return on average assets for 1994 was 0.98
percent versus 1.20 percent in 1993 and 0.75 percent in 1992. Return on average
total shareholders' equity for the same periods was 14.44 percent, 17.50 percent
and 11.38 percent, respectively.
One constant in First of America's results was its asset quality, which
remained strong and improved further throughout 1994. Non-performing assets as a
percent of total assets were 0.57 percent at year-end, an improvement over both
the year-end 1993 and 1992 ratios of 0.86 percent and 0.97 percent,
respectively. Net charge-offs as a percent of average loans was also lower than
the prior two years at 0.39 percent for 1994 versus 0.53 percent a year ago and
0.57 percent for 1992.
Total assets were $24.6 billion at December 31, 1994, a 15.7 percent
increase over the $21.2 billion reported at December 31, 1993, primarily as a
result of acquisitions. Total loans increased 17.0 percent to $16.8 billion.
Excluding acquisitions, total loans grew 10.5 percent over a year ago.
Total shareholders' equity increased 3.6 percent to $1.6 billion at year-end
1994. The increase resulted from earnings retention and equity added from
acquisitions. This increase was offset by the $121.9 million negative change in
the unrealized loss, net of tax, for the available for sale securities as
required by Financial Accounting Statement No. 115, "Accounting for Certain
Investments in Debt and Equity Securities" and the reduction in equity resulting
from the common stock repurchase of 3.4 million shares. Book value per share was
$25.12 compared with $25.60 and $22.49 for year-ends 1993 and 1992.
The Board of Directors increased the cash dividend paid per common share in
October 1994 to $1.68, on an annualized basis, a five percent increase. This
increase represents the twelfth year in a row First of America has increased its
annual dividend and indicates the Board's continued confidence in the company's
profitability.
First of America announced in August 1994 its intent to consolidate its bank
affiliates into one bank in each state of operation, including consolidation of
certain backroom functions. This will provide a reduction in certain overhead
expenses and a more streamlined approach to managing the company's lines of
business.
A-3
<PAGE> 27
SELECTED FINANCIAL DATA TABLE II
($ in thousands, except per share data)
<TABLE>
<CAPTION>
5 Year
Compounded Year Ended December 31,
Growth --------------------------------------------------------------------------------------
Rate 1994 1993 1992 1991 1990 1989
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income........... 2.0% $ 1,600,877 1,510,966 1,596,127 1,537,861 1,519,841 1,447,239
Interest expense.......... (3.9) 662,142 608,949 721,300 786,910 841,142 806,619
----------- ---------- ---------- ---------- ---------- ----------
Net interest income....... 7.9 938,735 902,017 874,827 750,951 678,699 640,620
Provision for loan
losses................... 14.6 86,571 84,714 78,809 71,030 44,782 43,805
Total non-interest
income................... 11.3 284,373 292,184 261,316 209,900 181,558 166,604
Total non-interest
expense.................. 7.8 813,418 763,528 796,348 665,732 602,319 558,183
Applicable income tax
expense.................. 13.8 102,616 98,574 91,506 64,625 58,628 53,728
Extraordinary item, net of
tax...................... n/a -- -- (21,956) -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net income................ 7.8% $ 220,503 247,385 147,524 159,464 154,528 151,508
- ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable to
common stock............. 10.7% $ 220,503 241,232 135,015 144,028 137,818 132,897
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF
COMMON STOCK
Primary.................. 7.9% $ 3.69 4.20 2.46 2.69 2.62 2.52
Fully diluted............ 7.9 3.69 4.14 2.46 2.69 2.62 2.52
Average common shares
outstanding ("000")...... 2.6 59,812 57,417 54,842 53,536 52,622 52,685
Cash dividends declared
per
common share............. 8.7 $ 1.64 1.55 1.34 1.24 1.15 1.08
Primary book value per
common share............. 7.5 25.12 25.60 22.12 20.58 18.97 17.52
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET SUMMARY
ASSETS:
Cash and due from banks... 1.5% $ 1,060,788 903,517 918,960 1,000,578 1,028,159 983,018
Federal funds sold, resale
agreements and time
deposits................. (34.5) 55,271 74,909 175,030 254,333 146,175 457,828
Securities:
Held to maturity....... 2.9 3,112,876 1,856,623 3,489,626 4,261,360 3,775,030 3,604,406
Available for sale..... n/a 2,587,626 3,261,481 -- -- -- --
Held for sale.......... n/a -- -- 1,137,420 -- -- --
Loans -- net of unearned
income................... 11.1 16,834,858 14,394,155 13,756,017 13,228,027 11,228,221 9,950,467
Allowance for loan
losses................... 12.6 (228,115) (188,664) (176,793) (174,882) (137,012) (126,175)
Other assets.............. 12.4 1,145,398 928,450 846,507 900,552 749,379 637,898
- ---------------------------------------------------------------------------------------------------------------------------------
Total assets.............. 9.6% $24,568,702 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Deposits.................. 7.9% $20,200,266 18,243,703 18,035,553 17,483,232 15,016,343 13,828,041
Short term borrowings..... 47.1 1,882,739 994,578 338,023 282,225 264,049 273,286
Long term debt............ 31.9 681,236 254,193 254,051 260,398 179,899 170,680
Other liabilities......... 13.9 225,573 214,560 183,649 176,745 153,658 117,477
Total shareholders'
equity................... 7.2 1,578,888 1,523,437 1,335,491 1,267,368 1,176,003 1,117,958
- ---------------------------------------------------------------------------------------------------------------------------------
Total liabilities and
equity................... 9.6% $24,568,702 21,230,471 20,146,767 19,469,968 16,789,952 15,507,442
- ---------------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average total
equity................... 14.44% 17.50 11.38 13.07 13.70 14.07
Return on average
assets................... 0.98 1.20 0.75 0.95 0.98 1.02
Net interest margin (a)... 4.58 4.86 4.98 5.07 4.92 4.95
Total shareholders' equity
to assets at
year-end................. 6.43 7.18 6.63 6.51 7.00 7.21
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fully taxable equivalent; based on a marginal federal income tax rate of 35%
for 1994 and 1993, and 34% for prior years.
A-4
<PAGE> 28
INCOME ANALYSIS
NET INTEREST INCOME -- Net interest income is the primary source of revenue
for First of America, accounting for 76.7 percent of total revenue. For 1994 net
interest income on a fully taxable equivalent basis (FTE) was $955.7 million, up
3.3 percent from $925.1 million in 1993. The 1994 increase was the result of 9.6
percent growth in average earning assets offsetting the lower net interest
margin of 4.58 percent versus 4.86 percent for 1993. For the 1993 comparison
with 1992, net interest income (FTE) increased 2.8 percent also due to a higher
level of average earning assets offsetting a lower net interest margin.
Total interest income on a fully taxable equivalent basis increased 5.9
percent over a year ago. The increase resulted from the growth of earning assets
having a greater impact than the decline in asset yields as detailed in Table
III. Interest expense was $53.2 million, or 8.7 percent over 1993, as the
increased volume of interest-bearing liabilities offset their lower cost.
Table III presents a summary of the changes in net interest income resulting
from changes in volumes and rates for 1994 and 1993. Net interest income,
average balance sheet amounts and the corresponding yields and costs for the
years 1990 through 1994 are shown in Table IV.
VOLUME/RATE ANALYSIS TABLE III
($ in thousands)
<TABLE>
<CAPTION>
1994 Change From 1993 Due To 1993 Change From 1992 Due To
--------------------------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans (FTE)..................................... $ 111,385 (50,000) 61,385 41,276 (107,264) (65,988)
Taxable securities.............................. 44,597 (4,370) 40,227 41,148 (52,325) (11,177)
Tax exempt securities (FTE)..................... (18,389) 1,080 (17,309) 3,271 (7,035) (3,764)
Money market investments........................ (668) 163 (505) (4,582) (1,654) (6,236)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest income (FTE)..................... $ 136,925 (53,127) 83,798 81,113 (168,278) (87,165)
- ---------------------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits....................... $ 25,696 (28,260) (2,564) 14,010 (135,114) (121,104)
Short term borrowings........................... 31,792 10,051 41,843 11,713 (1,271) 10,442
Long term debt.................................. 14,892... (978) 13,914 1,984 (3,673) (1,689)
- ---------------------------------------------------------------------------------------------------------------------------------
Total interest expense.......................... $ 72,380 (19,187) 53,193 27,707 (140,058) (112,351)
- ---------------------------------------------------------------------------------------------------------------------------------
Change in net interest income................... $ 64,545 (33,940) 30,605 53,406 (28,220) 25,186
- ---------------------------------------------------------------------------------------------------------------------------------
</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.
A-5
<PAGE> 29
- --------------------------------------------------------------------------------
AVERAGE BALANCE/NET INTEREST INCOME/AVERAGE RATES TABLE IV
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate Interest
Average Income/ Earned/ Average Income/ Earned/ Average Income/
Balance Expense Paid Balance Expense Paid Balance Expense
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments......... $ 72,736 2,349 3.23% $ 93,662 2,854 3.05% $ 233,757 9,090
Investment securities:
U.S. Treasury, federal agencies
and other....................... 5,319,354 303,098 5.70 4,537,814 262,871 5.79 3,898,195 274,048
State and municipal
securities(1)................... 306,946 25,296 8.24 530,407 42,605 8.03 493,785 46,369
Total loans(1)(2)................ 15,172,618 1,287,121 8.48 13,875,584 1,225,736 8.83 13,435,991 1,291,724
----------- --------- ----------- --------- ----------- ---------
Total earnings assets/total
interest income(1).............. 20,871,654 1,617,864 7.75 19,037,467 1,534,066 8.06 18,061,728 1,621,231
----------- --------- ----------- --------- ----------- ---------
Less allowance for loan losses... 206,703 182,594 176,595
Cash and due from banks.......... 892,959 839,506 818,279
Other assets..................... 992,857 850,783 870,879
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $22,550,767 $20,545,162 $19,574,291
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts......... $ 3,385,164 53,971 1.59% $ 3,137,831 66,088 2.11% $ 2,820,091 86,568
Money market savings and checking
accounts........................ 4,114,885 115,725 2.81 3,852,780 95,314 2.47 3,972,004 128,820
Time deposits.................... 8,849,576 398,239 4.50 8,638,044 409,097 4.74 8,520,485 476,215
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing
deposits........................ 16,349,625 567,935 3.47 15,628,655 570,499 3.65 15,312,580 691,603
Short term borrowings............ 1,325,584 60,389 4.56 575,074 18,546 3.22 216,352 8,104
Long term debt................... 485,494 33,818 6.97 272,297 19,904 7.31 248,032 21,593
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing
liabilities/ total interest
expense......................... 18,160,703 662,142 3.65 16,476,026 608,949 3.70 15,776,964 721,300
----------- --------- ----------- --------- ----------- ---------
Demand deposits.................. 2,665,183 2,463,534 2,301,768
Other liabilities................ 197,330 191,922 198,633
Non-redeemable
preferred/preference stock...... -- 74,586 140,952
Common shareholders' equity...... 1,527,551 1,339,094 1,155,974
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $22,550,767 $20,545,162 $19,574,291
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets... 7.75% 8.06%
Interest expense/earning
assets.......................... 3.17 3.20
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets.......................... 4.58% 4.86%
- ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1991 1990
- ---------------------------------------------------------------------------------------------------------------------
Average Average Average
Rate Interest Rate Interest Rate
Earned/ Average Income/ Earned/ Average Income/ Earned
Paid Balance Expense Paid Balance Expense Paid
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments......... 3.89% $ 273,208 17,679 6.47% $ 462,816 38,941 8.41%
Investment securities:
U.S. Treasury, federal agencies
and other....................... 7.03 3,267,738 274,884 8.41 3,041,910 265,876 8.74
State and municipal
securities(1)................... 9.39 580,307 56,640 9.76 599,891 59,607 9.94
Total loans(1)(2)................ 9.61 11,276,061 1,217,808 10.80 10,359,695 1,188,213 11.47
----------- --------- ----------- ---------
Total earnings assets/total
interest income(1).............. 8.98 15,397,314 1,567,011 10.18 14,464,312 1,552,637 10.74
----------- --------- ----------- ---------
Less allowance for loan losses... 139,332 129,067
Cash and due from banks.......... 785,798 803,022
Other assets..................... 754,446 665,238
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts......... 3.07% $ 2,375,565 105,904 4.46% $ 2,334,355 111,322 4.77%
Money market savings and checking
accounts........................ 3.24 3,829,647 186,406 4.87 3,419,159 197,699 5.78
Time deposits.................... 5.59 6,804,895 469,094 6.89 6,260,473 493,857 7.89
----------- --------- ----------- ---------
Total interest-bearing
deposits........................ 4.52 13,010,107 761,404 5.85 12,013,987 802,878 6.68
Short term borrowings............ 3.75 177,834 9,424 5.30 257,243 18,836 7.32
Long term debt................... 8.71 176,780 16,082 9.10 199,592 19,428 9.73
----------- --------- ----------- ---------
Total interest-bearing
liabilities/ total interest
expense......................... 4.57 13,364,721 786,910 5.89 12,470,822 841,142 6.74
----------- --------- ----------- ---------
Demand deposits.................. 2,064,849 2,068,642
Other liabilities................ 148,626 136,245
Non-redeemable
preferred/preference stock...... 165,730 178,605
Common shareholders' equity...... 1,054,300 949,191
- ------------------------------------------------------------------------------------------------------------------------------------
Total............................ $16,798,226 $15,803,505
- ------------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets... 8.98% 10.18% 10.74%
Interest expense/earning
assets.......................... 4.00 5.11 5.82
- ------------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets.......................... 4.98% 5.07% 4.92%
- ------------------------------------------------------------------------------------------------------------------------------------
</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 1994 and 1993, and 34% for
prior years.
(2) Non-accrual loans are included in average loan balances.
A-6
<PAGE> 30
NET INTEREST MARGIN -- The net interest margin for 1994 was 4.58 percent
compared with 4.86 percent in 1993 and 4.98 percent in 1992. Increases in short
term rates by the Federal Reserve totalled 250 basis points during 1994. As
rates increased, interest sensitive deposit products grew rapidly and repriced
faster than interest sensitive assets, specifically loans, causing compression
in the net interest margin. For example, the FirstRate Fund, a deposit product
which carries a variable rate tied to the T-bill rate, increased to $2.1 billion
at December 31, 1994 from $526 million at December 31, 1993. The average rate
paid on this product increased 130 basis points over the year.
The acquisitions of Goldome Federal and LGF Bancorp, Inc., early in the
second quarter, added over $700 million in higher priced thrift deposits to the
balance sheet while adding only $370 million in earning assets. These two
acquisitions combined to lower the net interest margin for the year by 9 basis
points.
Also impacting the net interest margin on the asset side of the balance
sheet were competitive pricing issues regarding consumer loans. Indirect
installment loans were being priced below the loans maturing in the portfolio
and at spreads which reduced the profitability of the portfolio. In addition,
First of America competitively repriced a portion of its credit cards from
eighteen percent fixed rate cards to a lower variable rate product.
In order to moderate the future impact of interest rate changes on net
interest income, First of America sold $180 million in securities and terminated
$82.9 million in interest rate swaps during the fourth quarter. The immediate
impact of these moves is discussed later in this document under "Non-interest
Income." At December 31, 1994, the estimated impact of these changes resulted in
approximately two percent of net income being at risk from a one hundred basis
point change in interest rates. Interest rate risk is covered in more detail
later in this document under "Funding, Liquidity and Interest Rate Risk" and in
Tables XIV and XV.
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 1994, the provision for loan losses was
increased 2.2 percent to $86.6 million from $84.7 million in 1993 to keep pace
with growth in the total loan portfolio, as net charge-offs decreased $14.4
million year-over-year. The 1992 provision was $78.8 million. The decrease in
net charge-offs during 1994 contributed to the increased coverage of
non-performing loans, which was 224.4 percent at December 31, 1994 compared with
142.9 percent at December 31, 1993.
As a percent of average assets, the 1994 provision was 0.38 percent compared
with the 0.41 percent and 0.40 percent reported for 1993 and 1992, respectively.
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 was down 2.7 percent over 1993,
totalling $284.4 million versus $292.2 million, as net gains on the sales of
securities and residential mortgages combined to add only $17.0 million to
non-interest income in 1994 versus $46.2 million in 1993. The rising interest
rate environment during 1994 heavily impacted these income sources. Excluding
gains on the sale of securities and mortgage loans, non-interest income would
have increased 8.7 percent over 1993. Non-interest income totaled $261.3 million
for 1992. Table V presents trends in the major components of non-interest income
from 1990 to 1994.
A-7
<PAGE> 31
NON-INTEREST INCOME AND NON-INTEREST EXPENSE TABLE V
($ in thousands)
<TABLE>
<CAPTION>
Change
1994/1993
- ---------------------------------------------------------------------------------------------------------------------------------
1994 1993 1992 1991 1990 Amount Percent
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST INCOME
Service charges on deposits......................... $ 89,164 84,648 79,522 70,318 64,388 4,516 5.3%
Trust and financial services income................. 81,717 77,290 68,850 60,904 51,038 4,427 5.7
Investment securities transaction................... 5,349 16,753 14,993 1,088 (6,380) (11,404) (68.1)
Other operating income.............................. 108,143 113,493 97,951 77,590 72,512 (5,350) (4.7)
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest income........................... $284,373 292,184 261,316 209,900 181,558 (7,811) (2.7)
- --------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Personnel........................................... $430,563 403,119 410,854 361,187 326,308 27,444 6.8%
Occupancy, net...................................... 60,471 55,093 57,286 50,413 48,985 5,378 9.8
Equipment........................................... 56,111 53,376 63,134 51,474 46,690 2,735 5.1
Data processing..................................... 17,524 14,963 10,380 11,448 13,005 2,561 17.1
Amortization of intangibles......................... 16,577 8,902 38,336 10,303 8,583 7,675 86.2
FDIC premiums....................................... 42,055 39,680 38,711 31,032 16,444 2,375 6.0
Other operating expense............................. 190,117 188,395 177,647 149,875 142,304 1,722 0.9
- ----------------------------------------------------------------------------------------------------------------------
Total non-interest expense.......................... $813,418 763,528 796,348 665,732 602,319 49,890 6.5
- --------------------------------------------------------------------------------------------------------------------------------
Non-interest income as a percent of
average assets.................................... 1.26% 1.42 1.33 1.25 1.15
Non-interest expense as a percent of
average assets.................................... 3.61 3.72 4.07 3.96 3.81
Burden ratio........................................ 2.35 2.30 2.74 2.71 2.66
Efficiency ratio.................................... 65.59 62.72 68.58 67.25 67.44
Efficiency ratio, excluding FDIC premiums........... 62.20 59.46 65.24 64.11 65.60
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposit accounts, the largest component of fee income for
First of America, increased 5.3 percent in 1994 to $89.2 million compared with
$84.6 million in 1993 and $79.5 million in 1992. Growth in these fees reflect
the growth in non-interest bearing transaction accounts, which were up 4.8
percent over last year.
Trust and financial services revenue increased 5.7 percent over a year ago
to $81.7 million. Both components of trust and financial services revenue,
traditional trust fees and brokerage and investment advisory services, felt the
impact of changes in the financial markets. Traditional trust fees, the largest
component, was $59.8 million compared with $56.7 million in 1993 and $51.1
million in 1992. These fees generally follow the growth of total assets under
management and are affected by changes in the securities market as many fees are
assessed based on the market value of managed funds. Total trust and financial
services assets under management at December 31, 1994, totalled $13.2 billion
versus $12.6 billion at December 31, 1993 and $11.9 billion at December 31,
1992. The Parkstone Group of Funds accounted for $4.7 billion of the 1994
year-end assets under management.
Other financial services fees, derived from brokerage services and
investment advisory services, increased 6.1 percent over last year despite the
lagging sales of mutual funds. Total revenue from the sale of Parkstone Mutual
Funds and other mutual funds was $4.5 million, down 42.6 percent from $7.8
million in 1993.
First of America plans to expand its trust and financial services revenue
through the acquisition of established investment management firms as well as
sales and marketing efforts. On January 1, 1995, First of America completed the
acquisition of New England Trust Company, an investment management company based
in Providence, Rhode Island, with over $600 million in assets under management.
On March 1, 1995, First of America also entered into a partnership with another
investment management firm, Gulfstream Global Investors, Ltd., based in Dallas,
Texas, with $160 million in assets under management. Gulfstream will provide
international
A-8
<PAGE> 32
investment expertise and manage the Parkstone International Discovery Fund which
had approximately $290 million in net assets at December 31, 1994.
Investment securities gains were down $11.4 million in 1994 versus 1993,
representing a $0.12 reduction in 1994's earnings per share. The total net gain
from such sales in 1994 was $5.3 million compared with $16.8 million in 1993 and
$15.0 million in 1992. To mitigate the interest rate sensitive position of the
balance sheet, First of America sold $180 million in available for sale
securities during the fourth quarter, resulting in a loss of $3.5 million. First
of America also terminated $82.9 million of interest rate swaps during December,
1994, incurring an immediate loss of $804 thousand (included in net securities
gains on the income statement) and creating a $1.4 million deferred loss to be
amortized into earnings over the remaining life of the hedged liability. At
year-end 1994, net unrealized losses of $107.3 million and $170.1 million
remained in the Available for Sale and Held to Maturity securities portfolios,
respectively. The average maturities of these portfolios at year-end were 3.2
years and 2.8 years, respectively.
Total credit card fees for 1994 increased to $43.2 million compared with
$40.0 million and $36.2 million in 1993 and 1992, respectively. Growth in these
fees has averaged 9.9 percent, annually, over the last three years. A component
of total credit card fees, merchant discount income, which represents the charge
to First of America merchants for processing credit card receipts, increased
25.5 percent over 1993 totalling $28.9 million. The credit card portfolio
reached $1.3 billion at December 31, 1994, up 16.5 percent from a year ago.
First of America's mortgage banking business felt the impact of the rising
interest rate environment, as mortgage originations were down 27.4 percent to
$2.2 billion in 1994 versus $3.0 billion in 1993, contributing to the decline in
gains on the sale of residential mortgages which totalled $11.7 million for 1994
compared with $29.5 million a year ago and $15.2 million in 1992. First of
America's servicing portfolio, however, did continue to grow and build servicing
income. At December 31, 1994, the mortgage servicing portfolio for outside
investors was $3.2 billion, up 15.3 percent over the $2.8 billion at December
31, 1993 and $2.4 billion at December 31, 1992. Mortgage servicing revenues
totalled $9.5 million during 1994 compared with $7.0 million in 1993 and $3.6
million in 1992.
The remaining categories of other operating income increased 18.0 percent
over 1993. These revenues totaled $43.8 million in 1994, versus $37.1 million in
1993 and $42.9 million in 1992. Continued sales efforts, coupled with pricing
changes implemented during the year, contributed to the growth in miscellaneous
fees. The largest components of this group, non affiliate corporate services and
ATM network income, increased 51.7 percent and 17.3 percent, respectively, and
together, comprised $16.1 million of total non-interest income.
A-9
<PAGE> 33
NONBANK SERVICES TABLE VI
($ in thousands)
<TABLE>
<CAPTION>
% Change
1994 1993 1992 1994/1993
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
TRUST AND FINANCIAL SERVICES
Traditional trust assets........................................... $10,110,726 9,870,860 9,544,708 2.4%
Brokerage assets................................................... 1,480,100 1,260,720 1,143,491 17.4
Other assets....................................................... 1,628,056 1,446,407 1,244,339 12.6
- -------------------------------------------------------------------------------------------------------------
Total trust assets................................................. $13,218,882 12,577,987 11,932,538 5.1
- -------------------------------------------------------------------------------------------------------------
Parkstone funds retail sales....................................... $ 158,291 246,578 107,565 (35.8)
- -------------------------------------------------------------------------------------------------------------
Traditional trust income........................................... $ 59,844 56,677 51,142 5.6
Brokerage income................................................... 9,241 10,159 8,868 (9.0)
Investment management fees, cash management
fees and other................................................... 12,632 10,454 8,840 20.8
- -------------------------------------------------------------------------------------------------------------
Total trust income................................................. $ 81,717 77,290 68,850 5.7
- --------------------------------------------------------------------------------------------------------------------------
MORTGAGE BANKING
Gains on sale of loans............................................. $ 11,697 29,456 15,230 (60.3)%
Servicing income................................................... 9,476 6,990 3,616 35.6
Loans sold servicing retained...................................... 836,384 1,386,000 594,144 (39.7)
Number of loans serviced at year-end............................... 138,602 130,837 130,829 5.9
- --------------------------------------------------------------------------------------------------------------------------
RETAIL CREDIT SERVICES
Visa/M.C. Gold outstanding......................................... $ 746,716 607,827 248,586 22.9
Other revolving outstanding........................................ 774,991 753,777 938,344 2.8
- -------------------------------------------------------------------------------------------------------------
Total revolving portfolio.......................................... $ 1,521,707 1,361,604 1,186,930 11.8
- -------------------------------------------------------------------------------------------------------------
Visa/M.C. Gold accounts............................................ 890,810 821,845 389,656 8.4
Other revolving accounts........................................... 1,182,613 1,282,421 1,287,216 (7.8)
- -------------------------------------------------------------------------------------------------------------
Total revolving cardholders........................................ 2,073,423 2,104,266 1,676,872 (1.5)
- -------------------------------------------------------------------------------------------------------------
Total revolving credit fees........................................ $ 43,216 39,964 36,216 8.1
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NON-INTEREST EXPENSE -- As detailed in Table V, non-interest expense was
$813.4 million in 1994, an increase of 6.5 percent over 1993's $763.5 million.
Excluding acquisitions, non-interest expense would have increased only 2.9
percent over a year ago. As a percent of average assets, non-interest expense
improved to 3.61 percent versus 3.72 percent in 1993 and 4.07 percent in 1992.
The largest component of First of America's non-interest expense is
personnel costs which were $430.6 million in 1994 versus $403.1 million in 1993
and $410.9 million in 1992. First of America added 721 employees through
acquisitions during the year, but partially offset this increase by reductions
due to internal initiatives. Included in the 1994 personnel expense was $3.9
million in one-time severance costs related to the company's internal
reorganization. The number of full time equivalent employees per one million
dollars in average assets, a measure of the internal efficiencies First of
America has been able to create through its continuing program of functional
consolidations, has declined each of the last five years. For 1994, this measure
was 0.56 full time equivalent employees per million dollars of average assets
compared with 0.63 in 1993 and 0.65 in 1992.
Net occupancy and equipment costs increased 7.5 percent in 1994 to $116.6
million compared with $108.5 million in 1993 and $120.4 million in 1992. The
1994 growth in this expense is largely the result of acquisitions. The 1992
total included $6.2 million in one-time costs for the write-off of duplicative
fixed assets from the Security Bancorp acquisition.
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 $207.6 million in 1994,
up 2.1 percent from 1993's total of
A-10
<PAGE> 34
$203.4 million. This increase was primarily due to acquisitions offsetting
internal initiatives begun in August. As a percent of average assets, these
expenses were only 0.92 percent compared with 0.99 percent in 1993 and 0.96
percent in 1992.
With the ongoing consolidation of First of America's affiliate banks into
one bank in each state of operation, $15-$18 million in one-time restructuring
costs, principally severance, will be incurred during 1995. As a result of this
reorganization and internal cost cutting initiatives, the run-rate of operating
expenses, excluding 1994-1995 acquisitions, should be approximately five percent
lower than the 1994 levels by year-end 1995.
EFFICIENCY RATIO -- The efficiency ratio measures non-interest expense as a
percent of the sum of net interest income (FTE) and non-interest income. The
lower the ratio, the more efficiently a company's resources produce revenues.
Table V presents the efficiency ratio over the last five years. This ratio
increased to 65.59 percent versus 62.72 percent in 1993 as expenses grew faster
than revenue, which was slowed by the lower net interest margin. The efficiency
ratio was 68.58 percent in 1992. The burden ratio, another measure of
efficiency, compares an institution's non-interest expense, less non-interest
income, divided by average total assets. First of America's burden ratio was
2.35 percent, 2.30 percent and 2.74 percent for 1994, 1993 and 1992,
respectively. Both of these ratios for 1992 included one-time charges from the
Security Bancorp acquisition and the intangible asset write-down.
INCOME TAX EXPENSE -- Income tax expense was $102.6 million in 1994 compared
with $98.6 million in 1993 and $91.5 million in 1992. The primary reason for the
increased expense was the lower level of tax credits taken throughout the year,
which totalled $3.4 million in 1994 versus $7.9 million in 1993. A summary of
significant tax components is provided in Note 18 of the Notes to Consolidated
Financial Statements included later in this document.
CREDIT RISK PROFILE
First of America's community banking structure helps minimize its credit
risk exposure. Community banking means that loans are made in local markets to
consumers and small to mid-sized businesses from deposits gathered in the same
market. A centralized, independent loan review staff evaluates each affiliate's
loan portfolio on a regular basis and shares its evaluation with bank management
as well as corporate senior management.
First of America's loan portfolio includes a large percentage of smaller
loans to consumers which reduces total portfolio risk. This included at year-end
a distribution among consumer installment and revolving loans (35 percent),
one-to-four family residential mortgages and home equity loans (31 percent),
commercial loans (14 percent) and commercial mortgages (20 percent). First of
America does not have any concentrations of credit to any specific borrower or
within any geographic area. The total loan portfolio, as presented in Table VII,
was $16.8 billion at year-end 1994, up 17.0 percent from $14.4 billion a year
ago due to both acquisitions and internally generated growth.
COMPONENTS OF THE LOAN PORTFOLIO TABLE VII
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
Consumer, net......................................... $ 5,799,025 5,062,173 4,288,431 4,060,126 3,566,844
Commercial, financial and agricultural................ 2,344,969 2,148,663 2,170,715 2,223,202 2,640,351
Real estate -- construction........................... 438,067 252,839 300,954 342,944 320,476
Real estate -- mortgage............................... 8,252,797 6,930,480 6,995,917 6,601,755 4,700,550
- ----------------------------------------------------------------------------------------------------------------------------
Total loans........................................... $16,834,858 14,394,155 13,756,017 13,228,027 11,228,221
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSUMER LOANS -- First of America's consumer loan portfolio which includes
indirect and direct installment loans, credit cards and other revolving loans,
increased 14.6 percent over a year ago totalling $5.8 billion. Excluding
acquisitions, total consumer loans increased 13.4 percent over a year ago.
Credit cards increased 16.5 percent, indirect installment loans were up 15.9
percent and direct installment loans were up 14.6 percent.
Even with the double digit growth in consumer loans, gross charge-offs and
net charge-offs were down 5.5 percent and 15.1 percent, respectively, over 1993.
As a percent of average total consumer loans, net charge-offs were 0.87 percent
in 1994 versus 1.18 percent and 1.29 percent in 1993 and 1992, respectively.
During 1994, First of America repriced $161 million of its credit card
portfolio from 18 percent fixed rate cards to a lower variable rate product.
This repricing allowed First of America to reduce its attrition rate on credit
cards to 4.4 percent for 1994 from 5.8 percent in
A-11
<PAGE> 35
1993. In addition, First of America's credit card portfolio has maintained
strong asset quality. In 1994, net charge-offs as a percent of average loans
were 2.14 percent compared with 2.40 percent the previous year; both measures
compare favorably with credit card industry experience.
RESIDENTIAL MORTGAGE LOANS -- Residential mortgage loans were $5.3 billion
at year-end 1994, up 27.2 percent over year-end 1993. First of America added
over $700 million to this category from the acquisitions during the year.
Excluding acquisitions, residential mortgages maintained solid growth and
increased 8.3 percent over last year. The residential mortgage portfolio
continued to have the strongest credit quality measurements when compared with
First of America's other portfolios. Net charge-offs as a percent of average
residential mortgage loans were 0.02 percent and 0.03 percent in 1994 and 1993,
respectively. This compares with 0.53 percent and 0.75 percent for the remaining
portfolios combined for 1994 and 1993.
At December 31, 1994, residential mortgage loans held for sale, originated
at prevailing market rates, totalled $30.2 million with a market value of $30.3
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 $21.2 million
all of which are intended for sale. Mandatory commitments to deliver mortgage
loans or mortgage backed securities to investors, at prevailing market rates,
totalled $30.6 million as of December 31, 1994.
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. Investor/developer loans, made to serve local markets, totaled $1.7
billion at year-end 1994 versus $1.4 billion last year 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. Maturity and rate
sensitivity of selected loan categories is presented in Table VIII.
First of America's non-performing commercial and commercial mortgages
totalled $82.8 million at year-end versus $114.1 million a year ago. One area of
strong improvement came from the southeastern Michigan region which lowered its
non-performing commercial and commercial mortgages by 26.9 percent or $16.6
million.
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS TABLE VIII
($ in thousands)
<TABLE>
<CAPTION>
One year One year to After
December 31, 1994 or less five years five years Total
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------------------
Commercial, financial and agricultural................................ $1,268,122 655,004 131,891 2,055,017
Commercial tax-exempt................................................. 40,515 89,916 159,521 289,952
Real estate construction.............................................. 291,244 108,227 38,596 438,067
- -----------------------------------------------------------------------------------------------------------------------------
Total................................................................. $1,599,881 853,147 330,008 2,783,036
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate...................................... $ 409,525 181,657 591,182
With floating or adjustable interest rates............................ 443,622 148,351 591,973
- -----------------------------------------------------------------------------------------------------------------------------
Total................................................................. $ 853,147 330,008 1,183,155
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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, which include nonaccrual loans, renegotiated loans and
other real estate owned, totaled $140.3 million at year-end 1994, compared with
$182.7 million at year-end 1993 and $196.0 million at year-end 1992. The current
improvement occurred across all of First of America's geographic regions, but
specifically in its southeast Michigan area. Non-performing assets in this
region were down 28.3 percent from a year ago. For the corporation,
non-performing loans as a percent of total loans at 0.60 percent reached its
lowest figure since the 0.79 percent reported at December 31, 1990. Similarly,
net charge-offs as a percent of average loans reached its lowest point since
1990 at 0.39 percent versus 0.53 percent for 1993 and 0.57 percent for 1992.
A-12
<PAGE> 36
RISK ELEMENTS IN THE LOAN PORTFOLIO TABLE IX
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993 1992 1991 1990
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans.............................................. $ 96,814 121,186 126,619 116,995 76,533
Restructured loans............................................. 4,852 10,879 20,669 16,837 12,234
Other real estate owned........................................ 38,662 50,595 48,699 34,601 17,620
-------- -------- -------- -------- --------
Non-performing assets........................................ 140,328 182,660 195,987 168,433 106,387
Past due loans 90 days or more (excluding the above two
categories).................................................. 18,208 23,462 20,887 32,499 31,380
Other loans of concern......................................... 31,653 53,206 37,663 37,189 23,361
- --------------------------------------------------------------------------------------------------------------------------
Total.......................................................... $190,189 259,328 254,537 238,121 161,128
- --------------------------------------------------------------------------------------------------------------------------
</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 $31.7
million at year-end 1994, a decrease of 40.5 percent from 1993's year-end total
of $53.2 million. While management has identified these loans as requiring
additional monitoring, they do not necessarily represent future non-performing
loans.
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.
The allowance coverage of non-performing loans at year-end 1994 was 224.38
percent compared with 142.86 percent at year-end 1993 and 120.03 percent at
year-end 1992. 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.
On January 1, 1995, First of America identified $82.8 million of impaired
loans under the guidelines of 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." This resulted
in a specifically identified allowance for impaired loan losses of $17.4
million, which was transferred from the general allowance.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES TABLE X
($ in thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
--------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
December 31, 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............. $ 33,543 1.43% $ 39,231 1.83% $ 43,466 2.00% $ 49,129 2.21% $ 43,498 1.65%
Real estate................ 55,721 0.68 55,661 0.81 54,873 0.76 49,639 1.14 40,334 0.80
Consumer................... 76,235 1.31 69,633 1.38 52,847 1.23 54,333 1.34 44,000 1.23
Unallocated................ 62,616 0.37 24,139 0.17 25,607 0.19 21,781 0.16 9,180 0.08
- ---------------------------------------------------------------------------------------------------------------------------------
Total...................... $228,115 $188,664 $176,793 $174,882 $137,012
- ---------------------------------------------------------------------------------------------------------------------------------
Allowance to total loans... 1.36% 1.31 1.29 1.32 1.22
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
A-13
<PAGE> 37
SUMMARY OF LOAN LOSS EXPERIENCE TABLE XI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------------
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period........................ $ 188,664 176,793 174,882 137,012 126,175
Provision charged against income...................... 86,571 84,714 78,809 71,030 44,782
Allowance for loan losses of acquired/(sold) banks.... 11,420 50 (372) 27,094 11,185
RECOVERIES:
Commercial, financial and agricultural................ 7,277 8,692 7,215 8,616 11,010
Real estate -- construction........................... 51 -- -- -- --
Real estate -- mortgage............................... 2,404 2,615 2,112 1,487 1,741
Consumer loans........................................ 28,402 24,556 24,313 20,177 15,719
----------- ---------- ---------- ---------- ----------
Total recoveries...................................... 38,134 35,863 33,640 30,280 28,470
----------- ---------- ---------- ---------- ----------
CHARGE-OFFS:
Commercial, financial and agricultural................ 13,621 19,764 22,558 13,475 16,403
Real estate -- construction........................... 80 -- -- -- --
Real estate -- mortgage............................... 8,825 10,539 10,588 5,669 3,810
Consumer loans........................................ 74,148 78,453 77,020 71,390 53,387
----------- ---------- ---------- ---------- ----------
Total charge-offs..................................... 96,674 108,756 110,166 90,534 73,600
----------- ---------- ---------- ---------- ----------
Net charge-offs....................................... 58,540 72,893 76,526 60,254 45,130
- ----------------------------------------------------------------------------------------------------------------------------
Balance at end of period.............................. $ 228,115 188,664 176,793 174,882 137,012
- ----------------------------------------------------------------------------------------------------------------------------
Average loans (net of unearned income)................ $15,172,618 13,875,584 13,435,991 11,276,061 10,359,695
- ----------------------------------------------------------------------------------------------------------------------------
Earnings coverage of net losses....................... 7.00x 5.91 4.44 4.90 5.72
Allowance to total end of period loans................ 1.36% 1.31 1.29 1.32 1.22
Net losses to end of period allowances................ 25.66 38.64 43.29 34.45 32.94
Recoveries to total charge-offs....................... 39.45 32.98 30.54 33.45 38.68
Provision to average loans............................ 0.57 0.61 0.59 0.63 0.43
Net charge-offs to average loans...................... 0.39 0.53 0.57 0.53 0.44
- ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
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 deposits except negotiated certificates of deposit.
As a percent of total deposits, core deposits were 94.8 percent at year-end 1994
and 95.6 percent at year-end 1993. 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 loans to deposits ratio measures how well a company is using its lowest
cost source of funding which is typically its deposit base. As a percent of
total deposits, total loans were 83.3 percent compared with 78.9 percent and
76.3 percent for 1993 and 1992, respectively. Since loans are generally a higher
yielding asset than securities, this is a positive trend and represents a more
efficient use of funds.
The average deposit balances outstanding and the rates paid on those
deposits for the three years ended December 31, 1994, are presented in Table
XII. The maturity distribution of time deposits of $100,000 or more at year-end
1994 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 entered
into a Three-Year Competitive Advance and Revolving Credit Facility Agreement
dated as of March 25, 1994 and amended by its First Amendment dated December 9,
1994 (collectively, the Credit Agreement). The Credit Agreement allows First
A-14
<PAGE> 38
of America to borrow on a standby revolving credit basis and an uncommitted
competitive advance basis up to $350,000,000. The proceeds of all borrowings
made pursuant to the Credit Agreement will be used to provide working capital
and for other general corporate purposes. At December 31, 1994, the outstanding
balance under the Credit Agreement was $30.0 million.
On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which are not subject to redemption prior
to maturity and which qualify as tier II capital under the Federal Reserve
Board's capital guidelines. The proceeds received from the Notes were used to
discharge indebtedness incurred to fund the acquisition of the Goldome Federal
branches, to fund the repurchase of common stock and for other general corporate
purposes.
During August 1994, certain First of America bank subsidiaries began issuing
Bank Notes due from 30 days to 10 years from date of issue. The proceeds from
the sale of the notes were used for general corporate purposes by the issuing
banks. Total outstanding for all bank notes at December 31, 1994 was $515.4
million, of which $259.9 million was included in long term debt.
DEPOSITS TABLE XII
($ in thousands)
<TABLE>
<CAPTION>
1994 1993 1992
Average Average Average
- ----------------------------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing...................................... $ 2,665,183 -- $ 2,463,534 -- $ 2,301,768 --
Savings and NOW accounts.................................. 3,385,164 1.59% 3,137,831 2.11% 2,820,091 3.07%
Money market savings and checking accounts................ 4,114,885 2.81 3,852,780 2.47 3,972,004 3.24
Time...................................................... 8,849,576 4.50 8,638,044 4.74 8,520,485 5.59
- ----------------------------------------------------------------------------------------------------------------------------------
Total..................................................... $ 19,014,808 $ 18,092,189 $ 17,614,348
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE TABLE XIII
($ in thousands)
<TABLE>
<CAPTION>
Three Three Six
months months to months to After
or less six months one year one year Total
- -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit..................................... $ 955,315 299,119 145,211 228,576 1,628,221
Other time deposits......................................... 61,803 38,494 22,514 54,116 176,927
- -----------------------------------------------------------------------------------------------------------------------------
Total....................................................... $1,017,118 337,613 167,725 282,692 1,805,148
- -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
INTEREST RATE RISK -- First of America's interest rate risk policy is to
attempt 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, 1994, totalling $707.9 million in notional amounts versus $291.6 million at
December 31, 1993. This total included notional amounts of $125 million as a
hedge against the parent company's 8.50% Subordinated Notes Due February 1,
2004, $30 million against various fixed rate bank notes, $10 million against a
short term FHLB advance, $12 million against certain FirstRate Fund deposits and
the remainder, $530.9 million, as a hedge against certain Rising Rate and Market
Rate certificates of deposit. First of America had swaps of variable rate
instruments for fixed rate
A-15
<PAGE> 39
instruments with notional amounts totalling $52.0 million, $633.8 million of
fixed rate instruments for variable rate instruments and $22.1 million
representing basis swaps.
The aggregate market value of interest rate swaps at year-end was a negative
$17.2 million. The full year 1994 impact from swap activity on net interest
income was a negative $260 thousand versus a positive $646 thousand impact for
1993. If interest rates increased one hundred basis points, First of America
would lose approximately $11.4 million in net interest income over the next
twelve months from its current interest rate swap agreements. Note 20 of the
Notes to Consolidated Financial Statements included later in this document
provides further detail on First of America's interest rate swap agreements
outstanding.
First of America also entered into interest rate cap agreements during the
fourth quarter as a means of managing interest rate risk relating to certain
FirstRate Fund deposits. These caps are agreements to receive payments for
interest rate differentials between an index rate and a specified maximum rate,
computed on notional amounts. As of December 31, 1994, First of America had
outstanding interest rate caps with notional amounts totaling $125 million, with
a market value of a positive $1.6 million.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities
and includes the impact of off-balance sheet interest rate swap and cap
agreements. Table XIV presents First of America's Gap position at December 31,
1994, for one year and shorter periods, and Table XV details the company's five
year Gap position. The Gap reports' reliability in measuring the risk to income
from a change in interest rates is tested through the use of simulation models.
Management has determined that these simulations provide a more meaningful
measurement of the company's interest rate risk positions than the following Gap
tables. At year-end 1994 simulation models showed that less than two percent of
First of America's annual net income was at risk if interest rates were to move
up or down an immediate one percent. First of America views the management of
its interest rate sensitive position as an ongoing process due to the effects of
changing economic conditions.
INTEREST RATE SENSITIVITY -- SHORT TERM TABLE XIV
($ in millions)
<TABLE>
<CAPTION>
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1994 Days Days Days Days Days
<S> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
ASSETS:
Other earnings assets.................................................. $ 55 55 55 55 55
Investment securities(1)............................................... 233 331 439 751 1,254
Loans, net of unearned discount(2)..................................... 5,004 5,548 5,934 6,981 8,874
- ------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)...................................... $5,292 5,934 6,428 7,787 10,183
- ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits............................................. $2,799 3,059 3,162 3,168 3,174
Other core savings and time deposits................................... 1,037 2,084 2,631 3,794 5,240
Negotiated deposits.................................................... 486 655 781 929 981
Borrowings............................................................. 1,899 1,982 2,002 2,100 2,133
Interest rate swap agreements(3)....................................... (506 ) (476 ) (468 ) (452) (180)
Interest rate cap agreements(3)........................................ 125 125 125 125 --
- ------------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)................................. $5,840 7,429 8,233 9,664 11,348
- ------------------------------------------------------------------------------------------------------------------------------
GAP (RSA -- RSL)....................................................... $ (548 ) (1,495 ) (1,805 ) (1,877) (1,165)
- ------------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL..................................................... 80.58% 89.73
GAP divided by total assets............................................ (7.64) (4.74)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest
rate caps are based on contractual maturities and estimated repricing.
A-16
<PAGE> 40
INTEREST RATE SENSITIVITY -- LONG TERM TABLE XV
($ in millions)
<TABLE>
<CAPTION>
13 to 25 to 37 to 0 to
December 31, 1994 24 Months 36 Months 60 Months 60 Months
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
ASSETS:
Other earnings assets.................................................. $ -- -- -- 55
Investment securities(1)............................................... 1,133 1,229 1,538 5,154
Loans, net of unearned discount(2)..................................... 2,324 1,534 1,655 14,387
- --------------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)...................................... $ 3,457 2,763 3,193 19,596
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits............................................. $ 123 56 79 3,432
Other core savings and time deposits................................... 3,801 899 1,090 11,030
Negotiated deposits.................................................... 39 4 6 1,030
Borrowings............................................................. 1 -- -- 2,134
Interest rate swap agreements(3)....................................... 130 25 25 --
Interest rate cap agreements(3)........................................ -- -- -- --
- --------------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)................................. $ 4,094 984 1,200 17,626
- --------------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)........................................................ $ (637) 1,779 1,993 1,970
- --------------------------------------------------------------------------------------------------------------------------
RSA divided by RSL..................................................... 111.18%
GAP divided by total assets............................................ 8.02
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(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.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest
rate caps are based on contractual maturities and estimated repricing.
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 and requires a minimum ratio of
4.00 percent in order to be categorized as adequately capitalized. As shown in
Table XVI, at December 31, 1994, First of America's capital ratios exceeded
required regulatory minimums with a tier I risk based ratio of 8.44 percent, a
total risk based ratio of 11.85 percent and a tier I leverage ratio of 5.81
percent. On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which qualifies as Tier II capital. The
issuance of this debt, earnings retention and additional equity issued in
acquisitions combined to more than offset the prepayment of the $21.4 million
9.25% Senior Notes, the $122.9 million reduction in capital from the stock
repurchase and the goodwill added from acquisitions in increasing the total
capital ratio over a year ago. Capital ratios exclude the mark-to-market
adjustment for Available for Sale securities in accordance with the Federal
Reserve's regulations.
The long term debt which qualified as tier II capital at December 31, 1994,
consisted of $150 million in 8.5% Subordinated Notes Due February 1, 2004, a
$10.0 million 6.35% Subordinated Note which matures ratably over a five year
period beginning December 31, 2003, $6.2 million in 10.675% Subordinated Notes
due in equal installments through 1998 and the above mentioned $200 million in
7.75% Subordinated Notes Due July 15, 2004. This debt is included in tier II
capital on a weighted maturity basis. Additional information relating to First
of America's various long term debt agreements is provided in Note 11 of the
Notes to Consolidated Financial Statements included later in this document.
A-17
<PAGE> 41
RISK-BASED CAPITAL TABLE XVI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
TIER I CAPITAL:
Common shareholders' equity........................................................ $1,671,159 1,491,906 1,260,905
Less: Intangibles.................................................................. 252,979 138,423 124,179
Qualifying preferred stock......................................................... -- -- 74,586
- --------------------------------------------------------------------------------------------------------------------------
Tier I Capital..................................................................... $1,418,180 1,353,483 1,211,312
- --------------------------------------------------------------------------------------------------------------------------
TIER II CAPITAL:
Allowance for loan losses*......................................................... 210,164 179,094 168,539
Qualifying long term debt.......................................................... 361,867 167,396 173,238
- --------------------------------------------------------------------------------------------------------------------------
Tier II Capital.................................................................... $ 572,031 346,490 341,777
- --------------------------------------------------------------------------------------------------------------------------
Total Capital...................................................................... $1,990,211 1,699,973 1,553,089
- --------------------------------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS:
Tier I............................................................................. 8.44% 9.45 8.99
Total.............................................................................. 11.85 11.87 11.53
Tier I leverage ratio.............................................................. 5.81 6.43 6.10
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Limited to 1.25% of total risk-weighted assets.
TOTAL SHAREHOLDERS' EQUITY -- First of America's total shareholders' equity
increased 3.6 percent to $1.6 billion at year-end 1994, primarily as a result of
net earnings retention and the additional capital from acquisitions offsetting
the negative $121.9 million change in the FAS 115 adjustment from a year ago and
the $123.4 million reduction in capital from the stock repurchase program.
In the acquisitions of LGF Bancorp, Inc., First Park Ridge Corporation, F&C
Bancshares, Inc. and Presidential Holding Corporation, First of America issued
1,645,245 shares, 2,199,733 shares, 2,132,105 shares and 704,515 shares of First
of America Common Stock, respectively. The shares issued for the LGF Bancorp,
Inc. and First Park Ridge Corporation acquisitions included shares that were
repurchased through the stock repurchase program. During 1994, First of America
repurchased 3,369,400 shares out of a potential four million shares approved by
the Board of Directors for repurchase.
IN CONCLUSION
Results for 1994 were below both investment analysts' forecasts and
management's expectations for the company. Management, however, remains
committed to the long term performance goals previously set for the company of a
return on assets of 1.25 percent or higher, an efficiency ratio of 60 percent or
lower and a return on equity between 17 percent and 18 percent. Although 1994
results were disappointing, the acquisitions completed during 1994 and the
internal initiatives to further streamline operations and delivery of services
should strengthen the company for the long term in the increasingly competitive
financial services market.
A-18
<PAGE> 42
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 LLP, which was engaged to
express an opinion as to the fairness of presentation of such financial
statements.
/S/ DR 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 seven
independent directors with Robert L. Hetzler as chairman. The committee held
five meetings during fiscal year 1994.
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, 1994,
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
A-19
<PAGE> 43
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, 1994 and 1993
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, 1994. 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, 1994 and 1993,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1994, in conformity with generally
accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 18, 1995
A-20
<PAGE> 44
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks....................................................... $ 1,060,788 903,517
Bank time deposits............................................................ 34,883 2,000
Federal funds sold and resale agreements...................................... 20,388 72,909
Securities:
Securities held to maturity, market value of $2,942,793 at December 31, 1994
and $1,872,326 at December 31, 1993....................................... 3,112,876 1,856,623
Securities available for sale, amortized cost of $2,694,929 at December 31,
1994 and $3,212,687 at December 31, 1993.................................. 2,587,626 3,261,481
Loans, net of unearned income:
Consumer.................................................................... 5,799,025 5,062,173
Commercial, financial and agricultural...................................... 2,344,969 2,148,663
Commercial real estate...................................................... 3,423,268 2,902,549
Residential real estate..................................................... 5,237,400 3,914,914
Loans held for sale, market value of $30,310 for 1994 and $368,846 for
1993...................................................................... 30,196 365,856
----------- ----------
Total loans............................................................... 16,834,858 14,394,155
Less: Allowance for loan losses........................................... 228,115 188,664
----------- ----------
Net loans................................................................. 16,606,743 14,205,491
Premises and equipment, net................................................... 476,165 432,256
Other assets.................................................................. 669,233 496,194
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS.................................................................. $24,568,702 21,230,471
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................................ $ 2,810,203 2,682,621
Interest bearing............................................................ 17,390,063 15,561,082
----------- ----------
Total deposits............................................................ 20,200,266 18,243,703
Securities sold under repurchase agreements................................... 583,184 664,531
Other short term borrowings................................................... 1,299,555 330,047
Long term debt................................................................ 681,236 254,193
Other liabilities............................................................. 225,573 214,560
----------- ----------
Total liabilities....................................................... 22,989,814 19,707,034
----------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value:
Authorized Outstanding
1994 100,000,000 62,849,209
1993 100,000,000 59,520,710......................................... 628,492 595,207
Capital surplus............................................................... 284,877 265,596
Net unrealized gain/(loss) on securities available for sale, net of tax
benefit of $15,032 for 1994 and net of tax expense of $17,263 for 1993...... (92,271) 31,531
Retained earnings............................................................. 757,790 631,103
----------- ----------
Total shareholders' equity................................................ 1,578,888 1,523,437
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................................... $24,568,702 21,230,471
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-21
<PAGE> 45
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans............................................................ $ 1,277,950 1,217,139 1,282,434
Securities:
Taxable income................................................................... 303,098 262,871 274,048
Tax exempt income................................................................ 17,480 28,102 30,555
Federal funds sold and resale agreements........................................... 2,229 2,744 6,685
Bank time deposits................................................................. 120 110 2,405
----------- --------- ---------
Total interest income.............................................................. 1,600,877 1,510,966 1,596,127
----------- --------- ---------
INTEREST EXPENSE
Deposits........................................................................... 567,935 570,499 691,603
Short term borrowings.............................................................. 60,389 18,546 8,104
Long term debt..................................................................... 33,818 19,904 21,593
----------- --------- ---------
Total interest expense............................................................. 662,142 608,949 721,300
----------- --------- ---------
NET INTEREST INCOME................................................................ 938,735 902,017 874,827
Provision for loan losses.......................................................... 86,571 84,714 78,809
----------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES................................ 852,164 817,303 796,018
----------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts................................................ 89,164 84,648 79,522
Trust and financial services income................................................ 81,717 77,290 68,850
Investment securities transactions, net............................................ 5,349 16,753 14,993
Other operating income............................................................. 108,143 113,493 97,951
----------- --------- ---------
Total non-interest income.......................................................... 284,373 292,184 261,316
----------- --------- ---------
NON-INTEREST EXPENSE
Personnel.......................................................................... 430,563 403,119 410,854
Occupancy, net..................................................................... 60,471 55,093 57,286
Equipment.......................................................................... 56,111 53,376 63,134
Outside data processing............................................................ 17,524 14,963 10,380
Amortization of intangibles........................................................ 16,577 8,902 38,336
Other operating expenses........................................................... 232,172 228,075 216,358
----------- --------- ---------
Total non-interest expense......................................................... 813,418 763,528 796,348
----------- --------- ---------
Income before income taxes, and cumulative effect of prior years' change in
accounting principle............................................................. 323,119 345,959 260,986
Income taxes....................................................................... 102,616 98,574 91,506
----------- --------- ---------
Income before cumulative effect of prior years' change in accounting principle..... 220,503 247,385 169,480
Cumulative effect of prior years' change in accounting for postretirement benefits
other than pensions, net of income tax benefit of $11,446........................ -- -- 21,956
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME......................................................................... $ 220,503 247,385 147,524
- ---------------------------------------------------------------------------------------------------------------------------
NET INCOME APPLICABLE TO COMMON STOCK.............................................. $ 220,503 241,232 135,015
- ---------------------------------------------------------------------------------------------------------------------------
PER COMMON AND COMMON EQUIVALENT SHARE
PRIMARY:
Income before cumulative effect of prior years' change in accounting principle..... $ 3.69 4.20 2.86
Cumulative effect of prior years' change in accounting principle................... -- -- 0.40
Net income......................................................................... 3.69 4.20 2.46
FULLY DILUTED:
Income before cumulative effect of prior years' change in accounting principle..... 3.69 4.14 2.85
Cumulative effect of prior years' change in accounting principle................... -- -- 0.37
Net income......................................................................... 3.69 4.14 2.46
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-22
<PAGE> 46
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Net Unrealized Gain
Preferred Common Capital (Loss) on Securities Retained
Stock Stock Surplus Available for Sale Earnings Total
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1992.................... $ 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 -- $1.50 per share.................. (89,603 ) (89,603)
--------- -------- -------- -------- -------- ---------
BALANCE, DECEMBER 31, 1993.................. -- 595,207 265,596 31,531 631,103 1,523,437
Net Income.................................. 220,503 220,503
Issuance of stock:
Acquisition of subsidiaries................ 66,747 109,000 (1,929) 5,618 179,436
Stock Options Exercised.................... 232 228 460
Other...................................... (268) (268)
Repurchase and conversions.................. (33,694) (89,679) (123,373)
Change in market value adjustment of
securities
available for sale, net of tax benefit of
$15,032.................................... (121,873) (121,873)
Cash dividends declared:
Common -- $1.64 per share.................. (99,434 ) (99,434)
- ---------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1994.................. $ -- 628,492 284,877 (92,271) 757,790 1,578,888
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-23
<PAGE> 47
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 220,503 247,385 147,524
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization................................................ 46,295 39,838 45,711
Provision for loan losses.................................................... 86,571 84,714 78,809
Provision for deferred taxes................................................. (4,974) (7,514) (9,782)
Amortization of intangibles.................................................. 16,577 8,902 38,336
(Gain) loss on sale of investment securities................................. -- -- (14,993)
(Gain) loss on sale of loans................................................. -- -- (15,230)
(Gain) loss on sale of securities available/held for sale.................... (5,349) (16,753) --
(Gain) loss on sale of mortgage loans held for sale.......................... (11,697) (29,456) --
(Gain) loss on sale of other assets.......................................... 625 (638) (4,264)
Proceeds from the sales of mortgage loans held for sale...................... 953,310 1,618,695 902,482
Net other (increase) decrease in mortgage loans held for sale................ (605,953) (1,891,928) --
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable.................. (4,031) (35,868) (2,812)
(Increase) decrease in other assets.......................................... 42,044 136,955 126,752
Increase (decrease) in accrued expenses and other liabilities................ 1,510 32,947 15,116
----------- ---------- ----------
Net cash from operating activities....................................... 735,431 187,279 1,307,649
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sales of investment securities (held to maturity)............ -- -- 723,591
Proceeds from the maturities of investment securities (held to maturity)....... 448,395 921,031 1,709,475
Purchases of investment securities (held to maturity).......................... (1,718,714) (2,820,565) (2,943,348)
Proceeds from the sale of securities available/held for sale................... 1,776,724 1,269,875 150,820
Proceeds from the maturities of securities available/held for sale............. 843,109 433,191 --
Purchases of securities available/held for sale................................ (1,649,902) (262,301) --
Net other (increase) decrease in loans and leases.............................. (2,039,577) (398,592) (1,464,607)
Premises and equipment purchased............................................... (68,993) (93,203) (37,090)
Proceeds from the sale of premises and equipment............................... 3,500 2,337 6,852
(Acquisition) sale of affiliates, net of cash acquired......................... 352,131 475,263 11,052
----------- ---------- ----------
Net cash flows provided by investing activities.......................... (2,053,327) (472,964) (1,843,255)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits................................. 504,409 50,203 486,056
Net increase (decrease) in time deposits....................................... (97,744) (364,628) 23,095
Net increase (decrease) in short term borrowings............................... 861,310 656,055 55,797
Proceeds from issuance of long term debt....................................... 738,701 222,475 151,438
Repayments of long term debt................................................... (311,658) (202,333) (177,785)
Payments for redemption of preferred stock..................................... -- -- (3,567)
Proceeds from issuance of common stock......................................... 460 1,132 2,883
Dividends paid................................................................. (96,670) (92,333) (83,824)
Payments for purchase and retirement of common stock........................... (123,373) -- --
Other, net..................................................................... (268) (329) (105)
----------- ---------- ----------
Net cash provided by financing activities................................ 1,475,167 270,242 453,988
----------- ---------- ----------
Net Increase (Decrease) in Cash and Cash Equivalents........................... 157,271 (15,443) (81,618)
Cash and Cash Equivalents at Beginning of Year................................. 903,517 918,960 1,000,578
- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END.......................................... $ 1,060,788 903,517 918,960
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
A-24
<PAGE> 48
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
and core deposit intangibles over their estimated lives, not to exceed ten
years.
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 are recorded at the lower of aggregate cost or
estimated fair value and are 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.
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." Under the provisions of Statement No.
114, a separate allowance for loan losses will be identified for impaired loans
as defined by the statement. On January 1, 1995, First of America identified
$82.8 million of impaired loans under the guidelines of
A-25
<PAGE> 49
Statement No. 114. This resulted in an allowance for impaired loan losses of
$17.4 million which was transferred from the general allowance.
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 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.
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:
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 non-accrual status, amortization of
the loan fees and costs 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:
Income taxes are accounted for under the asset and liability method in
accordance with Financial Accounting Standards Board Statement No. 109,
"Accounting for Income Taxes". 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
A-26
<PAGE> 50
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 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.
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
determined that First of America was in compliance with Statement No. 112 prior
to its issuance and accordingly there was no financial statement impact.
INTEREST RATE SWAPS:
At December 31, 1994, First of America adopted the provisions of Financial
Accounting Standards Board Statement No. 119, "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments," effective
December 31, 1994.
In accordance with Statement No. 119, for all derivative financial
instruments, an entity is required to disclose the following for each category:
The face or contract amount and the nature and terms, including, the credit and
market risk, cash requirements and related accounting policies. The corporation
and its subsidiaries have entered into interest rate swaps as a hedge against
certain deposit and debt liabilities in an attempt to manage interest rate
sensitivity. 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 and losses from 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.
NOTE 2: BUSINESS COMBINATIONS
Information relating to mergers and acquisitions for the three year period
ended December 31, 1994 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>
Presidential Holding Corp. (Florida).............. Dec. 31, 1994 $ 6,714,000 704,515 -- **
F&C Bancshares, Inc. (Florida).................... Dec. 31, 1994 35,064,000 2,132,105 -- **
First Park Ridge Corp. (Illinois)................. Oct. 1, 1994 75,890,000 2,199,733 -- $40,461,000
LGF Bancorp, Inc. (Illinois)...................... May 1, 1994 61,902,000 1,645,245 -- 25,664,000
Goldome Federal Branches (Florida)................ Apr. 15, 1994 60,015,000 -- $58,380,000 60,015,000
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 -- ***
- ---------------------------------------------------------------------------------------------------------------------------------
</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. Core deposit premiums are amortized over ten years approximating
the benefitted periods. All intangible assets are reviewed annually for
permanent impairment using a discounted cash flow analysis. Total intangibles,
which is
A-27
<PAGE> 51
included in other assets in the Consolidated Balance Sheets, amounted to
$252,979,000 at December 31, 1994 and $138,423,000 at December 31, 1993.
NOTE 3: 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 $296,840,000 and
$297,497,000 at December 31, 1994 and 1993, respectively.
NOTE 4: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1994 and 1993. There were no noncash investing
activities related to acquisitions during 1992.
<TABLE>
<CAPTION>
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASE OF AFFILIATES
1994
Goldome Federal Branches...................................... $ 59,204 378,064 -- (318,860)
LGF Bancorp, Inc.............................................. 425,819 365,695 61,902 (1,778)
First Park Ridge Corporation.................................. 352,077 291,563 75,890 (15,376)
1993
Citizens Federal Branches..................................... 25,113 499,337 -- (474,224)
Kewanee Investing Company..................................... 28,737 25,793 3,983 (1,039)
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following schedule details supplemental disclosures for the cash flow
statements:
<TABLE>
<CAPTION>
Assets Assets
Transferred Transferred to
Loans to Securities Securities Held Total Interest Total Income
($ in thousands) Securitized Available for Sale for Sale Paid Taxes Paid
- --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1994.................................... $ 38,838 -- -- 641,886 115,193
1993.................................... 113,380 3,212,687 465,697 576,945 108,399
1992.................................... -- -- 740,151 769,865 104,385
- --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 5: SECURITIES
The amortized cost and estimated market value of Securities Held to Maturity
at December 31, 1994 and 1993 follow.
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities.................................. $2,296,929 2,169,536 1,452,922 1,455,434
State and municipal securities......................................... 244,298 245,559 361,612 374,803
Other securities....................................................... 571,649 527,698 42,089 42,089
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $3,112,876 2,942,793 1,856,623 1,872,326
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-28
<PAGE> 52
The following table details the gross unrealized gains and losses for
Securities Held to Maturity at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $ 910 128,303 11,489 8,977
State and municipal securities......................................... 4,091 2,830 13,593 402
Other securities....................................................... -- 43,951 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $5,001 175,084 25,082 9,379
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1994 and 1993 follow.
<TABLE>
<CAPTION>
1994 1993
- ---------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $2,512,227 2,408,432 2,849,863 2,898,961
State and municipal securities......................................... 1,521 1,523 340,322 339,760
Collateralized mortgage obligations.................................... 99,451 96,040 22,502 22,760
Other securities....................................................... 81,730 81,631 -- --
- ---------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $2,694,929 2,587,626 3,212,687 3,261,481
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
- ------------------------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
<S> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................................. $436 104,231 52,371 3,273
State and municipal securities......................................... 2 -- 491 1,053
Collateralized mortgage obligations.................................... 22 3,433 303 45
Other securities....................................................... -- 99 -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total.................................................................. $460 107,763 53,165 4,371
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America's December 31, 1993 adoption of Statement No. 115 resulted
in a positive $31,531,000 mark-to-market adjustment to equity, net of
$17,263,000 in taxes, from net unrealized gains on the Securities Available for
Sale portfolio. At December 31, 1994, the mark-to-market adjustment to equity
was a negative $92,271,000, net of a tax benefit of $15,032,000.
Except as indicated below, total securities of no individual state,
political subdivision or other issuer exceeded 10% of shareholders' equity at
December 31, 1994. At December 31, 1994 and 1993, the book value of securities
issued by the State of Michigan and all of its political subdivisions totaled
approximately $150,978,000 and $189,536,000, respectively, with a market value
of approximately $151,074,000 and $194,238,000, respectively. The securities at
December 31, 1994, 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 $1,467,908,000 at
December 31, 1994, and $1,394,103,000 at December 31, 1993, were pledged to
secure public deposits, exercise trust powers and for other purposes required or
permitted by law.
A-29
<PAGE> 53
SECURITIES HELD TO MATURITY
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in thousands)
<TABLE>
<CAPTION>
Five years to ten
December 31, 1994 One year or less One year to five years 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......... $ -- -- --% $ 107 107 5.80 % $ -- -- -- %
U.S. agency securities............. 69,082 68,755 6.39 2,104,988 2,138,680 5.69 85,359 89,387 7.21
State and municipal securities*.... 95,523 95,274 5.64 117,713 116,690 6.29 24,889 24,702 6.74
Collateralized mortgage
obligations....................... -- -- -- 483,344 523,317 6.02 41,050 44,989 6.58
Other securities................... 76 76 10.00 2,720 2,759 6.80 508 507 6.37
- -----------------------------------------------------------------------------------------------------------------------------------
Total.............................. $164,681 164,105 5.96% $2,618,872 2,781,553 5.78 % $151,806 159,585 6.96%
- -----------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.................... 100.35% 94.15% 95.13%
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 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......... $ -- -- -- % $ 107 107 5.80 %
U.S. agency securities............. -- -- -- 2,169,429 2,296,822 5.77
State and municipal securities*.... 7,434 7,632 6.54 245,559 244,298 6.09
Collateralized mortgage
obligations....................... -- -- -- 524,394 568,307 6.07
Other securities................... -- -- -- 3,304 3,342 6.81
- ------------------------------------------------------------------------------------------------------------------------------------
Total.............................. $7,434 7,632 6.54 % $2,942,793 3,112,876 5.85 %
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost.................... 97.41% 94.54%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
SECURITIES AVAILABLE FOR SALE
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in thousands)
<TABLE>
<CAPTION>
Five years to ten
December 31, 1994 One year or less One year to five years 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...... $110,383 110,996 5.25% $ 896,391 941,641 5.81 % $ 60,589 63,549 6.78 %
U.S. agency securities.......... 278,280 282,581 5.17 695,728 722,786 5.35 196,424 209,153 6.79
State and municipal
securities*.................... -- -- -- 944 942 3.90 -- -- --
Collateralized mortgage
obligations.................... 1,588 1,570 8.36 94,452 97,881 6.57 -- -- --
Other securities................ -- -- -- 2,049 2,162 5.84 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------------
Total........................... $390,251 395,147 5.21% $1,689,564 1,765,412 5.66 % $257,013 272,702 6.79 %
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................. 98.76% 95.70% 94.25%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
December 31, 1994 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...... $ -- -- -- % $1,067,363 1,116,186 5.80 %
U.S. agency securities.......... 170,637 181,521 5.52 1,341,069 1,396,041 5.55
State and municipal
securities*.................... 579 579 7.96 1,523 1,521 5.43
Collateralized mortgage
obligations.................... -- -- -- 96,040 99,451 6.60
Other securities................ 79,582 79,569 6.21 81,631 81,730 6.20
- ------------------------------------------------------------------------------------------------------------------------------------
Total........................... $250,798 261,669 5.73 % $2,587,626 2,694,929 5.72 %
- ------------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................. 95.85% 96.02%
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
A-30
<PAGE> 54
SECURITIES HELD TO MATURITY
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993 1992
------------------------------------------------------------------------------------------------------------------------------
Average Amortized Average Amortized Average
Amortized Maturity Cost Maturity Cost Maturity
Cost
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency securities..... $2,296,929 2.7yrs. $1,452,922 2.6yrs. $2,992,443 2.8yrs.
State and municipal securities............ 244,298 2.5 361,612 2.2 458,207 2.4
Marketable equity securities*............. -- -- -- -- 23,082 --
Other securities.......................... 571,649 3.2 42,089 9.7 15,894 9.2
- ------------------------------------------------------------------------------------------------------------------------------
Total..................................... $3,112,876 $1,856,623 $3,489,626
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Includes Federal Reserve Stock of $23,082 in 1992.
SECURITIES AVAILABLE FOR SALE
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994 1993
------------------------------------------------------------------------------------------------------------------------------
Average Amortized Average
Amortized Maturity Cost Maturity
Cost
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities................................ $2,512,227 3.3yrs. $2,849,863 1.8yrs.
State and municipal securities....................................... 1,521 7.5 340,322 3.1
Collateralized mortgage obligations.................................. 99,451 2.5 22,502 0.7
Other securities..................................................... 81,730 -- -- --
- ------------------------------------------------------------------------------------------------------------------------------
Total................................................................ $2,694,929 $3,212,687
- ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal interest rates include (1) non-accrual
loans, (2) restructured loans (loans for which the interest rate or principal
balance has been reduced because of a borrower's financial difficulty) and (3)
other real estate which has been acquired in lieu of loan balances due.
Information concerning these assets, loans past due 90 days or more and other
loans of concern (loans where known information about possible credit problems
of borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1994 and 1993 follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCES OUTSTANDING:
Non-accrual loans................................................................................. $ 96,814 121,186
Restructured loans................................................................................ 4,852 10,879
Past due 90 days or more.......................................................................... 18,208 23,462
Other loans of concern............................................................................ 31,653 53,206
Other real estate owned (included in other assets)................................................ 38,662 50,595
- ------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $190,189 259,328
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
Interest income of $3,801,000 and $3,149,000 during 1994 and 1993,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$8,520,000 and $6,928,000 of interest would have been reflected in interest
income during 1994 and 1993, respectively.
First of America has no significant concentrations of credit risk. Its loan
portfolio is well balanced both by type and by geographical area.
A-31
<PAGE> 55
NOTE 7: 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 this 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 1994 totaled $56,965,000 at December
31, 1994, which represented 3.6 percent of total shareholders' equity, and
$42,405,000 at December 31, 1993. During 1994, $39,201,000 of new loans were
made with repayments and other reductions totaling $24,641,000. 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 and First of America Community Development Corporation; at December 31,
1994, the amounts of the borrowings were $68,800,000 and $356,587, respectively.
In conformance with First of America's corporate policy and applicable law, such
extensions of credit to subsidiaries are made in accordance with sound banking
practices and on non-preferential terms and rates.
In the opinion of management, the amount and nature of these loans to
related parties and subsidiaries do not materially affect the financial
condition of First of America.
NOTE 8: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1994,
1993 and 1992 follows.
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.......................................... $188,664 176,793 174,882
Additions: Provision charged against income......................... 86,571 84,714 78,809
Allowance of acquired (sold) banks, net................... 11,420 50 (372)
Recoveries................................................ 38,134 35,863 33,640
-------- -------- --------
324,789 297,420 286,959
Less: Loans charged off............................................. (96,674) (108,756) (110,166)
- ------------------------------------------------------------------------------------------------------
Balance, end of year................................................ $228,115 188,664 176,793
- ------------------------------------------------------------------------------------------------------
</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.
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 $17.4 million, which was transferred from the
general allowance.
A-32
<PAGE> 56
NOTE 9: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1994 and 1993 follows.
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
Land.............................................................................................. $ 77,458 65,937
Buildings and leasehold improvements.............................................................. 428,877 393,133
Equipment......................................................................................... 365,554 327,103
Capital leases.................................................................................... 25,082 22,043
-------- -------
896,971 808,216
Less:
Accumulated depreciation and amortization......................................................... 420,806 375,960
- ------------------------------------------------------------------------------------------------------------------------
Total............................................................................................. $476,165 432,256
- ------------------------------------------------------------------------------------------------------------------------
</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 $16,100,000 in 1994, $10,936,000 in 1993, and $16,329,000
in 1992.
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1994.
<TABLE>
<CAPTION>
($ in thousands) Capital Leases Operating Leases
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
1995................................................................................. $ 339 15,457
1996................................................................................. 370 12,931
1997................................................................................. 405 10,682
1998................................................................................. 433 7,885
1999................................................................................. 414 5,676
Thereafter........................................................................... 19,572 42,577
-------------- -------
Total minimum lease payments......................................................... 21,533 95,208
Amounts representing interest........................................................ 26,415 --
- --------------------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments.......................................... $ 47,948 95,208
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10: SHORT TERM BORROWINGS
Information relating to securities sold under agreements to repurchase
follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
At December 31:
Outstanding........................................................................... $ 583,184 664,531 108,873
Average interest rate................................................................. 5.75% 3.31 3.70
Daily average for the year:
Outstanding........................................................................... $ 709,205 326,383 62,978
Average interest rate................................................................. 4.43% 3.26 3.97
Maximum outstanding at any month end.................................................. $1,229,099 664,531 108,873
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Securities sold under agreements to repurchase are secured transactions with
customers, generally maturing within thirty days. As of December 31, 1994, First
of America did not have repurchase agreements which exceeded 10 percent of total
assets.
A-33
<PAGE> 57
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1994 and 1993
follows.
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
<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
7.75% subordinated notes due July 15, 2004........................................................ 200,000 --
10.625% subordinated notes payable in equal annual installments in 1990 through 1998, interest
payable semi-annually........................................................................... 6,222 7,778
8.50% subordinated notes due February 1, 2004..................................................... 150,000 150,000
Revolving credit agreement........................................................................ 30,000 30,000
6.35% subordinated debenture due December 31, 2007................................................ 10,000 10,000
Capital lease obligations (Note 9)................................................................ 20,198 20,408
-------- -------
416,420 239,615
SUBSIDIARIES:
Bank notes, with interest rates ranging from 4.875% to 5.05%, due Sept. 18, 1995 through
August 26, 1996................................................................................. 259,903 --
Notes payable through 2001........................................................................ 2,455 1,913
FHLB borrowings with interest rates ranging from 3.42% to 8.30%, payable from 1994 to 1996........ 820 10,820
Mortgages and land contracts, payable in installments through 1999 with interest rates ranging
from 4.75% to 10.25%............................................................................ 303 410
Capital lease obligations (Note 9)................................................................ 1,335 1,435
- ------------------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM DEBT.............................................................................. $681,236 254,193
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America entered into a Three-Year Competitive Advance and Revolving
Credit Facility Agreement dated as of March 25, 1994 and amended by the First
Amendment dated December 9, 1994 (collectively, the Credit Agreement). The
Credit Agreement allows First of America to borrow on a standby revolving credit
basis and an uncommitted competitive advance basis up to $350,000,000. The
proceeds of all borrowings made pursuant to the Credit Agreement will be used to
provide working capital and for other general corporate purposes.
On July 26, 1994, First of America issued $200 million of 7 3/4%
Subordinated Notes Due July 15, 2004, which are not subject to redemption prior
to maturity and which qualify as tier II capital under the Federal Reserve
Board's capital guidelines. The proceeds received from the Notes were used to
discharge indebtedness incurred to fund the acquisition of the Goldome Federal
branches, the repurchase of common stock and for other general corporate
purposes.
During August 1994, certain First of America bank subsidiaries began issuing
Bank Notes Due from 30 Days to 10 Years from Date of Issue. The Bank Notes which
are long term are included in the preceding table. The proceeds from the sale of
the notes were used for general corporate purposes by the issuing banks.
The various loan agreements include restrictions on consolidated capital.
First of America's net worth, under the most restrictive loan covenant, may not
be less than $1,295,000,000. The indebtedness of subsidiary banks is
subordinated to the claims of its depositors and certain other creditors.
Management has determined that First of America is in compliance with all of its
loan covenants.
A-34
<PAGE> 58
Maturities of outstanding indebtedness at December 31, 1994 follow.
<TABLE>
<CAPTION>
Total Principal
($ in thousands) Amount Due
<S> <C>
- --------------------------------------------------------------------------------------------------------------------------
Year ending December 31,
1995.................................................................................................... $ 214,095
1996.................................................................................................... 83,289
1997.................................................................................................... 2,490
1998.................................................................................................... 798
1999.................................................................................................... 779
Thereafter.............................................................................................. 379,785
- --------------------------------------------------------------------------------------------------------------------------
Total................................................................................................... $ 681,236
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 12: PREFERRED STOCK
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 First of America 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.
If issued, each share of Series A Preferred shall be entitled to 100 votes
on all matters submitted to a vote of the shareholders of First of America.
Additionally, in the event First of America 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
in the Rights Agreement, 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 other preferred stock the company may issue
ranking senior to the Series A Preferred, if any, 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 First of America
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 First of America 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 common stock. The rights of
the Series A Preferred are protected by customary antidilution provisions.
NOTE 13: 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 a 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.
A-35
<PAGE> 59
The following is a summary of transactions which occurred during 1992, 1993
and 1994:
<TABLE>
<CAPTION>
Shares Under Option Price
Option Per Share
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
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
Converted options from acquisitions....................................................... 24,933 11.30
Granted................................................................................... 295,900 33.00
Exercised................................................................................. (23,050)
Canceled.................................................................................. (5,366)
- -------------------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994.......................................................... 1,247,050 $11.30-40.00
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 14: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$173,350,000 in 1994, $200,700,000 in 1993 and $137,369,000 in 1992. Unless
prior regulatory approval is obtained, banking regulations limit the amount of
dividends that First of America's banking subsidiaries can declare during 1995,
to the 1995 net profits, as defined in the Federal Reserve Act, plus retained
net profits for 1994 and 1993, which amounted to $176,317,000. Under the FDIC
Improvement Act of 1992, there is incentive to maintain banks' capital at the
"well-capitalized" level. This may further restrict dividends in the future.
NOTE 15: 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 1994 and 1993 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1994, 1993, and 1992
equaled $9,192,000, $6,508,000 and $11,821,000, respectively.
A-36
<PAGE> 60
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
December 31,
-------------------
($ in thousands) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits of $284,034 for 1994 and $239,204 for
1993............................................................................................ $294,336 244,717
- ------------------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date......................................... 345,465 303,728
Plan assets at fair value, primarily listed stocks and U.S. Bonds................................. 358,392 359,500
-------- -------
Projected benefit obligation less than plan assets................................................ 12,927 55,772
Unrecognized net gain............................................................................. 8,228 (48,325)
Unrecognized prior service cost................................................................... 25,905 28,694
Unrecognized net assets being recognized over 15 years............................................ (15,902) (17,846)
-------- -------
Prepaid pension included in other assets.......................................................... $ 31,158 18,295
- ------------------------------------------------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE FOLLOWING COMPONENTS:
Service cost.................................................................................... $ 12,114 9,196
Interest cost on projected benefit obligation................................................... 22,661 21,822
Actual return on plan assets.................................................................... 6,948 (46,209)
Net amortization and deferral................................................................... (33,650) 21,111
- ------------------------------------------------------------------------------------------------------------------------
Net periodic pension cost......................................................................... $ 8,073 5,920
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
First of America's weighted-average discount rate was 8.00 percent at
December 31, 1994 and 7.25 percent at December 31, 1993. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 6.00 percent at year-end 1994 and 5.00
percent at year-end 1993. The expected long term rate of return on assets was
9.00 percent and 8.75 percent at December 31, 1994 and 1993, respectively. The
assumed rates in place at each year-end are used to determine the net periodic
pension cost for the following year.
NOTE 16: 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.
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 $4,807,000.
A-37
<PAGE> 61
The following table presents the plan's funded status reconciled with
amounts recognized in First of America's Consolidated Balance Sheet at December
31, 1994 and 1993:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.......................................................................................... $(20,626) (19,685)
Fully eligible active plan participants........................................................... (7,470) (6,801)
Other active plan participants.................................................................... (9,299) (9,807)
-------- -------
(37,395) (36,293)
Plan assets at fair value......................................................................... -- --
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets............................ (37,395) (36,293)
Unrecognized prior service cost................................................................... (5,498) (4,807)
Unrecognized net loss............................................................................. 4,002 3,444
- ------------------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities................................. $(38,891) (37,656)
- ------------------------------------------------------------------------------------------------------------------------
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1994 AND 1993 INCLUDE THE FOLLOWING COMPONENTS:
Service cost...................................................................................... $ 1,253 1,116
Interest cost..................................................................................... 2,641 2,986
Net amortization and deferral..................................................................... (405) (91)
- ------------------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost.......................................................... $ 3,489 4,011
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 10.36 percent and 10.95 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, 1994 and 1993, respectively; the 1994 rate was
further assumed to decline evenly to 6.0 percent in 2004. The weighted-average
discount rate used in determining the accumulated postretirement benefit
obligation was 8.0 percent at December 31, 1994 and 7.25 percent at December 31,
1993. To determine First of America's net periodic postretirement benefit cost
for 1994 and 1993, a weighted average discount rate of 7.25 percent and 8.5
percent, respectively, and the health care trend rate of 10.95 percent and 11.54
percent, respectively, 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,
1994 by 8.7 percent and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1994 by 2.2 percent.
A-38
<PAGE> 62
NOTE 17: SUPPLEMENTARY INCOME STATEMENT INFORMATION
Other than the items listed below, other operating income and other
operating expenses did not include any accounts that exceeded one percent of
total revenue, which is the sum of total interest income and total non-interest
income.
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Revolving loan fees -- interchange income............................................... $ 31,538 30,104 27,555
Revolving loan fees -- merchant discount................................................ 28,863 22,994 18,995
Gains on sale of loans.................................................................. 11,697 29,456 15,230
Other................................................................................... 36,045 30,939 36,171
- -------------------------------------------------------------------------------------------------------------------------
Total other operating income............................................................ $108,143 113,493 97,951
- -------------------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Services purchased...................................................................... $ 17,814 14,638 20,409
Office supplies......................................................................... 20,924 22,541 21,672
FDIC insurance.......................................................................... 42,055 39,680 38,711
Advertising, business development and public relations.................................. 20,884 22,573 14,427
Postage................................................................................. 16,458 16,291 16,585
Telephone............................................................................... 19,293 17,300 15,899
Other................................................................................... 94,744 95,052 88,655
- -------------------------------------------------------------------------------------------------------------------------
Total other operating expenses.......................................................... $232,172 228,075 216,358
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 18: INCOME TAXES
Total comprehensive tax expense (benefit) for the years ended December 31,
1994, 1993 and 1992, respectively, was allocated as follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Income from continuing operations........................................................ $102,616 98,574 91,506
Shareholders equity, for market value adjustments on investment securities available for
sale................................................................................... (32,296) 17,263 --
- -------------------------------------------------------------------------------------------------------------------------
Total comprehensive tax expense.......................................................... $ 70,320 115,837 91,506
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
($ in thousands) Current Deferred Total
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1994:
U.S. Federal...................................................................... $103,124 95 103,219
State and local................................................................... 5,186 (5,789) (603)
- --------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $108,310 (5,694) 102,616
- --------------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-39
<PAGE> 63
Income tax expense attributable to income from continuing operations was
$102,616,000, $98,574,000 and $91,506,000 for the years ended December 31, 1994,
1993 and 1992 respectively, and differed from the amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income from operations
for 1994 and 1993 and 34 percent for 1992 as a result of the following:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense................................................... $113,092 121,086 88,774
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income......................................... (9,904) (12,738) (13,017)
Change in the beginning-of-the-year balance of the valuation allowance for
deferred tax assets allocated to income tax expense........................... (883) (9,686) (2,507)
Alternative minimum tax credits utilized........................................ -- (5,675) --
State and local tax expense (benefit), net of federal tax....................... (392) 1,630 --
Amortization of goodwill........................................................ 3,844 3,116 13,034
Other, net...................................................................... (3,141) 841 5,222
- -------------------------------------------------------------------------------------------------------------------------
Total............................................................................. $102,616 98,574 91,506
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the year ended December
31, 1994, 1993 and 1992 were as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of the effects of other components below)............. $(4,811) 8,289 (7,275)
Decrease in beginning-of-the-year balance of the valuation allowance for deferred tax
assets.............................................................................. (883) (9,686) (2,507)
- --------------------------------------------------------------------------------------------------------------------------
Total................................................................................. $(5,694) (1,397) (9,782)
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effect of securities transactions for 1994, 1993 and 1992 was
$2,249,000, $6,524,000 and $5,574,000, respectively.
A-40
<PAGE> 64
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1994 and
1993 are presented below:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
DEFERRED TAX ASSETS:
Book loan loss deduction in excess of tax...................................................... $ 76,073 66,505
Deferred compensation.......................................................................... 6,149 5,091
Deferred loan fees............................................................................. 10,279 8,541
Employee benefits.............................................................................. 1,916 4,815
Other real estate expenses not allowed for tax purposes........................................ 3,229 2,849
Non-accrual loan income........................................................................ 3,292 3,621
Market value adjustment on investment securities available for sale............................ 37,556 --
Net capital loss carry forwards................................................................ -- 883
Expenses not currently deductible for tax purposes............................................. 3,408 5,072
Other.......................................................................................... 10,474 6,279
-------- -------
Total gross deferred tax assets................................................................ $152,376 103,656
Less valuation allowance....................................................................... (22,524) (883)
-------- -------
Net deferred tax assets........................................................................ $129,852 102,773
-------- -------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation...................................... $(10,200) (7,017)
Discount accretion on investment securities.................................................... (1,276) (1,670)
Market value adjustment on investment securities available for sale............................ -- (17,263)
Tax loan loss reserve to be recaptured......................................................... (7,094) (10,095)
Other.......................................................................................... (10,327) (3,763)
-------- -------
Total gross deferred liabilities............................................................... $(28,897) (39,808)
- ------------------------------------------------------------------------------------------------------------------------
Net deferred tax asset......................................................................... $100,955 62,965
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The valuation allowance for deferred tax assets as of January 1, 1994 was
$883,000. The net change in the total valuation allowance for the year ended
December 31, 1994 was an increase of $21,641,000.
The valuation allowance for deferred tax assets at December 31, 1994 is
related entirely to market value adjustments on securities available for sale
which would result in capital losses, that can be recognized only when offset
against capital gains.
Subsequently recognized tax benefits of $22,524,000 relating to the
valuation allowance for deferred tax assets as of December 31, 1994 will be
allocated to shareholders' equity.
NOTE 19: EARNINGS PER SHARE CALCULATION
The weighted average number of shares used in the determination of earnings
per share were:
<TABLE>
<CAPTION>
1994 1993 1992
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
Common and common equivalents.............................................. 59,811,568 57,416,771 54,841,762
Fully diluted.............................................................. 59,811,568 59,772,113 59,559,956
- --------------------------------------------------------------------------------------------------------------------------
</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, 281,498 in 1994, 305,240
in 1993 and 212,463 in 1992. 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, 281,498 in 1994, 305,240
in 1993 and 303,947 in 1992.
A-41
<PAGE> 65
On December 31, 1994 and 1993, there were 62,849,209 and 59,520,710 common
shares outstanding, respectively. At the same dates there were 100,000,000
authorized shares of $10 par value common stock.
NOTE 20: COMMITMENTS AND CONTINGENT LIABILITIES
First of America and its subsidiaries are parties to routine litigation
arising in the normal course of their respective businesses. In the opinion of
management after consultation with counsel, liabilities arising from these
proceedings, if any, are not expected to be material to First of America's
financial position.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notional amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
<TABLE>
<CAPTION>
($ in thousands) 1994 1993
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
Commitments on unused credit card lines................................................... $ 8,418,466 7,876,161
Other commitments to extend credit........................................................ 2,699,651 2,061,959
Mortgages sold with recourse.............................................................. 101,565 90,302
Standby letters of credit................................................................. 305,460 220,451
Commercial letters of credit.............................................................. 7,199 12,383
Foreign exchange contracts................................................................ 13,192 25,650
Interest rate swaps....................................................................... 707,864 291,605
Interest rate caps........................................................................ 125,000 --
- -------------------------------------------------------------------------------------------------------------------------
Total..................................................................................... $12,378,397 10,578,511
- -------------------------------------------------------------------------------------------------------------------------
</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, 1994, other commitments to
extend credit included $1,667,324,000 in unused commercial loan commitments,
$509,999,000 in commitments to fund commercial real estate, construction and
land development of which $508,157,000 was secured by real estate, and
$425,794,000 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.
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 $101.6 million
at December 31, 1994 and are not included in the accompanying consolidated
balance sheets.
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
A-42
<PAGE> 66
possibility that the value of a foreign currency might 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.
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 of which $125 million was a hedge
against long term debt with the remainder as a hedge against certain
certificates of deposits. Although the notional amounts are often used to
express the volume of these transactions, the amounts potentially subject to
credit risk are much smaller. The company minimizes this risk by performing
normal credit reviews of its counterparties and collateralizing its exposure
when it exceeds a predetermined limit. The following table outlines First of
America's interest rate swaps at December 31, 1994.
INTEREST RATE SWAPS
($ in thousands)
<TABLE>
<CAPTION>
Net Interest
Weighted Average Average Income Impact
Notional Fair Market Average Rate Received Rate Paid ----------------
Hedged Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1994 1993
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Rising Rate CDs................... $508,798 (11,264) 9.9 4.66%/fixed 6.19/variable $ 82 89
Market Rate CDs*.................. 22,066 (1,202) 12.0 -- -- -- --
FHLB advance...................... 10,000 34 5.0 6.06/variable 5.35/fixed (46) --
FirstRate Fund deposits........... 12,000 268 20.0 6.19/variable 6.03/fixed (35) --
Bank notes........................ 30,000 445 17.2 6.06/variable 5.88/fixed (72) --
Long term debt.................... 125,000 (5,449) 19.8 4.84/fixed 6.31/variable (93) 557
- ---------------------------------------------------------------------------------------------------------------------------------
Total............................. $707,864 (17,168) 12.0 $(164) 646
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* This represents a basis swap.
At December 31, 1994, deferred losses of $1.4 million were included in other
assets from the termination of interest rate swaps with a notional value of
$82.9 million. This deferred loss is being amortized into earnings over the
remaining life of the originally designated liability. During 1994, a loss of
$804 thousand was recognized in earnings related to interest rate swaps which
were marked-to-market.
Interest rate caps are agreements to make payments for interest rate
differentials between an index rate and a specified maximum rate, computed on
notional amounts. First of America utilizes interest rate caps in an attempt to
manage its interest rate risk. As of December 31, 1994, First of America had
outstanding interest rate caps with notional amounts totaling $125 million.
These interest rate caps are designated to certain FirstRate Fund deposits.
First of America had no outstanding interest rate caps at December 31, 1993.
NOTE 21: FAIR VALUE DISCLOSURE
SFAS 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 value for other financial instruments were determined as follows:
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.
A-43
<PAGE> 67
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.
LOANS HELD FOR SALE:
Fair value for loans held for sale were based on quoted market prices. If a
quoted market price was not available, fair value was estimated using market
prices for similar assets.
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,
interest rate swaps and interest rate caps 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.
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, 1994
and 1993 were as follows:
<TABLE>
<CAPTION>
December 31, 1994 December 31, 1993
- ------------------------------------------------------------------------------------------------------------------------------
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................................................ $ 3,113 2,943 1,857 1,872
Available for sale.............................................. 2,588 2,588 3,261 3,261
Loans, net........................................................ 16,577 16,374 13,840 14,062
Loans held for sale............................................... 30 30 366 369
FINANCIAL LIABILITIES:
Deposits*......................................................... (20,200) (20,097) (18,244) (18,307)
Long term borrowings.............................................. (681) (657) (254) (264)
Off-balance sheet commitments....................................... -- 29 -- 11
Interest rate swap agreements....................................... -- (17) -- 2
Interest rate cap agreements........................................ -- 2 -- --
- ------------------------------------------------------------------------------------------------------------------------------
</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.
A-44
<PAGE> 68
NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1994 and 1993, and the statements of
income and statements of cash flows for the three years ended December 31, 1994
follow.
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary banks................................. $ 54,758 23,745
Investment in subsidiaries.................................................................. 1,831,786 1,583,234
Other assets................................................................................ 207,683 226,209
- -------------------------------------------------------------------------------------------------------------------------
Total assets................................................................................ $2,094,227 1,833,188
- -------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Accounts payable and other liabilities...................................................... $ 98,919 70,136
Long term debt.............................................................................. 416,420 239,615
---------- ---------
Total liabilities........................................................................... 515,339 309,751
---------- ---------
SHAREHOLDERS' EQUITY
Common stock................................................................................ 628,492 595,207
Surplus..................................................................................... 284,877 265,596
Net unrealized gain/(loss) on securities available for sale, net of tax expense/(benefit) of
$(15,032) for 1994 and $17,263 for 1993................................................... (92,271) 31,531
Retained earnings........................................................................... 757,790 631,103
---------- ---------
Total shareholders' equity.................................................................. 1,578,888 1,523,437
- -------------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity.................................................. $2,094,227 1,833,188
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------------------
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries....................................................... $175,350 205,891 128,275
Interest and other income......................................................... 262,615 291,798 217,649
-------- ------- -------
Total operating income............................................................ 437,965 497,689 345,924
-------- ------- -------
EXPENSES
Interest on borrowed money........................................................ 27,793 19,597 18,434
Salaries and employee benefits.................................................... 151,766 134,734 101,873
Amortization of intangibles....................................................... 5,974 5,095 5,475
Other operating expenses.......................................................... 139,853 171,937 143,031
-------- ------- -------
Total operating expenses.......................................................... 325,386 331,363 268,813
-------- ------- -------
Income before income taxes, undistributed earnings of subsidiaries and cumulative
effect of change in accounting principle........................................ 112,579 166,326 77,111
Applicable income tax benefit..................................................... 22,609 14,084 13,614
-------- ------- -------
135,188 180,410 90,725
Equity in undistributed earnings of subsidiaries.................................. 85,315 66,975 61,062
-------- ------- -------
Income before cumulative effect of change in accounting principle................. 220,503 247,385 151,787
Cumulative effect of change in accounting principle, net of tax of $2,196......... -- -- (4,263)
- -------------------------------------------------------------------------------------------------------------------------
Net income........................................................................ $220,503 247,385 147,524
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-45
<PAGE> 69
<TABLE>
<CAPTION>
($ in thousands) 1994 1993 1992
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------------------
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income..................................................................... $ 220,503 247,385 147,524
Adjustment to reconcile net income to net cash provided by operating
activities................................................................... (13,723) (125,584) (41,629)
--------- -------- --------
Net cash from operating activities............................................. 206,780 121,801 105,895
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased............................................... (24,845) (46,724) (22,085)
Proceeds from sale of premises & equipment..................................... 4,974 600 3,270
(Acquisition)/sale of affiliates............................................... -- -- 12,000
Capital infusions, net of redemptions.......................................... (112,850) (6,535) (35,165)
--------- -------- --------
Net cash from investing activities............................................. (132,721) (52,659) (41,980)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt....................................... 438,000 222,000 150,000
Repayment of long term debt.................................................... (261,195) (190,891) (123,878)
Proceeds from issuance of common stock......................................... 460 1,132 2,883
Repurchase of common stock..................................................... (123,373) -- --
Redemption of preferred stock.................................................. -- -- (3,567)
Dividends paid................................................................. (96,670) (93,333) (83,824)
Other, net..................................................................... (268) (329) (105)
--------- -------- --------
Net cash from financing activities............................................. (43,046) (61,421) (58,491)
--------- -------- --------
Net increase (decrease) in cash................................................ 31,013 7,721 5,424
Cash at beginning of year...................................................... 23,745 16,024 10,600
- -------------------------------------------------------------------------------------------------------------------------
Cash at year-end............................................................... $ 54,758 23,745 16,024
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-46
<PAGE> 70
SUPPLEMENTAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK DATA
Book value per common share:
Primary.......................................... $ 25.12 25.60 22.12 20.58 18.97
Fully Diluted.................................... 25.12 25.60 22.49 21.47 20.02
Common shares outstanding:
Weighted average................................. 59,811,568 57,416,771 54,841,762 53,536,154 52,621,736
Year end......................................... 62,849,209 59,520,710 57,014,117 53,537,438 53,263,184
Market price of Common Stock:
High............................................. $ 40.125 43.250 37.875 31.750 26.000
Low.............................................. 29.750 36.500 29.000 18.250 15.375
Year end......................................... 30.000 39.250 37.875 29.375 21.250
Number of shares traded (in thousands)........... 18,313 13,708 14,284 13,612 15,768
Price earnings ratio*............................ 8.1x 9.3 15.4 9.1 8.1
Dividend yield (at year end)..................... 5.60% 4.08 3.70 4.36 5.65
Dividend payout ratio............................ 43.90 35.71 53.25 45.35 43.13
NON-FINANCIAL DATA
Number of common shareholders*................... 30,600 28,400 23,800 17,815 16,700
Number of banking subsidiaries*.................. 8 20 23 26 33
Number of banking offices*....................... 630 572 551 487 450
Number of employees (FTE)*....................... 13,490 13,330 12,940 13,404 10,387
Number of automated teller machines*............. 647 531 498 400 319
RETURN ON EQUITY AND ASSETS
Return on average total assets................... 0.98% 1.20 0.75 0.95 0.98
Return on average common shareholders' equity.... 14.44 18.01 11.67 13.66 14.52
Return on average total shareholders' equity..... 14.44 17.50 11.38 13.07 13.70
Average common shareholders' equity as a percent
of total average assets........................ 6.77 6.52 5.91 6.28 6.01
Average shareholders' total equity as a percent
of total average assets........................ 6.77 6.88 6.63 7.26 7.14
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior years numbers not restated.
A-47
<PAGE> 71
QUARTERLY INFORMATION (Unaudited)
($ in millions, except per share data)
<TABLE>
<CAPTION>
1994 Quarters 1993 Quarters
- ---------------------------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Total interest income............................. $ 433.6 417.1 387.7 362.4 374.7 376.9 382.2 377.1
Total interest expense............................ 196.5 177.3 152.9 135.4 147.1 150.6 154.5 156.6
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income............................... 237.1 239.8 234.8 227.0 227.6 226.3 227.7 220.5
Provision for loan losses......................... 22.2 21.2 22.5 20.6 20.4 20.5 20.0 23.8
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision............... 214.9 218.6 212.3 206.4 207.2 205.8 207.7 196.7
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts............... 23.6 23.0 22.3 20.3 21.5 21.3 21.7 20.1
Trust income...................................... 20.4 20.4 20.7 20.3 19.9 19.2 19.6 18.6
Investment securities transactions................ (4.3) 1.0 1.2 7.5 4.4 2.7 2.5 7.2
Other operating income............................ 27.2 26.7 25.6 28.5 31.7 30.3 25.6 25.9
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest income......................... 66.9 71.1 69.8 76.6 77.5 73.5 69.4 71.8
- ---------------------------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages................................ 91.7 88.9 88.4 84.7 85.9 84.6 83.0 80.2
Employee benefits................................. 17.0 19.4 20.5 19.9 15.8 16.2 18.9 18.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total personnel costs............................. 108.7 108.3 108.9 104.6 101.7 100.8 101.9 98.7
Occupancy, net.................................... 14.7 15.9 14.5 15.3 14.1 13.7 13.0 14.2
Equipment......................................... 15.1 14.2 13.8 13.0 14.0 12.7 13.1 13.5
Data processing................................... 3.9 4.6 4.7 4.3 3.5 4.1 3.8 3.6
Amortization of intangibles....................... 5.4 4.5 4.0 2.6 2.6 2.2 2.1 2.0
Other operating expenses.......................... 56.5 59.3 58.5 58.1 58.2 59.5 57.2 53.5
- ---------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense........................ 204.3 206.8 204.4 197.9 194.1 193.0 191.1 185.5
- ---------------------------------------------------------------------------------------------------------------------------------
Income before income tax.......................... 77.5 82.9 77.7 85.1 90.6 86.3 86.0 83.0
Applicable income tax expense..................... 24.9 26.5 24.5 26.8 24.8 22.9 26.4 24.4
- ---------------------------------------------------------------------------------------------------------------------------------
Net income........................................ $ 52.6 56.4 53.2 58.3 65.8 63.4 59.6 58.6
- ---------------------------------------------------------------------------------------------------------------------------------
Net income applicable to common stock............. $ 52.6 56.4 53.2 58.3 64.7 61.7 57.9 56.9
- ---------------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Earnings per common share:
Primary........................................... $ 0.87 0.96 0.88 0.98 1.13 1.07 1.01 0.99
Fully diluted..................................... 0.87 0.96 0.88 0.98 1.10 1.06 1.00 0.98
Common stock cash dividend paid................... 0.42 0.40 0.40 0.40 0.40 0.40 0.35 0.35
Market price of Common Stock:
High.............................................. 34.875 37.500 40.125 39.000 42.875 42.500 43.250 42.875
Low............................................... 29.750 34.500 35.500 35.375 36.500 36.875 36.875 37.250
Period-end........................................ 30.000 35.250 35.625 37.875 39.250 42.375 39.875 42.375
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
A-48
<PAGE> 72
Directors
Jon E. Barfield
President
Bartech, Inc., Livonia
John W. Brown
Chairman and
Chief Executive Officer
Stryker Corporation, Kalamazoo
Richard F. Chormann
President and Chief Operating Officer
First of America Bank Corporation
Kalamazoo
Joseph J. Fitzsimmons
Vice President
Bell & Howell Company
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
Martha Mayhood 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. Zabriskie
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
Donald J. Kenney
Executive Vice President
Thomas W. Lambert
Executive Vice President and
Chief Financial Officer
John B. Rapp
Executive Vice President
David B. Wirt
Executive Vice President and
Secretary
Mervin D. Burtis
Senior Vice President -
Audit and Loan Review
Bruce J. McCall
Senior Vice President - Marketing
Samuel G. Stone
Senior Vice President and Treasurer
Kevin T. Thompson
Senior Vice President - Controller
Richard V. Washburn
Senior Vice President - Human Resources
Lee J. Cieslak
Chairman and Chief Executive Officer
First of America Bank - Florida, FSB
William R. Cole
Chairman and Chief Executive Officer
First of America Bank - Michigan, N.A.
Robert K. Kinning
Chairman and Chief Executive Officer
First of America Bank - Illinois, N.A.
Malcolm C. Pownall
Chairman and Chief Executive Officer
First of America Bank - Indiana
[RECYCLED PAPER LOGO]
<PAGE> 73
FIRST OF AMERICA BANK CORPORATION PROXY
211 South Rose Street
Kalamazoo, Michigan 49007
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 19, 1995 AND ANY ADJOURNMENT THEREOF.
The undersigned, being a shareholder of FIRST OF AMERICA BANK
CORPORATION ("FOA"), hereby authorizes Thomas W. Lambert and David B. Wirt, 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 19, 1995 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
on the reverse side of this proxy, and FOR ratification of the selection of
KPMG Peat Marwick, LLP and IN ACCORDANCE WITH THE DISCRETION OF THE PROXIES as
to any other matter which may properly come before the meeting.
SEE REVERSE SIDE
- -------------------------------------------------------------------------------
1. ELECTION OF DIRECTORS FOR [ ] WITHHELD as To all Nominees [ ]
Nominees: John W. Brown, Clifford L. Greenwalt, Dorothy A. Johnson, Martha
Mayhood Mertz, James W. Wogsland and Walter J. Wolpin
(INSTRUCTIONS: To withhold authority to vote for any individual nominee,
mark FOR above and write nominee's name below.)
- -------------------------------------------------------------------------------
2. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK, LLP AS INDEPENDENT
AUDITORS FOR FOA.
FOR [ ] AGAINST [ ] ABSTAIN [ ]
The undersigned hereby acknowledges receipt of a Notice of Annual Shareholders
Meeting of FOA called for April 19, 1995 and a Proxy Statement for the Annual
Meeting prior to the signing of this proxy.
Dated:_________________________, 1995
_______________________________________
_______________________________________
Please sign exactly as your name(s)
appear(s) on this proxy. When signing in
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