<PAGE> 1
SCHEDULE 14A
(RULE 14A-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES
EXCHANGE ACT OF 1934 (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
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
FIRST OF AMERICA BANK CORPORATION
- --------------------------------------------------------------------------------
(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(i)(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):
- --------------------------------------------------------------------------------
(4) Proposed maximum aggregate value of transaction:
- --------------------------------------------------------------------------------
(5) Total fee paid:
- --------------------------------------------------------------------------------
/ / Fee paid previously with preliminary materials.
- --------------------------------------------------------------------------------
/ / 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:
- --------------------------------------------------------------------------------
(2) Form, schedule or registration statement no.:
- --------------------------------------------------------------------------------
(3) Filing party:
- --------------------------------------------------------------------------------
(4) Date filed:
- --------------------------------------------------------------------------------
<PAGE> 2
FOA BANK CORP. LOGO
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Annual Meeting of Shareholders
April 17, 1996
<PAGE> 3
FOA BANK CORP. LOGO
211 South Rose Street
Kalamazoo, Michigan 49007
(616) 376-9000
NOTICE OF ANNUAL SHAREHOLDERS MEETING
APRIL 17, 1996
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 17, 1996 at 2:00 p.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 four Directors to serve until the 1999 Annual Meeting of
Shareholders and until their successors have been elected and qualified.
(2) Approval of the First of America Bank Corporation Stock Compensation
Plan.
(3) Ratification of the selection of KPMG Peat Marwick LLP, Certified Public
Accountants, as independent auditors for First of America.
(4) Such other business as may properly come before the meeting or any
adjournment thereof.
The Board of Directors has fixed the close of business on February 20, 1996,
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,
Richard V. Washburn
Richard V. Washburn
Senior Vice President and Secretary
Date: March 13, 1996
Kalamazoo, Michigan
<PAGE> 4
FOA BANK CORP. 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 17, 1996 at 2:00
p.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 directors and 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 enclosed form of Proxy were first sent to shareholders
on March 13, 1996.
Common shareholders of record at the close of business on February 20, 1996
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 2, 1996, there were 63,284,757
shares of common stock of First of America, par value $10 per share ("First of
America Common Stock" or "common shares"), outstanding and entitled to vote at
the Annual Meeting. Insofar as is known to First of America, no person or group
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 and with one class standing for election each year. At the
Annual Meeting, four directors will be elected for terms ending with the annual
meeting of shareholders in 1999.
Except as otherwise specified in the proxy, proxies will be voted for
election of the four nominees named below. If a nominee becomes unable or
unwilling to serve, proxies will be voted for such other person, if any, as
shall be designated by the Board of Directors. However, First of America's
management now knows of no reason to anticipate that this will occur. Directors
are elected by a plurality of the votes cast, whether in person or by proxy, by
holders of First of America Common Stock at the Annual Meeting, provided a
quorum (a majority of the shares entitled to be voted at the Annual Meeting) is
present or represented. Thus, the four nominees for election as directors who
receive
1
<PAGE> 5
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 election 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 2, 1996. As of February
2, 1996, 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 DIRECTOR FOR THE THREE-YEAR TERM ENDING IN 1999
JOSEPH J. FITZSIMMONS, age 61, retired on June 30, 1995, as 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 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 1,142 shares of First of America
Common Stock and 400 shares in a retirement account.
ROBERT L. HETZLER, age 50, 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 5,588 common
shares which are held jointly by him and Mrs. Hetzler.
DANIEL R. SMITH, age 61, 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. Effective May 1, 1996, Mr. Smith will retire as
Chairman and Chief Executive Officer but will, subject to being reelected at the
Annual Meeting, continue to serve as a director. Mr. Smith beneficially owns
167,338 shares of First of America Common Stock, which includes 130,466 shares
covered by currently exercisable options granted under the Restated First of
America Bank Corporation 1987 Stock Option Plan ("1987 Stock Option Plan"). Mrs.
Smith owns 2,296 common shares of which Mr. Smith disclaims beneficial
ownership. 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 only in cash, includes the current
equivalent value of 8,270 common shares.
LEY S. SMITH, age 61, is Executive Vice President and President, U.S. Pharma
Product Center of Pharmacia & Upjohn, Inc., a manufacturer of pharmaceutical and
other products, since November 1995. He was President and Chief Operating
Officer of The Upjohn Company from April 1993 to November 1995, and previously
Vice Chairman of The Upjohn Company from January 1991 to April 1993. He is a
director of Biopure Corporation and Multimedia Medical Systems. He owns 1,500
shares of First of America Common Stock.
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1997
JON E. BARFIELD, age 44, is Chairman and Chief Executive Officer of Bartech,
Inc., a provider of contract employment and related staffing services, Livonia,
Michigan. He is a director of Tecumseh Products Company, Tecumseh, Michigan. Mr.
Barfield became a director of First of America in August 1993. He serves on the
Audit and Public Policy Committees. Mr. Barfield owns 3,497 shares of First of
America Common Stock.
RICHARD F. CHORMANN, age 58, is President and Chief Operating Officer of
First of America. Effective May 1, 1996, he will become Chairman and Chief
Executive Officer upon Mr. Smith's retirement. Mr. Chormann has been employed by
First of America and its predecessor since 1958. 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 91,923 shares of First of America Common Stock, which includes 78,017
shares covered by currently exercisable options granted under the 1987 Stock
Option Plan. Mrs. Chormann owns 3,470
2
<PAGE> 6
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 only in cash, includes the current equivalent value of
25,223 common shares.
JOEL N. GOLDBERG, age 58, 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 116,040 shares of First of America Common Stock.
JAMES S. WARE, age 60, is Chairman, President and Chief Executive Officer of
Durametallic Corporation, Kalamazoo, Michigan, a manufacturer of seals for
industrial machinery. He is a director of the Duriron Company, Inc., Dayton,
Ohio. He has been a director of First of America since 1991. He chairs the
Nominating and Compensation Committee and serves on the Executive Committee. He
owns 4,686 shares of First of America Common Stock.
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1998
JOHN W. BROWN, age 61, is Chairman and Chief Executive Officer of Stryker
Corporation, Kalamazoo, Michigan, a manufacturer of surgical and medical
products. Mr. Brown became 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 63, is President and Chief Executive Officer and
a director of CIPSCO Incorporated, a utility holding company. He is also
President and Chief Executive Officer of Central Illinois Public Service
Company, Springfield, Illinois, a subsidiary of CIPSCO. 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 Executive, Audit,
Nominating and Compensation, and Public Policy Committees. Mr. Greenwalt owns
11,622 shares of First of America Common Stock jointly with Mrs. Greenwalt. Mrs.
Greenwalt owns another 3,891 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 55, 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 18,755 shares of First of America Common Stock.
MARTHA MAYHOOD MERTZ, age 53, 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 2,165 shares of First of America Common Stock.
JAMES W. WOGSLAND, age 64, retired on June 1, 1995, as Vice Chairman and a
director of Caterpillar, Inc., Peoria, Illinois. He is 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 7,035 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 64, 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 7,086 shares of First
of America Common Stock. Mr. Wolpin also owns an additional 4,743 common shares
and Mrs. Wolpin owns 10,585 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.
As of February 2, 1996 the directors and executive officers of First of
America as a group beneficially owned 733,643 shares or 1.15 percent of the
outstanding First of America Common Stock. This group had sole voting and
investment power with respect to 716,173 shares or 1.12 percent of the
outstanding First of America Common Stock which includes 397,882 shares covered
by currently exercisable options granted under the 1987 Stock Option Plan and
shared voting and investment power with respect to 17,470 shares or 0.03 percent
of the outstanding common
3
<PAGE> 7
shares. The shares beneficially owned by William R. Cole, Thomas W. Lambert and
David B. Wirt, Named Executives (as defined below) who are not directors of
First of America, were 44,438, 42,204, and 48,258, respectively, which includes
31,466, 28,633, and 31,533 shares covered by currently exercisable options
granted under the 1987 Stock Option Plan.
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 did not meet during 1995. 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, 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 the corporation or to fill vacancies on the Board of Directors.
The Audit Committee met five times during 1995. 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 disclosures and to provide added assurance on
the integrity of the financial information, and to report to the full Board on
its actions and findings.
4
<PAGE> 8
The Nominating and Compensation Committee met six times during 1995. 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 executive officers 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 administers First of America's 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 based
compensation plans 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 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 three times in 1995. 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 nine times in 1995. 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 John W. Brown.
5
<PAGE> 9
EXECUTIVE COMPENSATION
The following information about First of America's method of compensating
its executive officers is intended to both comply with the disclosure rules of
the Securities and Exchange Commission ("SEC") and provide shareholders with a
better understanding of the corporation's objectives, policies and arrangements
for executive compensation. The SEC's rules prescribe the format and scope of
this summary, 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(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2) ($)(3) (#) ($) ($)(4)
- ----------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Smith 1995 675,000 75,600 -0- -0- 38,350 121,107 -0-
Chairman and Chief 1994 675,000 148,500 -0- -0- 25,000 -0- -0-
Executive Officer 1993 625,000 285,000 -0- -0- 14,000 198,748 -0-
Richard F. Chormann 1995 453,600 44,453 -0- -0- 20,600 69,758 -0-
President and Chief 1994 453,600 87,318 -0- -0- 14,000 -0- -0-
Operating Officer 1993 420,000 167,580 -0- -0- 8,400 115,320 -0-
William R. Cole 1995 305,000 25,620 -0- -0- 10,400 36,452 -0-
Chairman and Chief 1994 274,235 76,924 -0- -0- 7,900 -0- -0-
Executive Officer, 1993 253,000 78,177 -0- -0- 3,800 57,530 -0-
First of America Bank-
Michigan, N.A.
Thomas W. Lambert 1995 265,000 22,260 -0- -0- 9,050 34,261 -0-
Executive Vice 1994 265,000 43,725 -0- -0- 6,900 -0- -0-
President
and Chief Financial 1993 252,200 86,253 -0- -0- 4,100 56,910 -0-
Officer
David B. Wirt 1995 265,000 22,260 -0- -0- 9,050 34,261 -0-
Executive Vice 1994 265,000 43,725 -0- -0- 6,900 -0- -0-
President 1993 252,200 86,253 -0- -0- 4,100 56,910 -0-
</TABLE>
- -------------------------------------------
(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 arrangements for the years shown
did not provide for restricted stock awards.
(4) The corporation does not provide any other compensation.
6
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information concerning the stock options
granted to the Named Executives under the 1987 Stock Option Plan during 1995 and
the potential realizable value for the stock options granted based on future
market appreciation assumptions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(1)
------------------------------------------------------------ --------------------------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS EXERCISE OR
UNDERLYING GRANTED TO BASE PRICE
OPTIONS GRANTED EMPLOYEES IN ($/SH) EXPIRATION
NAME (#)(2)(3) FISCAL YEAR (4) DATE 0% ($) 5% ($) 10% ($)
- ----------------------- --------------- --------------- ----------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Daniel R. Smith 38,350 11.79% $ 43.25 10/24/2005 -0- 1,043,120 2,643,465
Chairman and Chief
Executive Officer
Richard F. Chormann 20,600 6.34% $ 43.25 10/24/2005 -0- 560,320 1,419,958
President and Chief
Operating Officer
William R. Cole 10,400 3.20% $ 43.25 10/24/2005 -0- 282,880 716,872
Chairman and Chief
Executive Officer,
First of America Bank -
Michigan, N.A.
Thomas W. Lambert 9,050 2.78% $ 43.25 10/24/2005 -0- 246,160 623,816
Executive Vice
President and Chief
Financial Officer
David B. Wirt 9,050 2.78% $ 43.25 10/24/2005 -0- 246,160 623,816
Executive Vice
President
All shareholders -0- 1,721,345,390 4,362,218,300
</TABLE>
- -------------------------------------------
(1) The potential realizable value is reported net of the option exercise price,
but before income taxes associated with exercise. The estimated amounts
presented represent assumed annual compounded rates of appreciation from the
date of grant through the expiration of the options. Actual gains on exercise,
if any, are dependent on the future performance of the corporation's common
shares. The 5% and 10% rates of appreciation would result in per share prices of
$70.45 and $112.18, respectively. The amounts shown for "All shareholders" are
based on 63,284,757 shares (number of shares outstanding as of February 2,
1996). This presentation is not intended to forecast possible future
appreciation of the corporation's common shares.
(2) The 1987 Stock Option Plan provides for limited stock appreciation rights in
the event of a change in control (which the 1987 Stock Option Plan defines the
same as in the Management Continuity Agreements, see "Management Continuity
Agreements"), liquidation or dissolution of the corporation. Upon the occurrence
of any one of these events, unexercised options previously granted are canceled,
and in lieu of further rights under the option, the optionee will receive in
cash the difference between the fair market value and the exercise price
multiplied by the number of shares to which the option relates.
(3) The options were granted on October 25, 1995, and become exercisable for
one-third of the shares after one year, two-thirds of the shares after two years
and all shares after three years.
(4) The exercise price shown represents the average of the high and low prices
on the New York Stock Exchange on the grant date.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table presents information about the exercise during 1995, by
the Named Executives, of stock options previously granted under the 1987 Stock
Option Plan. Also shown are the number of shares covered by and the estimated
value of unexercised options at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
-------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- --------------------- ---------------- -------------- -------------------- ---------------------
<S> <C> <C> <C> <C>
Daniel R. Smith -0- -0- 130,466 / 59,684 2,595,945 / 253,149
Chairman and Chief
Executive Officer
Richard F. Chormann -0- -0- 78,017 / 32,733 1,555,043 / 141,588
President and Chief
Operating Officer
William R. Cole -0- -0- 31,466 / 16,934 590,407 / 77,155
Chairman and Chief
Executive Officer,
First of America
Bank - Michigan, N.A.
Thomas W. Lambert -0- -0- 28,633 / 15,017 510,882 / 68,487
Executive Vice
President and
Chief Financial
Officer
David B. Wirt -0- -0- 31,533 / 15,017 587,994 / 68,487
Executive Vice
President
</TABLE>
- -------------------------------------------
(1) The estimated value of the unexercised option shares was based on the
closing price on the New York Stock Exchange on Friday, December 29, 1995 of
$44.375.
8
<PAGE> 12
LONG-TERM INCENTIVE PLAN AWARDS IN LAST FISCAL YEAR
The following table reflects the estimated future payouts under First of
America's Long-Term Incentive Compensation Plan based on the Named Executive's
target awards and the minimum threshold and maximum amounts for the three-year
performance cycle beginning January 1, 1995. These estimated payments are
contingent upon attaining the corporation's earnings per share performance goals
during the performance cycle shown. The corporation's Long-Term Incentive
Compensation Plan is more fully described in the Nominating and Compensation
Committee Report on Executive Compensation under the caption "Long-Term
Incentive Compensation."
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERFORMANCE ESTIMATED FUTURE PAYOUTS
OR OTHER UNDER NON-STOCK PRICE-BASED PLAN (1)
PERIOD UNTIL ---------------------------------------
NUMBER OF MATURATION OR THRESHOLD TARGET MAXIMUM
NAME UNITS PAYOUT ($) ($) ($)
- ---------------------------- --------------- ------------------ --------- ------- -------
<S> <C> <C> <C> <C> <C>
Daniel R. Smith None 1/1/95 - 12/31/97 59,063 236,250 307,125
Chairman and Chief
Executive Officer
Richard F. Chormann None 1/1/95 - 12/31/97 34,020 136,080 176,904
President and Chief
Operating Officer
William R. Cole None 1/1/95 - 12/31/97 19,063 76,250 99,125
Chairman and Chief
Executive Officer,
First of America -
Michigan Bank, N.A.
Thomas W. Lambert None 1/1/95 - 12/31/97 16,563 66,250 86,125
Executive Vice President
and Chief Financial Officer
David B. Wirt None 1/1/95 - 12/31/97 16,563 66,250 86,125
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 1995 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> 13
RETIREMENT PROGRAM
The benefits shown in the table below are the estimated combined annual
benefits payable at the 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 benefit formula for the Retirement Plan is based on a
participant's 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
incentive payment under the Annual Incentive Compensation Plan (the "Annual
Plan"), less any portion of such salary or Annual Plan incentive payment
deferred at the participant's election under a deferred compensation
arrangement, during any 60 consecutive months preceding retirement minus 50
percent of the primary social security benefit, prorated for service of less
than 35 years. Employees who were employed before January 1, 1985 (this includes
all of the Named Executives) will be entitled to receive on retirement, the
higher of the benefits computed under the Retirement Plan now in effect or under
the Retirement Plan in effect before January 1, 1985, which provided for a
benefit equal to two percent of the final average monthly earnings times years
of credited service, but not exceeding 50 percent of final average monthly
earnings. The Supplemental Plans provide participants with a benefit in addition
to that provided by the Retirement Plan so that the combined retirement benefit
equals the benefit which the participant would have received from the Retirement
Plan but for certain limitations under the Internal Revenue Code and the
deferral of salary under a deferred compensation arrangement.
The current average annual compensation and years of credited service for
the Named Executives are as follows: Mr. Smith -- $854,350, 40 years; Mr.
Chormann -- $554,818, 36 years; Mr. Cole -- $321,800, 31 years; Mr. Lambert --
$313,191, 32 years; and Mr. Wirt -- $313,506, 30 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,
10
<PAGE> 14
consolidation or sale of substantially all assets of First of America approved
by its shareholders; (3) the acquisition of beneficial ownership of 25 percent
or more of First of America's voting stock by a person, entity or group; or (4)
a change in 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
compensation or change the officer's title or scope of responsibility or
relocate his or her office or the main 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 for a specified period of time as described below. 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. The amount of any compensation from the
Management Continuity Agreement will be dependent on future salary levels and
other factors and events in the future. 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 an
additional annual retainer of $3,000 per year. Directors who are employees of
First of America do not receive additional compensation for service as
directors.
Effective April 1, 1996, the Board of Directors adopted the First of America
Bank Corporation Director Deferred Compensation Plan (the "Director Plan") under
which directors of the corporation and its affiliate banks may defer their
retainer and meeting fees on a pre-tax basis. The Director Plan is a
nonqualified, unfunded plan providing for director elections to defer 100% of
their fees, with deferred amounts accruing earnings as though they were invested
in First of America Common Stock. Payments of deferred fees plus any credited
earnings are made only in cash in lump sums or installments following the
directors' retirement or other termination.
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
11
<PAGE> 15
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
longer-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 based compensation plans. It is generally the
corporation's intention to pay compensation which is tax deductible. The
chairman and chief executive officer ("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. Daniel R. Smith, the current chairman and CEO, elected to defer a
substantial portion of his 1995 earnings which reduced his total earnings below
the tax deduction limit. Richard F. Chormann, the chairman and CEO-elect, has
elected to defer a substantial portion of his 1996 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 1987 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,
supplemental retirement plans, 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 1987
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.
12
<PAGE> 16
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 1995 consisted of similarly situated U.S. bank
holding companies with assets of $12 to $50 billion. The Long-Term Plan peer
group for measurement of peer EPS performance results during the 1993-1995
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 1995 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 $15 to $45 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.
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 above the midpoints of their applicable salary ranges.
Base salary comparisons are made to the median or average competitive levels of
the peer group without regard to the fact that First of America does not provide
such company-paid perquisites as personal automobiles or club memberships as is
the practice for many of the peer organizations.
The base salary program is performance-based, with executive base salary
increases and progression within the assigned salary ranges entirely dependent
upon individual performance. Management performance plans with individually
defined objectives are established 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 1995 were determined by the
Committee in February, 1995 based on 1994 performance considerations. In
reviewing the base salary recommendations for the executive officers, the
Committee first considered the salary increase guidelines in effect for 1995 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, 1994's return on common equity ("ROE") of
14.44 percent and fully diluted earnings per share ("EPS") of $3.69. A
discussion of those measures of First of America's performance for 1995 is set
forth below (see "Annual Incentive Compensation" and "Long-term Incentive
Compensation"). 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 1987 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' management 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
13
<PAGE> 17
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 achievement with the
corporation's internal annual profit plan ROE goal and with an external ROE goal
which is determined by 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 participants under the
Annual Plan. The target awards are paid if both the internal and external ROE
goals are fully (100 percent) achieved. No incentive payments are paid to
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.
The Annual Plan results for 1995 were determined under both the internal and
external ROE goals. The corporation achieved an ROE of 13.89 percent relative to
the internal ROE goal of 15.73 percent. This resulted in a performance
achievement level of 88.3 percent and an incentive award of 56 percent of each
participant's annual target award level for this component of the Plan. No
incentive award was payable under the external ROE goal for 1995 because the
corporation did not achieve the minimum external ROE threshold of 14.56 percent
under this component of the Plan. For 1995, the composite performance under both
the internal and external ROE goals resulted in annual incentive award payments
of 28 percent of participants' target awards, including the Named Executives.
Based on peer group data available for 1994 and estimates for 1995, these
awards, including the chairman and CEO's award, 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, 1996 and December 31, 1997, 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,
1995 were determined under both the internal and external EPS goals. No
incentive award was payable under the internal EPS goal for this period because
the corporation did not achieve the aggressive minimum EPS threshold of $4.66
for the performance period.
14
<PAGE> 18
However, a Long-Term Plan award was payable under the external EPS goal for the
period based on the EPS attainment of $3.73. The corporation achieved a
compounded annual EPS growth rate of 14.88 percent compared to the external EPS
growth goal of 14.39 percent based on the peer group results for the period. The
corporate EPS performance achievement of 103.41 percent relative to the external
EPS goal resulted in an incentive award payment of 105.12 percent of each
participant's long-term target award level for this component of the Plan. As a
result, the consolidated long-term incentive award payment amounted to 52.56
percent of each participant's, including the Named Executives, long-term target
award opportunities.
STOCK OPTIONS. Stock options granted to and exercised by First of America's
executive officers, including those Named Executives shown in the Summary
Compensation Table, the Option Grants in Last Fiscal Year Table, the Aggregated
Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values Table,
were granted and exercised under the 1987 Stock Option Plan. Commencing in 1996,
and subject to shareholder approval (see "(2) Approval of First of America Bank
Corporation Stock Compensation Plan"), options may be granted under the First of
America Bank Corporation Stock Compensation Plan. The Committee does not
currently anticipate granting further options under the 1987 Stock Option Plan.
The 1987 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 1987 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 1987 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 at the time of 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. In 1995, the salary
multiples for executive officers were increased by the Committee to competitive
levels and ranged from a maximum of 250 percent of base salary for the corporate
chairman and CEO to 100 percent. These salary multiples, and therefore, the
number of options awarded, are approximately equivalent to the median or average
levels 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 1987
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 1987 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 1987 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 supplemental retirement plans to restore benefits limited by the
Internal Revenue Service's maximum
15
<PAGE> 19
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 arrangements 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 determines his base
salary based on this performance review. 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
comparable CEO positions in other peer U.S. bank holding companies as described
earlier in the report.
After reviewing the corporation's performance results for 1994 relative to
the predetermined financial goals, the Committee, at Mr. Smith's request,
decided to retain Mr. Smith's base salary at $675,000 for 1995. Mr. Smith's
annual base salary of $675,000 is slightly below the midpoint of his assigned
salary range.
Mr. Smith's 1995 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 $75,600 was based on the actual
performance achievement of 88.3 percent under the internal ROE goal which
resulted in an award payment of 11.2 percent of his 1995 base salary.
Mr. Smith's Long-term Incentive Plan award for the three year performance
cycle ending December 31, 1995 amounted to $121,107 and was computed under the
established plan formulas and performance results previously referenced in this
report in the same fashion as all other Long-Term Plan participants. The
corporation's growth in EPS under the external peer group EPS goal was 14.88
percent over this performance period compared to the external EPS goal of 14.39
percent. This EPS growth produced a long-term incentive award of 18.40 percent
of his average base salary of $658,334 during this performance period.
Mr. Smith's 1995 stock option grant of 38,350 shares under the 1987 Stock
Option Plan was determined by the Committee in accordance with the option
allocation formula based on his 1995 base salary of $675,000, a salary multiple
of 250 percent and the then current market price per share in the same fashion
as other participants. Mr. Smith did not exercise any of his stock options
during 1995 and, therefore, did not derive any income under this plan.
Mr. Smith has announced his intention to retire on May 1, 1996 after a
successful career of 40 years with the corporation. The Board has named Mr.
Richard F. Chormann, currently president and chief operating officer, as his
successor and he will assume the chairman and CEO position effective with Mr.
Smith's retirement. Mr. Chormann's compensation as chairman and CEO will be
determined by the Committee when he assumes his new position.
Submitted by the Nominating and Compensation Committee of the Board of
Directors.
<TABLE>
<S> <C>
James S. Ware, Chairman Dorothy A. Johnson
John W. Brown F. Karl Neumann(1)
Joseph J. Fitzsimmons James W. Wogsland
Clifford L. Greenwalt
</TABLE>
- -------------------------------------------
(1) Mr. Neumann retired from the Board and the Committee effective October 31,
1995.
16
<PAGE> 20
PERFORMANCE GRAPH
The following performance graph compares the cumulative total shareholder
return for First of America Common Stock, based on its market price 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>
1990 100.00 100.00 100.00
1991 144.90 158.28 130.46
1992 194.10 201.70 140.41
1993 208.98 212.87 154.57
1994 167.20 202.01 156.61
1995 258.62 323.57 215.46
</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 1995 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.
17
<PAGE> 21
(2) APPROVAL OF STOCK COMPENSATION PLAN
BACKGROUND
The Board of Directors approved the adoption of the First of America Bank
Corporation Stock Compensation Plan (the "Plan") on February 21, 1996 (the
effective date of the Plan), subject to the approval of the Plan by the
shareholders at the Annual Meeting. Stock options and/or restricted stock may be
granted under the Plan on and after the effective date, provided that the
shareholders approve the Plan. Awards of incentive stock options may not be
granted after February 20, 2006. The discussion which follows is qualified in
its entirety by reference to the Plan, a copy of which is attached to the Proxy
Statement as Appendix A.
The aggregate number of shares of First of America Common Stock that may be
issued and outstanding pursuant to the exercise of options and granting of
restricted stock under the Plan (the "Option and Restricted Stock Pool") will
not exceed 3,000,000 shares. The total number of shares of First of America
Common Stock that may be granted to an eligible participant under the Plan will
not exceed 750,000 shares. Shares of First of America Common Stock which would
have been issued pursuant to the exercise of a stock option, but are withheld as
payment of the option price and shares of restricted stock that are forfeited
may be added back into the Option and Restricted Stock Pool and reissued. Common
shares covered by terminated and expired options may be added back to the Option
and Restricted Stock Pool. In the event of any change in the outstanding common
shares of First of America as a result of a stock split, reverse stock split,
stock dividend, recapitalization, combination or reclassification, appropriate
proportionate adjustments will be made to both the terms of the Plan and any
awards granted under the Plan which are determined on a per share basis,
including, but not limited to, the amount of common shares in the Option and
Restricted Stock Pool, the exercise price, and number of common shares
associated with an outstanding option. No such adjustments will be required by
reason of the issuance or sale by First of America for cash or other
consideration of additional shares of First of America Common Stock or
securities convertible into or exchangeable for shares of First of America
Common Stock. On March 1, 1996, the closing sales price of First of America
Common Stock as reported on the New York Stock Exchange was $44.625 per share.
As of the Plan's effective date, provided the Plan is approved by the
shareholders, no further options will be granted under the 1987 Stock Option
Plan, although options previously granted will continue in effect until they
expire, are exercised or are forfeited.
PURPOSE AND ELIGIBILITY
The purpose of the Plan is to advance the interests of First of America and
its shareholders by helping First of America attract and retain the services of
highly qualified employees and officers, upon whose judgment, initiative and
efforts the corporation is substantially dependent, and to provide those persons
with further incentives to advance the interests of First of America. The Plan
is also established with the objective of encouraging stock ownership by such
employees and officers and aligning their interests with those of shareholders.
The objectives of the Plan will be accomplished by the granting of stock
option and restricted stock awards to selected key employees and officers. Key
employees and officers selected to participate in the Plan may be eligible for
the grant of incentive stock options ("ISOs"), non-qualified stock options
("NSOs") and restricted stock. The material terms of each type of award are
discussed below.
Eligible Participants are defined in the Plan to mean employees or officers
of First of America or its subsidiaries who are paid on a salary or commission
basis. Eligible Participants may be granted ISOs, NSOs or restricted stock under
the Plan if so selected by the Nominating and Compensation Committee (the
"Committee"). Approximately 1,000 persons qualify as Eligible Participants at
this time. Based on its administration of the 1987 Stock Option Plan and its
current intent to expand participation under this new Plan, the Committee
currently anticipates that up to approximately 350 employees may be awarded
stock option grants under the Plan. With respect to ISOs only, this definition
does not include persons who have been on leave of absence for greater than 90
days, unless re-employment is guaranteed by law or contract.
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<PAGE> 22
ADMINISTRATION
The Plan shall be administered by the Committee, or such other committee of
disinterested directors as that term is defined in Rule 16b-3 under the
Securities Exchange Act of 1934, as amended (the "Exchange Act") as the Board
may designate. Under the terms of the Plan, the Committee has full and final
authority in its discretion: (i) to determine all matters relating to awards,
including selection of Eligible Participants to be granted awards, the types of
awards, the number of common shares, if any, subject to an award, and the terms,
conditions, restrictions and limitations of an award; (ii) to prescribe the form
or forms of agreements related to awards granted under the Plan; (iii) to
establish, amend, rescind and enforce rules and regulations for the
administration of the Plan; (iv) to construe and interpret the Plan and
agreements related to awards and make all other determinations deemed necessary
or advisable for administering the Plan; and (v) to delegate all or a portion of
its authority to one or more directors of First of America who are also officers
of First of America, but only in connection with awards granted to individuals
not subject to Section 16 of the Exchange Act and the rules and regulations
thereunder. The Plan is intended to comply with Rule 16b-3 under the Exchange
Act and, as discussed below, Section 162(m) of the Internal Revenue Code of
1986, as amended (the "Code"), and the regulations thereunder.
AMENDMENT AND TERMINATION
The Committee may amend, and the Board may suspend or discontinue the Plan
at any time, provided that: (i) no such action may, without the approval of the
shareholders of First of America, materially increase (other than by reason of
an adjustment as discussed above) the maximum aggregate number of common shares
issuable under the Plan, increase the maximum total number of common shares
issuable to an Eligible Participant under the Plan, change the types of
performance criteria on which vesting and the exercise price of ISOs or NSOs may
be based, change the types of performance criteria on which the vesting of
restricted stock may be conditioned, materially increase the benefits accruing
to Plan participants or materially modify eligibility requirements for
participation in the Plan; (ii) no action of the Committee will cause ISOs
granted under this Plan not to comply with Section 422 of the Code unless the
Committee specifically declares such action to be made for that purpose; and,
(iii) no action of the Committee shall alter or impair any option or restricted
stock previously granted or awarded under the Plan without the consent of such
affected option holder or restricted stockholder.
INCENTIVE STOCK OPTIONS AND NON-QUALIFIED STOCK OPTIONS
The Plan authorizes the grant of both ISOs and NSOs, both of which are
exercisable for shares of First of America Common Stock. The price that an
option holder must pay in order to exercise an option may be stated in terms of
a fixed dollar amount, a percentage (not less than 100 percent) of fair market
value at the time of the grant, a value based on a market or peer group index or
performance criteria specified in the Plan, or such other method as determined
by the Committee in its discretion. The applicable performance criteria selected
by the Committee shall be one or more of the following: stock price, return on
assets, return on equity, return on capital, earnings per share, net income, net
operating income, revenue, expenses, net interest margin, burden ratio,
efficiency ratio or total shareholder return. In no event shall the option price
for an ISO or an NSO be less than the fair market value per share of First of
America Common Stock on the date of the option grant. In the case of ISOs
granted to persons possessing more than 10 percent of the total combined voting
power or value of all classes of stock of First of America and/or its
subsidiaries, the option price will be no less than 110 percent of the fair
market value per share of First of America Common Stock on the date of the
grant. The fair market value shall mean the average of the high and low prices
reported for the market in which the common shares are traded on the date of the
grant or, if no trading occurred on that date, on the latest trading date prior
to such date. The Committee, in its discretion, may permit an option holder to
pay all or a portion of the option price, and/or the tax withholding liability,
if applicable, by surrendering common shares already owned or by withholding
common shares to be issued under the option being exercised. To the extent that
common shares are withheld as payment for all or a portion of the option price
of an ISO, the withholding of such common shares will be treated as a
Disqualifying Disposition, thus subjecting the exercise to immediate tax
consequences. See "Certain Federal Income Tax Consequences" below.
The period during which an option may be exercised shall be determined by
the Committee at the time of the option grant and, for ISOs, may not extend more
than ten years from the date of the grant, except in the case of ISOs granted to
persons possessing more than 10 percent of the total combined voting power or
value of all classes of stock
19
<PAGE> 23
of First of America and/or its subsidiaries in which case the option period will
not exceed five years from the date of grant.
To the extent not previously exercised, each ISO will terminate upon the
expiration of the option period specified in the option agreement provided,
however that, subject to the discretion of the Committee, each ISO will
terminate, if earlier: (i) immediately after the date that the option holder
ceases to be an Eligible Participant for any reason other than death,
disability, or retirement; (ii) five years after the date that the option holder
ceases to be an Eligible Participant by reason of such person's death or
disability; provided, however, that the ISO will convert to an NSO if exercised
more than 12 months after death or disability; or (iii) five years after the
option holder ceases to be an Eligible Participant by reason of such person's
retirement; provided, however, that the ISO will convert to an NSO if exercised
more than 3 months after retirement.
To the extent not previously exercised, each NSO will terminate upon the
expiration of the option period specified in the option agreement provided,
however that, subject to the discretion of the Committee, each NSO will
terminate, if earlier: (i) immediately after the date that the option holder
ceases to be an Eligible Participant for any reason other than death,
disability, or retirement; or (ii) five years after the date that the option
holder ceases to be an Eligible Participant by reason of such person's death,
disability or retirement.
RESTRICTED STOCK
Subject to the limitations of the Plan, the Committee may, in its
discretion, grant restricted stock to the Eligible Participants in the numbers,
upon the terms and at the times which the Committee shall determine. Restricted
stock awards shall be made in whole shares of First of America Common Stock.
The Committee, in its discretion, may condition the vesting of a restricted
stock award upon the continued service of the recipient for a designated period
of time, attainment of such performance criteria as the Committee may determine,
or upon a combination of continued service and performance criteria. The terms
of any vesting shall be stated in the agreement to which the restricted stock
award relates, but may be accelerated or shortened by the Committee in its
discretion. In no event, provided all applicable performance criteria have been
satisfied, shall the period for full vesting exceed ten years from the date of
the award. In the case of restricted stock awards based upon performance
criteria, or a combination of performance criteria and continued service, the
applicable performance criteria selected by the Committee shall be one or more
of the following: stock price, return on assets, return on equity, return on
capital, earnings per share, net income, net operating income, revenue,
expenses, net interest margin, burden ratio, efficiency ratio or total
shareholder return. Performance criteria may vary from participant to
participant and between groups of participants. Restriction periods may overlap
and participants may be granted multiple restricted stock awards that are
subject to different restriction periods and performance criteria.
Restricted stock awards shall be earned upon the fulfillment of all
conditions of continued service and/or performance criteria associated with such
awards, or upon the acceleration by the Committee, in its sole discretion, of
vesting; provided, however, that restricted stock awards subject to performance
criteria, or a combination of performance criteria and continued service, shall
be deemed earned only to the extent determined by the Committee. Once restricted
stock has been earned, if the common shares are held in escrow, transfer of such
common shares may be made as soon as practicable after they have been earned, as
determined by the Committee. If a restricted stock recipient ceases to be an
Eligible Participant for any reason, all restricted stock awards not yet earned
shall be forfeited, except in the case of a change of control. See "Change of
Control" below.
NONTRANSFERABILITY; DIVIDEND AND VOTING RIGHTS; WITHHOLDING
The terms of the Plan provide that ISOs are not transferable other than by
will or the laws of descent and distribution. NSOs may not be transferred other
than by will, the laws of descent and distribution, direct gift, or gift to a
trust for the benefit of another. Restricted stock is not transferable unless
required by law. Any prohibited transfer of restricted stock will be void and of
no effect. In all cases, award recipients subject to Section 16 of the Exchange
Act may not, without the consent of the Committee, dispose of common shares
acquired pursuant to an award until six months have elapsed since the granting
of the award.
20
<PAGE> 24
Holders of ISOs or NSOs shall have no dividend rights or voting rights until
the options have been exercised. Holders of restricted stock shall have all such
associated dividend rights and voting rights immediately following the grant of
restricted stock.
The Plan provides that recipients of options pay all required local, state
and federal withholding taxes associated with the exercise of such options in
cash unless the Committee, in its discretion, permits the option holder to pay
such withholding liability by surrendering common shares already owned, or by
withholding common shares issued pursuant to the option being exercised.
CHANGE OF CONTROL
In the event of a change of control of the corporation or a liquidation or
dissolution of the corporation, on the effective date of such change of control,
all options shall be cancelled and in lieu of further rights under the options,
option holders receive from First of America, in cash, the difference between
the fair market value and the option price, multiplied by the number of common
shares to which each option relates. This right is referred to in the Plan as a
limited stock appreciation right. For the purposes of this provision only, the
fair market value shall mean the average between the highest and lowest quoted
price per share for sales made and reported on the New York Stock Exchange, or
on a sales or quotation system maintained by the National Association of
Securities Dealers, or such other national stock exchange on which the common
shares of First of America may then be listed and which constitutes the
principal market for such common shares on the latest trading date for which
sales or quotations are reported prior to such effective date or, if greater,
the price or value received by shareholders for a share of First of America
Common Stock with respect to the largest number of common shares, the ownership
of which is transferred in conjunction with such change in control, liquidation
or dissolution of First of America. Notwithstanding the foregoing, the Plan
authorizes the Committee to nullify this provision if the Committee receives an
opinion from the independent auditors of the surviving company that the rights
granted by this provision will prevent the transaction from being accounted for
as a pooling of interests. In such case, all options would become immediately
and fully exercisable upon the change of control.
With respect to restricted stock, all common shares shall become immediately
and fully vested upon a change of control of the corporation.
For purposes of the Plan, a change of control of First of America shall have
occurred:
(i) on the fifth day preceding the scheduled expiration date of a tender
offer by, or exchange offer by any corporation, person, other entity or
group (other than First of America or any of its wholly-owned
subsidiaries), to acquire voting stock of First of America if:
(1) after giving effect to such offer such corporation, person, or other
entity or group would own 25 percent or more of the voting stock of
First of America;
(2) there shall have been filed documents with the Securities and
Exchange Commission in connection therewith (or, if no such filing is
required, public evidence that the offer has already commenced); and
(3) such corporation, person, or other entity or group has secured all
required regulatory approvals to own or control 25 percent or more of
the voting stock of First of America;
(ii) if the shareholders of First of America approve a definitive agreement
to merge or consolidate First of America with or into another
corporation in a transaction in which neither First of America nor any
of its wholly-owned subsidiaries will be the surviving corporation, or
to sell or otherwise dispose of all or substantially all of First of
America's assets to any corporation, person, other entity or group
(other than First of America or any of its wholly-owned subsidiaries),
and such definitive agreement is consummated;
(iii)if any corporation, person, or other entity or group (other than First
of America or any of its wholly-owned subsidiaries) becomes the
beneficial owner (as defined in First of America's Articles of
Incorporation) of stock representing 25 percent or more of the voting
stock of First of America; or
(iv) if during any period of two consecutive years continuing directors
cease to comprise a majority of First of America's Board of Directors.
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<PAGE> 25
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (and not
state and local) income tax consequences of awards granted under the Plan. The
summary is general in nature and is not intended to cover all tax consequences
that may apply to a particular employee or to First of America. The provisions
of the Internal Revenue Code of 1986, as amended (the "Code") and regulations
thereunder relating to these matters are complicated and their impact in any one
case may depend upon the particular circumstances.
THE DISCUSSION OF FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW IS
INCLUDED FOR INFORMATIONAL PURPOSES ONLY. THE DISCUSSION IS BASED ON CURRENTLY
EXISTING PROVISIONS OF THE CODE, EXISTING OR PROPOSED TREASURY REGULATIONS
THEREUNDER AND CURRENT ADMINISTRATIVE RULINGS AND COURT DECISIONS. ALL OF THE
FOREGOING ARE SUBJECT TO CHANGE, AND ANY SUCH CHANGE COULD AFFECT THE CONTINUING
VALIDITY OF THIS DISCUSSION. EACH PARTICIPANT IN THE PLAN SHOULD CONSULT HIS OR
HER TAX ADVISOR REGARDING SPECIFIC TAX CONSEQUENCES INCLUDING THE APPLICATION
AND EFFECT OF STATE AND LOCAL TAX LAWS.
INCENTIVE STOCK OPTIONS. ISOs granted under the Plan are intended to qualify
as incentive stock options under Section 422 of the Code. Pursuant to Section
422, the grant and exercise of an ISO generally will not result in taxable
income to the option holder (with the possible exception of alternative minimum
tax liability) if the option holder does not dispose of common shares received
upon exercise of such option within one year after the date of exercise and two
years after the date of grant (either type of disposition hereinafter referred
to as a "Disqualifying Disposition"), and if the option holder has continuously
been an Eligible Participant from the date of grant to three months before the
date of exercise (or 12 months in the event of death or disability) (hereinafter
referred to as the "Employment Requirement"). First of America will not be
entitled to a deduction for income tax purposes in connection with the grant or
exercise of an ISO. Additionally, First of America will not be entitled to a
deduction at the time common shares acquired pursuant to an ISO are disposed of,
provided that the option holder has satisfied the Employment Requirement and the
disposition is not a Disqualifying Disposition.
Disposition of common shares acquired pursuant to an ISO, except in the case
of a Disqualifying Disposition, will result in long-term capital gain or loss
taxation of the option holder on the difference between the amount realized upon
disposition and the option price. An option holder who, in a Disqualifying
Disposition, disposes of common shares acquired pursuant to an ISO, will be
required to notify First of America and will immediately recognize the gain on
the disposition as ordinary income. In the event of a Disqualifying Disposition,
First of America will be entitled to a deduction in the amount of income
recognized by the option holder.
Pursuant to the Code and the terms of the Plan, the Committee will designate
all options granted under the Plan as either ISOs or NSOs. To the extent that
the fair market value of First of America Common Stock (determined at the time
an option is granted) with respect to which all ISOs are exercisable for the
first time by any individual during any calendar year exceeds $100,000, such
option shall be treated for all purposes under the Plan as an NSO.
NON-QUALIFIED STOCK OPTIONS. For NSOs, or ISOs which have converted to NSOs
for any reason, the difference between the market value of First of America
Common Stock on the date of exercise and the option price will constitute
taxable ordinary income to the option holder on the date of exercise. First of
America will be entitled to a deduction in the same year in an amount equal to
the income taxable to the option holder. The option holder's basis in shares of
First of America Common Stock acquired upon exercise of an option will equal the
option price plus the amount of income taxable at the time of exercise. Any
subsequent disposition of such First of America Common Stock by the option
holder will be taxed as a capital gain or loss to the option holder, and will be
long-term capital gain or loss if the option holder has held such First of
America Common Stock for more than one year at the time of sale.
Pursuant to the terms of the Plan, the Committee will require any recipient
of common shares upon the exercise of an NSO to pay First of America, in cash,
by surrendering common shares already owned, by withholding common shares issued
pursuant to the option being exercised, or in such other form as the Committee
may determine in its discretion, the amount of any tax or other amount required
by any governmental authority to be withheld and paid by First of America to
such authority for the account of such recipient.
RESTRICTED STOCK. Unless otherwise elected by the employee, awards of
restricted stock will not result in taxable income to the employee or a tax
deduction to First of America for federal income tax purposes at the time of
grant.
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<PAGE> 26
Once restricted stock is earned, as described above, the fair market value of
the common shares on the date earned will be included in the recipient's
ordinary income as compensation, except where the recipient elected to include
in his ordinary income as compensation, at the time the restricted stock was
awarded, the fair market value of the common shares at that time. First of
America will be entitled to a corresponding income tax deduction to the extent
that the amount represents reasonable compensation and an ordinary and necessary
business expense, subject to any required income tax withholding.
LIMITED STOCK APPRECIATION RIGHTS. An option holder who receives a limited
stock appreciation right related to an option will not recognize income and
First of America will not be allowed a deduction at the time the options
including such limited stock appreciation rights are granted. The amount of cash
received upon payment of appreciation in the event of a change of control will
be ordinary income to the option holder and will be deductible by First of
America for federal income tax purposes.
PERFORMANCE-BASED COMPENSATION -- SECTION 162(M) REQUIREMENT
The Plan is intended to preserve First of America's tax deduction for
certain awards made under the Plan by complying with the terms of Section 162(m)
of the Code and regulations relating thereto. See "Nominating and Compensation
Committee Report on Executive Compensation -- Overview -- Objectives," above.
VOTE REQUIRED
In accordance with SEC Rule 16b-3 under the Exchange Act, an affirmative
vote of the holders of a majority of the shares of First of America Common Stock
present or represented and entitled to vote at the Annual Meeting is required to
approve the Plan. Abstentions and broker non-votes with respect to approval of
the Plan will be counted as present or represented and will therefore count
toward the establishment of a quorum, but abstentions will have the same effect
as votes against approval of the Plan and broker non-votes will have no effect
on the outcome of the vote.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE PLAN.
(3) SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee (which consisted of the
following outside Directors: Mr. Hetzler, Chairman, Messrs. Barfield, Goldberg,
Greenwalt, Wolpin, 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 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 1997 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.
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<PAGE> 27
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, 1995 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 by Malcolm C. Pownall failed to report certain holdings.
This inadvertent discrepancy was corrected promptly upon being brought to his
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, 1995 is available without
charge on written request of any person, including any beneficial owner, to whom
this Proxy Statement is addressed from Richard V. Washburn, 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 13, 1996, for possible inclusion in the proxy materials relating to the
next annual meeting.
By Order of the Board of Directors,
Richard V. Washburn
Richard V. Washburn
Senior Vice President and Secretary
24
<PAGE> 28
APPENDIX A
FIRST OF AMERICA BANK CORPORATION
STOCK COMPENSATION PLAN
1. PURPOSE; EFFECTIVENESS OF THE PLAN.
(a) The purpose of this Plan is to advance the interests of the Company
and its stockholders by helping the Company attract and retain the services
of employees and officers, upon whose judgment, initiative and efforts the
Company is substantially dependent, and to provide those persons with
further incentives to advance the interests of the Company. The Plan is also
established with the objective of encouraging Stock ownership by such
employees and officers and aligning their interests with those of
stockholders.
(b) This Plan will become effective on the date of its adoption by the
Board, provided the Plan is approved by the stockholders of the Company
(excluding holders of shares of Option Stock or Restricted Stock issued by
the Company under this Plan) within twelve months after that date. If the
Plan is not approved by the stockholders of the Company, any Options or
shares of Restricted Stock granted under this Plan will be rescinded and
void. This Plan will remain in effect until it is terminated by the Board
under Section 11 hereof, except that no Incentive Stock Option will be
granted after the tenth anniversary of the date of this Plan's adoption by
the Board.
2. DEFINITIONS.
Unless the context otherwise requires, the following defined terms (together
with other capitalized terms defined elsewhere in this Plan) will govern the
construction of this Plan, and of any Stock Option Agreements or Restricted
Stock Agreements entered into pursuant to this Plan:
(a) "10% Stockholder" means a person who owns, either directly or
indirectly by virtue of the ownership attribution provisions set forth in
Section 424(d) of the Code at the time he or she is granted an Option, Stock
possessing more than ten percent (10%) of the total combined voting power or
value of all classes of Stock of the Company and/or of its Subsidiaries.
(b) "1933 Act" means the federal Securities Act of 1933, as amended.
(c) "1934 Act" means the federal Securities Exchange Act of 1934, as
amended.
(d) "Board" means the Board of Directors of the Company.
(e) A "Change in Control" of the Company shall have occurred:
(i) on the fifth day preceding the scheduled expiration date of a
tender offer by, or exchange offer by any corporation, person, other
entity or group (other than the Company or any of its wholly owned
Subsidiaries), to acquire Voting Stock of the Company if:
(1) after giving effect to such offer such corporation, person,
other entity or group would own 25% or more of the Voting Stock of the
Company;
(2) there shall have been filed documents with the Securities and
Exchange Commission in connection therewith (or, if no such filing is
required, public evidence that the offer has already commenced); and
(3) such corporation, person, other entity or group has secured all
required regulatory approvals to own or control 25% or more of the
Voting Stock of the Company;
(ii) if the shareholders of the Company approve a definitive
agreement to merge or consolidate the Company with or into another
corporation in a transaction in which neither the Company nor any of its
wholly owned Subsidiaries will be the surviving corporation, or to sell
or otherwise dispose of all or substantially all of the Company's assets
to any corporation, person, other entity or group (other than the Company
or any of its wholly owned Subsidiaries), and such definitive agreement
is consummated;
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(iii) if any corporation, person, other entity or group (other than
the Company or any of its wholly owned Subsidiaries) becomes the
Beneficial Owner (as defined in the Company's articles of incorporation)
of Stock representing 25% or more of the Voting Stock of the Company; or
(iv) if during any period of two consecutive years Continuing
Directors cease to comprise a majority of the Company's Board of
Directors.
(f) "Code" means the Internal Revenue Code of 1986, as amended
(references herein to Sections of the Code are intended to refer to Sections
of the Code as enacted at the time of this Plan's adoption by the Board and
as subsequently amended, or to any substantially similar successor
provisions of the Code resulting from recodification, renumbering or
otherwise).
(g) "Committee" means the Nominating and Compensation Committee of the
Board; except that where there is no Nominating and Compensation Committee,
the term "Committee" shall refer to any committee of disinterested members
of the Board designated by the Board.
(h) "Company" means the First of America Bank Corporation, a Michigan
corporation and its successor or successors.
(i) "Company Performance Criteria" means such financial performance
criteria of the Company or its Subsidiaries as the Committee may designate
including Stock price, return on assets, return on equity, return on
capital, earnings per share, net income, net operating income, revenue,
expenses, net interest margin, burden ratio, efficiency ratio and total
shareholder return.
(j) "Continuing Director" means:
(i) any member of the Board of Directors of the Company at the
beginning of any period of two consecutive years; and
(ii) any person who subsequently becomes a member of the Board of
Directors of the Company; if
(iii) such person's nomination for election or election to the Board
of Directors of the Company is recommended or approved by resolution of a
majority of the Continuing Directors; or
(iv) such person is included as a nominee in a proxy statement of the
Company distributed when a majority of the Board of Directors of the
Company consists of Continuing Directors.
(k) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code.
(l) "Disqualifying Disposition" means a disposition, as defined in
Section 424(c)(1) of the Code, of Option Stock acquired pursuant to an ISO,
which occurs either:
(i) within two years after the underlying Option is granted; or
(ii) within one year after the underlying Option is exercised.
Under Section 424(c)(1) of the Code, the term "disposition"
includes a sale, exchange, gift, or a transfer of legal title,
but does not include (A) a transfer from a decedent to an
estate or a transfer by bequest or inheritance, (B) an exchange
to which Section 354, 355, 356, or 1036 (or so much of Section
1031 as relates to Section 1036) applies, or (C) a mere pledge
or hypothecation.
(m) "Eligible Participants" means persons who, at a particular time, are
employees or officers of the Company or its Subsidiaries, and are paid on a
salary or commission basis. With respect to ISOs only, this definition does
not include persons who have been on leave of absence for greater than 90
days, unless re-employment is guaranteed by law or contract.
(n) "Fair Market Value" means, with respect to Option Stock and as of
the date in question, the market price per share of such Stock determined by
the Committee, consistent with the requirements of Section 422 of the Code
and to the extent consistent therewith:
(i) if the Stock was traded on a national stock exchange as of the
date in question, then the Fair Market Value will be equal to the average
of the high and low prices reported by the applicable composite
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transactions report for such date or, if no trading occurred on the
applicable exchange for that date, for the latest trading date prior to
such date.
(ii) if the Stock was traded on any other established market as of
the date in question, then the Fair Market Value will be equal to the
average of the high and low prices reported for such date or, if no
trading occurred on the applicable exchange for that date, for the latest
trading date prior to such date; or
(iii) if neither of the foregoing provisions is applicable, then the
Fair Market Value will be determined by the Committee on good faith on
such basis as it deems appropriate.
(o) "ISO" or "Incentive Stock Option" means an Option, which is subject
to certain holding requirements and tax benefits, and which qualifies as an
"incentive stock option," as defined in Section 422 of the Code.
(p) "NSO" means any Option granted under this Plan whether designated by
the Committee as a "non-qualified stock option," a "non-statutory stock
option" or otherwise, other than an Option designated by the Committee as an
ISO. The term "NSO" also includes any Option designated by the Committee as
an ISO but which, for any reason, fails to qualify as an ISO pursuant to
Section 422 of the Code and the rules and regulations thereunder.
(q) "Option" means a right granted pursuant to this Plan entitling the
Optionee to acquire shares of Stock issued by the Company.
(r) "Option Agreement" means an agreement between the Company and an
Eligible Participant to evidence the terms and conditions of the issuance of
Options hereunder.
(s) "Option Price" with respect to any particular Option means the
exercise price at which the Optionee may acquire each share of the Option
Stock called for under such Option.
(t) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of an Option.
(u) "Optionee" means an Eligible Participant to whom an Option is
granted hereunder, and any transferee of such Option received pursuant to a
Transfer authorized under this Plan.
(v) "Plan" means this First of America Bank Corporation Stock
Compensation Plan.
(w) "Restricted Stock" means Stock issued or issuable by the Company
which is subject to the restrictions imposed in Section 7 of this Plan.
(x) "Restricted Stock Agreement" means an agreement between the Company
and an Eligible Participant to evidence the terms and conditions of the
issuance of Restricted Stock hereunder.
(y) "Restricted Stockholder" means an Eligible Participant to whom any
Restricted Stock is issued hereunder, and any transferee of such Stock
received pursuant to a Transfer required by law.
(z) "Retirement" means termination of employment with the Company or a
Subsidiary on or after the date on which the employee would be able to
commence receiving a monthly benefit from the Company Employees' Retirement
Plan.
(aa) "Stock" means shares of the Company's common stock.
(ab) "Subsidiary" has the same meaning as "Subsidiary Corporation" as
defined in Section 424(f) of the Code.
(ac) "Transfer," with respect to Option Stock or Restricted Stock,
includes, without limitation, a voluntary or involuntary sale, assignment,
transfer, conveyance, pledge, hypothecation, encumbrance, disposal, loan,
gift, attachment or levy of such Stock, including without limitation an
assignment for the benefit of creditors of the Optionee or the Restricted
Stockholder, a transfer by operation of law, such as a transfer by will or
under the laws of descent and distribution, an execution of judgment against
the Option Stock or Restricted Stock or the acquisition of record or
beneficial ownership thereof by a lender or creditor, a transfer pursuant to
any decree of divorce, dissolution or separate maintenance, any property
settlement, any separation agreement or any other agreement with a spouse
(except for estate planning purposes) under which a part or all of the
shares of Option
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Stock or Restricted Stock are transferred or awarded to the spouse of the
Optionee or Restricted Stockholder or are required to be sold, or a transfer
resulting from the filing by the Optionee or Restricted Stockholder of a
petition for relief, or the filing of an involuntary petition against such
Optionee or Restricted Stockholder, under the bankruptcy laws of the United
States or of any other nation.
(ad) "Voting Stock" shall mean those shares of the Company Stock
entitled to vote generally in the election of directors.
3. ELIGIBILITY. Options may be granted and Restricted Stock may be issued
under this Plan only to persons who are Eligible Participants as of the time of
such grant.
4. ADMINISTRATION.
(a) Administration by the Committee. The Committee will administer this
Plan.
(b) Authority and Discretion of Committee. The Committee will have full
and final authority in its discretion, at any time subject only to the
express terms, conditions and other provisions of the Company's articles of
incorporation, bylaws and this Plan, and the specific limitations on such
discretion set forth herein:
(i) to select and approve the persons to whom Options will be granted
under this Plan from among the Eligible Participants, including the
number of Options and the amount of Option Stock available for purchase
under such Options so granted to each person;
(ii) to select and approve the persons to whom Restricted Stock will
be issued under this Plan from among the Eligible Participants, including
the number of issuances and shares of Restricted Stock so issued to each
such person;
(iii) to determine the period or periods of time during which Options
may be exercised or become exercisable, the Company Performance Criteria
on which the Option Price or exercisability may be dependent, the Option
Price and the duration of such Options, the date on which Options are
granted, and other matters to be determined by the Committee in
connection with specific Option grants and Option Agreements as specified
under this Plan;
(iv) to determine the period or periods of time during which the
Restricted Stock may vest, the Company Performance Criteria on which
vesting may be dependent, the date on which shares of Restricted Stock
are awarded, and other matters to be determined by the Committee in
connection with specific issuances of Restricted Stock and Restricted
Stock Agreements as provided in this Plan;
(v) to interpret this Plan, to prescribe, amend and rescind rules and
regulations relating to this Plan, and to make all other determinations
necessary or advisable for the operation and administration of this Plan;
and
(vi) to delegate all or a portion of its authority under subsections
4.(b)(i), 4.(b)(ii), 4.(b)(iii) and 4.(b)(iv) of this Plan to one or more
directors of the Company who are also officers of the Company, but only
in connection with Options or Restricted Stock granted to Eligible
Participants who are not subject to the reporting and liability
provisions of Section 16 of the 1934 Act, as amended, and the rules and
regulations thereunder, and subject to such restrictions and limitations
(such as the aggregate number of shares of Option Stock and Restricted
Stock that may be granted) as the Committee may decide to impose on such
delegate directors.
(c) Designation of Options. Except as otherwise provided herein, the
Committee will designate any Option granted hereunder either as an ISO or as
an NSO. To the extent that the Fair Market Value of Stock, determined at the
time the Option is granted, with respect to which all ISOs are exercisable
for the first time by any individual during any calendar year (pursuant to
this Plan and all other plans of the Company and/or its Subsidiaries)
exceeds $100,000, such Option will be treated as an NSO.
(d) Option Agreements. Options will be deemed granted hereunder only
upon the execution and delivery of an Option Agreement by the Optionee and a
duly authorized officer of the Company. Options will not be deemed granted
hereunder merely upon the authorization of such grant by the Committee.
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(e) Restricted Stock Agreements. Restricted Stock will be issued
hereunder only upon the execution and delivery of a Restricted Stock
Agreement by the Restricted Stockholder and a duly authorized officer of the
Company. Restricted Stock will not be deemed issued merely upon the
authorization of such issuance by the Committee.
5. SHARES RESERVED FOR OPTIONS AND RESTRICTED STOCK.
Subject to Sections 8 and 11 of this Plan, the aggregate number of shares of
Option Stock and Restricted Stock that may be issued and outstanding pursuant to
the exercise of Options and granting of Restricted Stock under this Plan (the
"Option and Restricted Stock Pool") will not exceed 3,000,000 shares. The total
number of shares of Option Stock and Restricted Stock that may be granted to an
Eligible Participant over the term of this Plan will not exceed 750,000 shares.
Shares of Option Stock withheld as payment of an Option Price as described in
subsection 6.(e) by the Company and shares of Restricted Stock that are
forfeited, as described in subsection 7.(c), may be added back into the Option
and Restricted Stock Pool and reissued, provided, however, with respect to
persons subject to Section 16 of the 1934 Act, the total number of shares of
Option Stock and Restricted Stock that may be issued or reissued will be less
than 3,300,000 shares. Shares of Option Stock that would have been issuable
pursuant to Options, but that are no longer issuable because all or part of
those Options have terminated or expired may also be added back into the Option
and Restricted Stock Pool to be available for issuance.
6. TERMS OF STOCK OPTION AGREEMENTS.
Each Option granted pursuant to this Plan will be evidenced by an Option
Agreement between the Company and the Eligible Participant to whom such Option
is granted, in form and substance satisfactory to the Committee in its sole
discretion, consistent with this Plan. Without limiting the foregoing, the
following terms and conditions will be considered a part of each Option
Agreement (unless otherwise stated therein):
(a) Covenants of Optionee. Nothing contained in this Plan, any Option
Agreement or in any other agreement executed in connection with the granting
of an Option under this Plan will confer upon any Optionee any right with
respect to the continuation of his or her status as an employee or officer
of the Company or its Subsidiaries.
(b) Option Vesting Periods. Except as otherwise provided herein, each
Option Agreement will specify the period or periods of time within which
each Option or portion thereof will first become exercisable (the "Option
Vesting Period"). Such Option Vesting Periods will be determined by the
Committee in its discretion, and may be accelerated or shortened by the
Committee in its discretion.
(c) Exercise of the Option.
(i) Mechanics and Notice. Options may be exercised to the extent
exercisable by giving written notice to the Company specifying the number
of Options to be exercised, the date of the grant of the Option or
Options to be exercised, the exercise price, the desired effective date
of the exercise, the number of full shares of Option Stock to be retained
by the Optionee after exercise, and the method of payment. Once written
notice complying with the requirements of this subsection is received,
the Committee or its designee shall promptly notify the Optionee of the
amount of the Option Price and withholding taxes due, if either or both
is applicable. Payment of any amounts owing shall be due immediately upon
receipt of such notice.
(ii) Withholding Taxes. As a condition to the issuance of shares of
Option Stock upon exercise of an Option granted under this Plan, the
Optionee will pay to the Company in cash, through cashless exercise as
described in subsection 6.(e), or in such other form as the Committee may
determine in its discretion, the amount of the Company's tax withholding
liability, if any, associated with such exercise. The Committee may
prescribe a specific method of payment of such withholding, in its
discretion. For purposes of this subsection 6.(c)(ii), "tax withholding
liability" will mean all federal and state income taxes, social security
tax, medicare tax and any other taxes applicable to the income arising
from the transaction required by applicable law to be withheld by the
Company.
(d) Payment of Option Price. Each Option Agreement will specify the
Option Price, with respect to the exercise of Option Stock granted
thereunder, which may be stated in terms of a fixed dollar amount, a
percentage (not less than 100%) of Fair Market Value at the time of the
grant, a value based on a market or peer group index
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or Company Performance Criteria, or such other method as determined by the
Committee in its discretion. In no event will the Option Price for an ISO or
NSO granted hereunder be less than the Fair Market Value (or, where an ISO
Optionee is a 10% Stockholder, one hundred ten percent (110%) of such Fair
Market Value) of the Option Stock at the time such ISO or NSO is granted.
The Option Price will be payable to the Company in United States dollars in
cash or by check or, such other legal consideration as may be approved by
the Committee, in its discretion.
(e) Cashless Exercise. The Committee, in its discretion, may permit an
Optionee to pay all or a portion of the Option Price, and/or the tax
withholding liability set forth in subsection 6.(c)(ii) above, if
applicable, with respect to the exercise of an Option either by surrendering
shares of Stock already owned by such Optionee or by withholding shares of
Option Stock, provided that the Committee determines that the Fair Market
Value of such surrendered Stock or withheld Option Stock is equal to the
corresponding portion of such Option Price and/or tax withholding liability,
as the case may be, to be paid for therewith. To the extent that shares of
Option Stock are withheld as payment of all or a portion of the Option Price
of an ISO, the withholding of such shares will be treated as a Disqualifying
Disposition, and subject to Section 421(b) of the Code.
(f) Notice of Disqualifying Disposition. In the event of a Disqualifying
Disposition, the Optionee will promptly give written notice to the Company
of such disposition including information regarding the number of shares
involved, the exercise price of the underlying Option through which the
shares were acquired and the date of the Disqualifying Disposition.
(g) Termination of the Option. Except as otherwise provided herein, each
Option Agreement will specify the period of time, to be determined by the
Committee in its discretion, during which the Option granted therein will be
exercisable, not to exceed ten years from the date of grant in the case of
an ISO (the "Option Period"); provided that the Option Period will not
exceed five years from the date of grant in the case of an ISO granted to a
10% Stockholder.
(i) ISOs. To the extent not previously exercised, each ISO will
terminate upon the expiration of the Option Period specified in the
Option Agreement; provided, however, that, subject to the discretion of
the Committee, each ISO will terminate, if earlier: (a) immediately after
the date that the Optionee ceases to be an Eligible Participant for any
reason other than death, disability, or Retirement; (b) five years after
the date that the Optionee ceases to be an Eligible Participant by reason
of such person's death or disability; provided, however, that the ISO
will convert to an NSO if exercised more than twelve months after death
or disability; or (c) five years after the Optionee ceases to be an
Eligible Participant by reason of such person's Retirement; provided,
however, that the ISO will convert to an NSO if exercised more than three
months after Retirement.
(ii) NSOs. To the extent not previously exercised, each NSO will
terminate upon the expiration of the Option Period specified in the
Option Agreement; provided, however, that, subject to the discretion of
the Committee, each NSO will terminate, if earlier: (a) immediately after
the date that the Optionee ceases to be an Eligible Participant for any
reason, other than death, disability, or Retirement; or (b) five years
after the date the Optionee ceases to be an Eligible Participant by
reason of such person's death, disability or Retirement.
(iii) Limited Stock Appreciation Rights. Notwithstanding any other
provision of this Agreement, and except as provided in subsection
6.(g)(iii)(2) below, each Option will be cancelled on the effective date
of a Change in Control of the Company or a liquidation or dissolution of
the Company, and in lieu of further rights under the Options, Optionees
will receive from the Company in cash the difference between the Fair
Market Value and the Option Price, multiplied by the number of shares to
which each Option relates.
(1) For purposes of subsection 6.(g)(iii) only, the Fair Market
Value shall be the average between the highest and lowest quoted price
per share for sales made and reported on the New York Stock Exchange,
or on a sales or quotation system maintained by the National
Association of Securities Dealers, or such other national stock
exchange on which such Stock of the Company may then be listed and
which constitutes the principal market for such Stock on the latest
trading date for which sales or quotations are reported prior to such
effective date or, if greater, the price or value received by
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stockholders for a share of Stock with respect to the largest number of
shares the ownership of which is transferred in conjunction with such
Change in Control, liquidation or dissolution of the Company.
(2) The Committee shall receive an opinion, dated as of the Change
in Control, from the independent auditors of the surviving company,
that the limited stock appreciation rights granted in subsection
6.(g)(iii) shall not prevent the transaction from being accounted for
as a pooling of interests. If the Committee does not receive the
required opinion, it may declare subsection 6.(g)(iii) to be nullified.
In such case, all Options shall become immediately and fully
exercisable upon the Change in Control.
(h) Options Nontransferable. No Option will be subject to Transfer by
the Optionee other than by will or the laws of descent and distribution, or
in the case of an NSO, by direct gift, or gift to a trust for the benefit of
another. Under no circumstances shall any Transfer be permitted to the
extent that it violates Section 16 of the 1934 Act. The Option will be
exercisable only by the Optionee during his or her lifetime, or, with
respect to an NSO, by any of the recipients of the Transfers specifically
permitted by this subsection 6.(h).
(i) Compliance with Law. Notwithstanding any other provision of this
Plan, Options may be granted pursuant to this Plan, and Option Stock may be
issued pursuant to the exercise thereof by an Optionee, only after there has
been compliance with all applicable federal and state tax and securities
laws. The right to exercise an Option will be further subject to the
requirement that if at any time the Committee determines, in its discretion,
that the listing, registration or qualification of the shares of Option
Stock called for by any securities exchange or under any state or federal
law, or the consent or approval of any governmental regulatory authority, is
necessary or desirable as a condition of or in connection with the granting
of such Option or the purchase of shares of Option Stock, the Option may not
be exercised, in whole or in part, unless and until such listing,
registration, qualification, consent or approval is effected or obtained
free of any conditions not acceptable to the Committee, in its discretion.
(j) Stock Certificates. Certificates representing the Option Stock
issued pursuant to the exercise of Options will bear all legends required by
law and necessary to effectuate this Plan's provisions. The Company may
place a "stop transfer" order against shares of the Option Stock until all
restrictions and conditions set forth in this Plan and in the legends
referred to in this subsection 6.(j) have been complied with.
(k) Other Provisions. The Option Agreement may contain such other terms,
provisions and conditions, including such special forfeiture conditions,
rights of repurchase, rights of first refusal and other restrictions on
Transfer of Option Stock issued upon exercise of any Options granted
hereunder, not inconsistent with this Plan, as may be determined by the
Committee in its sole discretion.
7. TERMS OF RESTRICTED STOCK AGREEMENTS.
Each issuance of Restricted Stock pursuant to this Plan will be evidenced by
a Restricted Stock Agreement between the Company and the Eligible Participant to
whom such Restricted Stock is to be issued, in form and substance satisfactory
to the Committee in its sole discretion, consistent with this Plan. Each
Restricted Stock Agreement (unless otherwise stated therein) will be deemed to
include the following terms and conditions:
(a) Covenants of Restricted Stockholder. Nothing contained in this Plan,
any Restricted Stock Agreement or in any other agreement executed in
connection with the issuance of Restricted Stock under this Plan will confer
upon any Restricted Stockholder any right with respect to the continuation
of his or her status as an employee or officer of the Company or its
Subsidiaries.
(b) Restricted Stock Vesting Periods. Except as otherwise provided
herein, each Restricted Stock Agreement may specify the period or periods of
time within which shares of Restricted Stock will no longer be subject to
the restrictions imposed under this Plan or any Restricted Stock Agreement
(the "Restricted Stock Vesting Period"), as set forth in this subsection
7.(b). A Restricted Stock Agreement may also specify Company Performance
Criteria which must be satisfied within the Restricted Stock Vesting Period.
Restricted Stock Vesting Periods shall be determined by the Committee in its
discretion and may be accelerated or shortened by the Committee in its
discretion, but shall not, provided all applicable Company Performance
Criteria have been satisfied, exceed ten years for full vesting. All shares
of Restricted Stock shall become immediately and fully vested upon a Change
in Control of the Company.
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(c) Forfeiture of Restricted Stock. To the extent that the applicable
Restricted Stock Vesting Period has not elapsed or the Company Performance
Criteria have not been satisfied, each share of Restricted Stock, subject to
the discretion of the Committee, shall be forfeited immediately as of the
date the Restricted Stockholder ceases to be an Eligible Participant for any
reason.
(d) Restrictions on Transfer of Restricted Stock.
(i) General Rule on Transfers of Restricted Stock. Restricted Stock
may be transferred only if required by law. All Transfers of Restricted
Stock not meeting the conditions set forth in this subsection 7.(d) are
expressly prohibited.
(ii) Effect of Prohibited Transfer. Any prohibited Transfer of
Restricted Stock is void and of no effect. Should such a Transfer purport
to occur, the Company may refuse to carry out the Transfer on its books,
attempt to set aside the Transfer, enforce any undertaking or right under
this subsection 7.(d), or exercise any other legal or equitable remedy.
(iii) Escrow. The Committee may, in its discretion, require that the
Restricted Stockholder deliver the certificate(s) for the Restricted
Stock with a stock power executed in blank to the Secretary of the
Company or his or her designee to hold said certificate(s) and stock
power(s) in escrow and to take all such actions and to effectuate all
such Transfers and/or releases as are in accordance with the terms of
this Plan. The certificate(s) may be held in escrow so long as the shares
of Restricted Stock are subject to any restrictions under this Plan or
under a Restricted Stock Agreement. Each Restricted Stockholder
acknowledges that the Secretary of the Company (or his or her designee)
is so appointed as the escrow holder with the foregoing authorities as a
material inducement to the issuance of shares of Restricted Stock under
this Plan, that the appointment is coupled with an interest, and that it
accordingly will be irrevocable. The escrow holder will not be liable to
any party to a Restricted Stock Agreement (or to any other party) for any
actions or omissions unless the escrow holder is grossly negligent
relative thereto. The escrow holder may rely upon any letter, notice or
other document executed by any signature purported to be genuine.
(e) Compliance with Law. Notwithstanding any other provision of this
Plan, Restricted Stock may be issued pursuant to this Plan only after there
has been compliance with all applicable federal and state tax and securities
laws.
(f) Stock Certificates. Certificates representing the Restricted Stock
issued pursuant to this Plan will bear all legends required by law and
necessary to effectuate this Plan's provisions. The Company may place a
"stop transfer" order against shares of the Restricted Stock until all
restrictions and conditions set forth in this Plan and in the legends
referred to in this subsection 7.(f) have been complied with.
(g) Market Standoff. To the extent requested by the Company and any
underwriter of securities of the Company in connection with a firm
commitment underwriting, no Restricted Stockholder of any shares of
Restricted Stock will sell or otherwise Transfer any such shares not
included in such underwriting, or not previously registered pursuant to a
registration statement filed under the 1933 Act, during the 120-day period
following the effective date of the registration statement filed with the
Securities and Exchange Commission in connection with such offering.
(h) Other Provisions. The Restricted Stock Agreement may contain such
other terms, provisions and conditions, including such special forfeiture
conditions, rights of repurchase, rights of first refusal and other
restrictions on Transfer of Restricted Stock issued hereunder, not
inconsistent with this Plan, as may be determined by the Committee in its
sole discretion.
8. ADJUSTMENTS UPON CHANGES IN STOCK.
In the event of any change in the outstanding Stock of the Company as a
result of a stock split, reverse stock split, stock dividend, recapitalization,
combination or reclassification, appropriate proportionate adjustments will be
made:
(a) in the aggregate number of shares of Option Stock and Restricted
Stock in the Option and Restricted Stock Pool;
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(b) in the Option Price and the number of shares of Option Stock that
may be purchased pursuant to an outstanding Option granted hereunder;
(c) in the exercise price of any rights of repurchase or of first
refusal under this Plan; and
(d) with respect to other rights and matters determined on a per share
basis under this Plan or any associated Option Agreement or Restricted Stock
Agreement.
Any such adjustments will be made only by the Committee, and when so made
will be effective, conclusive and binding for all purposes with respect to this
Plan and all Options and Restricted Stock then outstanding. No such adjustments
will be required by reason of the issuance or sale by the Company for cash or
other consideration of additional shares of its Stock or securities convertible
into or exchangeable for shares of its Stock.
9. PROCEEDS FROM SALE OF OPTION STOCK.
Cash proceeds from the sale of shares of Option Stock issued from time to
time upon the exercise of Options granted pursuant to this Plan will be added to
the general funds of the Company and as such will be used from time to time for
general corporate purposes.
10. MODIFICATION, EXTENSION AND RENEWAL OF OPTIONS.
Subject to the terms and conditions and within the limitations of this Plan,
the Committee may modify, extend or renew outstanding Options granted under this
Plan, but in no event may the Committee change the Option Price as stated in the
Option Agreement, if expressed as a fixed dollar amount, or the manner in which
the Option Price is to be calculated as stated in the Option Agreement, if
expressed as a percentage of Fair Market Value at the time of the grant, a
market or peer group index, Company Performance Criteria or otherwise.
Notwithstanding the foregoing, no modification of any Option will, without the
consent of the holder of the Option, alter or impair any rights or obligations
under any Option previously granted under this Plan.
11. AMENDMENT AND DISCONTINUANCE.
The Committee may amend, and the Board may suspend or discontinue, this Plan
at any time, provided that:
(a) No such action may, without the approval of the stockholders of the
Company, increase the maximum total number of shares of Option Stock and
Restricted Stock that may be granted to an individual over the term of this
Plan, change the definition of "Company Performance Criteria" as that term
is used in this Plan, materially increase (other than by reason of an
adjustment pursuant to Section 8 hereof) the aggregate number of shares of
Option Stock and Restricted Stock in the Option and Restricted Stock Pool
that may be granted pursuant to this Plan, materially increase the benefits
accruing to Plan participants or materially modify eligibility requirements
for participation in the Plan;
(b) No action of the Committee will cause ISOs granted under this Plan
not to comply with Section 422 of the Code unless the Committee specifically
declares such action to be made for that purpose;
(c) No action of the Committee shall alter or impair any Option or
Restricted Stock previously granted or awarded under this Plan without the
consent of such affected Optionee or Restricted Stockholder.
12. PLAN BINDING UPON SUCCESSORS.
This Plan shall be binding upon and inure to the benefit of the Company, its
Subsidiaries, and their respective successors and assigns, and Eligible
Participants and their respective assigns, personal representatives, heirs,
legatees and beneficiaries.
13. PLAN COMPLIANCE WITH RULE 16B-3.
With respect to persons subject to Section 16 of the 1934 Act, transactions
under this Plan are intended to comply with all applicable conditions of Rule
16b-3 or its successors under the 1934 Act. To the extent any provision of the
Plan or action by the Plan administrators fails to comply, it shall be deemed
null and void, to the extent permitted by law and deemed advisable by the Plan
administrators.
A-9
<PAGE> 37
14. NOTICES.
Any notice to be given to the Company under the terms of an Option Agreement
or a Restricted Stock Agreement will be addressed to First of America Bank
Corporation, 211 S. Rose Street, Kalamazoo, Michigan 49007, Attention: Senior
Vice President of Human Resources, or at such other address as the Company may
designate in writing. Any notice to be given to an Optionee or Restricted
Stockholder will be addressed to the Optionee or Restricted Stockholder at the
address provided to the Company by the Optionee or Restricted Stockholder. Any
such notice will be deemed to be given when deposited in the United States mail
at a post office or branch post office regularly maintained by the United States
Postal Service, with postage fully prepaid, enclosed in a properly sealed
envelope, and addressed as required under this Section 14.
15. GOVERNING LAW.
This Plan will be governed by, and construed in accordance with, the laws of
the State of Michigan.
16. COPIES OF PLAN.
A copy of this Plan will be delivered to each Optionee at or before the time
he or she executes an Option Agreement, and to each Restricted Stockholder of
Restricted Stock at or before the time he or she executes a Restricted Stock
Agreement.
A-10
<PAGE> 38
APPENDIX B
FIRST OF AMERICA BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 39
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
The Business of First of America Bank Corporation......................................... B-1
Management's Discussion and Analysis...................................................... B-2
Mergers and Acquisitions................................................................ B-2
1995 Highlights......................................................................... B-3
Income Analysis......................................................................... B-5
Line of Business Analysis............................................................... B-12
Credit Risk Profile..................................................................... B-13
Funding, Liquidity and Interest Rate Risk............................................... B-17
Capital Strength........................................................................ B-20
In Conclusion........................................................................... B-21
Statement of Management Responsibility.................................................... B-22
Letter of Audit Committee Chairman........................................................ B-22
Report of Independent Auditors............................................................ B-23
Consolidated Financial Statements
Consolidated Balance Sheets............................................................. B-24
Consolidated Statements of Income....................................................... B-25
Consolidated Statements of Changes in Shareholders' Equity.............................. B-26
Consolidated Statements of Cash Flows................................................... B-27
Notes to Consolidated Financial Statements.............................................. B-28
Supplemental Information.................................................................. B-51
</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 $16 billion in
loans and $19 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, as well as mortgage origination services in North Carolina, South
Carolina, Missouri and Arizona. Based on total assets of $23 billion, First of
America is ranked 33rd among banking companies in the United States.
B-1
<PAGE> 40
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following financial review discusses the performance of First of
America, on a consolidated basis, for the three years ended December 31, 1995,
and should be read in conjunction with the consolidated financial statements and
notes thereto.
MERGERS AND ACQUISITIONS
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
BUSINESS COMBINATIONS TABLE I
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1995 1994 1993
- -----------------------------------------------------------------------------------------------------------------
Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
New England Trust Presidential Holding Kewanee Investing
Company................ $1,576 Corporation.............. $ 256,352 Company, Inc. ........... $ 29,776
Underwriting Consultants, Citizens Federal Bank (14
Inc. .................. 1,255 F & C Bancshares, Inc.... 379,791 Branches)................ 499,337
West Suburban Financial Pioneer Mortgage Co.
Corporation............ 12 First Park Ridge (five offices)........... --
Corp. ................... 327,391
------ --------
LGF Bancorp, Inc. ....... 412,336
Goldome Federal
Branches............... 376,858
----------
$2,843 $1,752,728 $529,113
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
On January 1, 1995, First of America acquired New England Trust Company, an
investment management firm based in Providence, Rhode Island, with $600 million
in assets under management. Also during 1995, First of America acquired
Underwriting Consultants, Inc. and West Suburban Financial Corporation (renamed
First of America Insurance Group - Illinois, Inc.), insurance companies which
specialize in personal and commercial life and casualty insurance. These
acquisitions provide opportunities for further diversification of revenue
sources.
B-2
<PAGE> 41
1995 HIGHLIGHTS
Net income for 1995 was $236.7 million, up 7.3 percent compared with the
$220.5 million earned in 1994, and earnings per share were $3.73 versus $3.69.
The current year's results reflected the impact of increased non-interest
income, $16.3 million in branch sale gains, and controlled expense levels.
Non-interest expense was virtually level with a year ago, as benefits achieved
from the internal restructuring and reduced FDIC premiums offset additional
expense from acquisitions completed on December 31, 1994, and $13.2 million in
restructuring charges. In 1993 record gains on the sale of mortgages and
securities contributed to that year's net income of $247.4 million, or $4.14 per
fully diluted share.
Return on average assets was 1.00 percent for full year 1995 and improved as
the year progressed, beginning at 0.79 percent for the first quarter and ending
the year at 1.13 percent for the fourth quarter. Return on average assets for
1994 was 0.98 percent and 1.20 percent for 1993. Return on average equity was
down for the year-over-year comparison, 13.89 percent compared with 14.44
percent, as growth in equity offset the higher earnings. Return on average
equity was 17.50 percent in 1993.
Asset quality remained strong, showing only slight deterioration from 1994's
record measures. Nonperforming assets were 0.63 percent of total assets, up
slightly from 0.57 percent at December 31, 1994, but lower than the 0.86 percent
reported at year-end 1993. Net charge-offs as a percent of average loans
followed the same trend and was 0.47 percent, 0.39 percent and 0.53 percent,
respectively, for 1995, 1994 and 1993. The allowance for loan losses as a
percent of total loans did increase, however, to 1.50 percent at year-end 1995
compared with 1.36 percent at year-end 1994, as the provision for loan loss
expense covered net charge-offs by 117 percent and total loans decreased 4.5
percent. The allowance as a percent of total loans was 1.31 percent at December
31, 1993.
Total assets were $23.6 billion at December 31, 1995, a 3.9 percent decrease
compared with the $24.6 billion reported at December 31, 1994. The decrease can
be attributed to strategies aimed at trimming the balance sheet and to the
securitization of $500 million in credit card receivables during June 1995.
Total assets were $21.2 billion at December 31, 1993. Excluding the credit card
securitization, total loans decreased 1.5 percent due to pricing strategies
implemented to improve the profitability of the installment and residential
mortgage portfolios. The commercial and commercial mortgage portfolios, however,
experienced steady growth during 1995, up 11.0 percent from the previous year.
Total shareholders' equity increased 15.8 percent to $1.8 billion at
December 31, 1995. The increase resulted from earnings retention of $128.0
million and the $118.2 million positive change in the adjustment to equity for
Available for Sale securities. The higher equity level resulted in an increase
in the book value per share, which was $28.89 at December 31, 1995 compared with
$25.12 and $25.60 for year-ends 1994 and 1993. The risk-based capital ratio of
12.89 percent at year-end 1995 was the highest reported by First of America
since it began computing risk-based ratios in 1989. The regulatory requirement
for this ratio is 8 percent.
In August 1995, the Board of Directors increased the annual cash dividend
paid per common share by 5 percent to $1.76. This increase indicated the Board's
continued confidence in First of America's profitability and represents the
thirteenth year in a row that the dividend was increased.
B-3
<PAGE> 42
SELECTED FINANCIAL DATA TABLE II
($ in thousands, except per share data)
<TABLE>
<CAPTION>
5 Year
Compounded Year Ended December 31,
Growth ----------------------------------------------------------------------------
Rate 1995 1994 1993 1992 1991 1990
<S> <C> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATIONS
Interest income................. 3.4% $ 1,796,524 1,600,877 1,510,966 1,596,127 1,537,861 1,519,841
Interest expense................ 0.7 872,528 662,142 608,949 721,300 786,910 841,142
----------- ----------- ----------- ----------- ----------- -----------
Net interest income............. 6.4 923,996 938,735 902,017 874,827 750,951 678,699
Provision for loan losses....... 15.4 91,488 86,571 84,714 78,809 71,030 44,782
Total non-interest income....... 13.8 346,100 284,373 292,184 261,316 209,900 181,558
Total non-interest expense...... 6.2 815,271 813,418 763,528 796,348 665,732 602,319
Applicable income tax expense... 16.7 126,629 102,616 98,574 91,506 64,625 58,628
Extraordinary item, net of
tax........................... n/a -- -- -- (21,956) -- --
- ------------------------------------------------------------------------------------------------------------------------
Net income...................... 8.9% $ 236,708 220,503 247,385 147,524 159,464 154,528
- ------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stock......................... 11.4% $ 236,708 220,503 241,232 135,015 144,028 137,818
- ------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF
COMMON STOCK
Primary....................... 7.3% $ 3.73 3.69 4.20 2.46 2.69 2.62
Fully diluted................. 7.3 3.73 3.69 4.14 2.46 2.69 2.62
Average common shares
outstanding ("000")........... 3.8 63,501 59,812 57,417 54,842 53,536 52,622
Cash dividends declared per
common share.................. 8.4 $ 1.72 1.64 1.55 1.34 1.24 1.15
Primary book value per common
share......................... 8.8 28.89 25.12 25.60 22.12 20.58 18.97
- ------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET SUMMARY
ASSETS:
Cash and due from banks......... 3.3% $ 1,207,062 1,060,788 903,517 918,960 1,000,578 1,028,159
Federal funds sold, resale
agreements and time
deposits...................... 13.0 269,737 55,271 74,909 175,030 254,333 146,175
Securities:
Held to maturity.............. n/a -- 3,112,876 1,856,623 3,489,626 4,261,360 3,775,030
Available for sale............ n/a 5,060,746 2,587,626 3,261,481 -- -- --
Held for sale................. n/a -- -- -- 1,137,420 -- --
Loans -- net of unearned
income........................ 7.4 16,076,942 16,834,858 14,394,155 13,756,017 13,228,027 11,228,221
Allowance for loan losses....... 12.0 (241,182) (228,115) (188,664) (176,793) (174,882) (137,012)
Other assets.................... 10.4 1,226,790 1,145,398 928,450 846,507 900,552 749,379
- ------------------------------------------------------------------------------------------------------------------------
Total assets.................... 7.0% $23,600,095 24,568,702 21,230,471 20,146,767 19,469,968 16,789,952
- ------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY
Deposits........................ 5.2% $19,342,467 20,200,266 18,243,703 18,035,553 17,483,232 15,016,343
Short term borrowings........... 44.3 1,649,965 1,882,739 994,578 338,023 282,225 264,049
Long term debt.................. 22.2 490,315 681,236 254,193 254,051 260,398 179,899
Other liabilities............... 13.5 289,367 225,573 214,560 183,649 176,745 153,658
Total shareholders' equity...... 9.2 1,827,981 1,578,888 1,523,437 1,335,491 1,267,368 1,176,003
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity.... 7.0% $23,600,095 24,568,702 21,230,471 20,146,767 19,469,968 16,789,952
- ------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average total
equity........................ 13.89% 14.44 17.50 11.38 13.07 13.70
Return on average assets........ 1.00 0.98 1.20 0.75 0.95 0.98
Net interest margin (a)......... 4.28 4.58 4.86 4.98 5.07 4.92
Total shareholders' equity to
assets at year-end............ 7.75 6.43 7.18 6.63 6.51 7.00
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fully taxable equivalent based on a marginal federal income tax rate of 35%
for 1995, 1994 and 1993, and 34% for prior years.
B-4
<PAGE> 43
INCOME ANALYSIS
NET INTEREST INCOME. Net interest income on a fully taxable equivalent (FTE)
basis was $940.0 million, down 2.0 percent from $955.7 million in 1994. The
lower net interest margin for 1995, 4.28 percent versus 4.58 percent, offset the
5.2 percent increase in average earning assets which was primarily the result of
the acquisitions completed at year-end 1994. Net interest income for 1995 was
also reduced by the securitization of $500 million in credit card receivables
during June 1995, which shifted revenue from interest income to non-interest fee
revenue. For 1994 compared with 1993, net interest income FTE increased 3.3
percent due to a higher level of average earning assets offsetting the impact of
a lower net interest margin.
Total interest income FTE grew 12.0 percent in 1995. As illustrated in Table
III, the increase resulted from both a higher volume of earning assets and
higher asset yields. On the other hand, interest expense was up 31.8 percent
mainly as a result of increased rates on interest-bearing liabilities. The
combination of the changes in interest income FTE and interest expense resulted
in the 2.0 percent decrease in net interest income FTE.
Table III presents a summary of the changes in net interest income resulting
from changes in volumes and rates for 1995 and 1994. Net interest income,
average balance sheet amounts, and the corresponding yields and costs for the
years 1990 through 1995 are shown in Table IV.
VOLUME/RATE TABLE III
($ in thousands)
<TABLE>
<CAPTION>
1995 Change From 1994 Due To 1994 Change From 1993 Due To
- ----------------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
INTEREST INCOME:
Loans (FTE).......................... $119,442 77,146 196,588 111,385 (50,000) 61,385
Taxable securities................... (12,571) 13,618 1,047 44,597 (4,370) 40,227
Tax exempt securities (FTE).......... (7,188) 750 (6,438) (18,389) 1,080 (17,309)
Money market investments............. 1,482 2,021 3,503 (668) 163 (505)
- ----------------------------------------------------------------------------------------------------------------
Total interest income (FTE).......... $101,165 93,535 194,700 136,925 (53,127) 83,798
- ----------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits............ $ 16,197 141,030 157,227 25,696 (28,260) (2,564)
Short term borrowings................ 16,754 23,541 40,295 31,792 10,051 41,843
Long term debt....................... 9,717 3,148 12,865 14,892 (978) 13,914
- ----------------------------------------------------------------------------------------------------------------
Total interest expense............... $ 42,668 167,719 210,387 72,380 (19,187) 53,193
- ----------------------------------------------------------------------------------------------------------------
Change in net interest income........ $ 58,497 (74,184) (15,687) 64,545 (33,940) 30,605
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount
of the change in each. Non-taxable income has been adjusted to a fully taxable
equivalent basis.
B-5
<PAGE> 44
- --------------------------------------------------------------------------------
AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES TABLE IV
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate
Average Income/ Earned/ Average Income/ Earned/ Average
Balance Expense Paid Balance Expense Paid Balance
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments.................. $ 108,480 5,852 5.39% $ 72,736 2,349 3.23% $ 93,662
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 5,103,380 301,145 5.90 5,319,354 303,098 5.70 4,537,814
State and municipal securities(1)......... 222,055 21,858 9.84 306,946 25,296 8.24 530,407
Total loans(1)(2)......................... 16,532,752 1,483,709 8.97 15,172,618 1,287,121 8.48 13,875,584
----------- --------- ----------- --------- -----------
Total earnings assets/total interest
income(1)................................ 21,966,667 1,812,564 8.25 20,871,654 1,617,864 7.75 19,037,467
----------- --------- ----------- --------- -----------
Less allowance for loan losses............ 234,933 206,703 182,594
Cash and due from banks................... 919,598 892,959 839,506
Other assets.............................. 1,100,940 992,857 850,783
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $23,752,272 $22,550,767 $20,545,162
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... $ 3,444,077 59,342 1.72% $ 3,948,604 59,476 1.51% $ 3,980,815
Money market savings accounts(3).......... 4,254,533 166,906 3.92 3,551,445 110,220 3.10 3,009,796
Time deposits............................. 9,105,938 498,913 5.48 8,849,576 398,239 4.50 8,638,044
----------- --------- ----------- --------- -----------
Total interest-bearing deposits........... 16,804,548 725,161 4.32 16,349,625 567,935 3.47 15,628,655
Short term borrowings..................... 1,647,634 100,684 6.11 1,325,584 60,389 4.56 575,074
Long term debt............................ 616,357 46,683 7.57 485,494 33,818 6.97 272,297
----------- --------- ----------- --------- -----------
Total interest-bearing liabilities/total
interest expense......................... 19,068,539 872,528 4.58 18,160,703 662,142 3.65 16,476,026
----------- --------- ----------- --------- -----------
Demand deposits........................... 2,710,566 2,665,183 2,463,534
Other liabilities......................... 269,073 197,330 191,922
Non-redeemable preferred/preference
stock.................................... -- -- 74,586
Common shareholders' equity............... 1,704,094 1,527,551 1,339,094
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $23,752,272 $22,550,767 $20,545,162
- -------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets............ 8.25% 7.75%
Interest expense/earning assets........... 3.97 3.17
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 4.28% 4.58%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1992 1991
- ---------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate Interest
Income/ Earned/ Average Income/ Earned/ Average Income/
Expense Paid Balance Expense Paid Balance Expense
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments.................. 2,854 3.05% $ 233,757 9,090 3.89% $ 273,208 17,679
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 262,871 5.79 3,898,195 274,048 7.03 3,267,738 274,884
State and municipal securities(1)......... 42,605 8.03 493,785 46,369 9.39 580,307 56,640
Total loans(1)(2)......................... 1,225,736 8.83 13,435,991 1,291,724 9.61 11,276,061 1,217,808
--------- ----------- --------- ----------- ---------
Total earnings assets/total interest
income(1)................................ 1,534,066 8.06 18,061,728 1,621,231 8.98 15,397,314 1,567,011
--------- ----------- --------- ----------- ---------
Less allowance for loan losses............ 176,595 139,332
Cash and due from banks................... 818,279 785,798
Other assets.............................. 870,879 754,446
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $19,574,291 $16,798,226
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... 82,664 2.08% $ 2,820,091 86,568 3.07% $ 2,375,565 105,904
Money market savings accounts(3).......... 78,738 2.62 3,972,004 128,820 3.24 3,829,647 186,406
Time deposits............................. 409,097 4.74 8,520,485 476,215 5.59 6,804,895 469,094
--------- ----------- --------- ----------- ---------
Total interest-bearing deposits........... 570,499 3.65 15,312,580 691,603 4.52 13,010,107 761,404
Short term borrowings..................... 18,546 3.22 216,352 8,104 3.75 177,834 9,424
Long term debt............................ 19,904 7.31 248,032 21,593 8.71 176,780 16,082
--------- ----------- --------- ----------- ---------
Total interest-bearing liabilities/total
interest expense......................... 608,949 3.70 15,776,964 721,300 4.57 13,364,721 786,910
--------- ----------- --------- ----------- ---------
Demand deposits........................... 2,301,768 2,064,849
Other liabilities......................... 198,633 148,626
Non-redeemable preferred/preference
stock.................................... 140,952 165,730
Common shareholders' equity............... 1,155,974 1,054,300
- -------------------------------------------------------------------------------------------------------------------------------
Total..................................... $19,574,291 $16,798,226
- -------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets............ 8.06% 8.98%
Interest expense/earning assets........... 3.20 4.00
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 4.86% 4.98%
- -------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31,
- ---------------------------------------------------------------------------------------------------------------------
Average
Rate
Earned/
Paid
- ---------------------------------------------------------------------------------------------------------------------
<S> <C>
ASSETS:
Money market investments.................. 6.47%
Investment securities:
U.S. Treasury, federal agencies and
other.................................... 8.41
State and municipal securities(1)......... 9.76
Total loans(1)(2)......................... 10.80
Total earnings assets/total interest
income(1)................................ 10.18
Less allowance for loan losses............
Cash and due from banks...................
Other assets..............................
- -------------------------------------------------------------------------------------------------------------------------------
Total.....................................
- -------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)............... 4.46%
Money market savings accounts(3).......... 4.87
Time deposits............................. 6.89
Total interest-bearing deposits........... 5.85
Short term borrowings..................... 5.30
Long term debt............................ 9.10
Total interest-bearing liabilities/total
interest expense......................... 5.89
Demand deposits...........................
Other liabilities.........................
Non-redeemable preferred/preference
stock....................................
Common shareholders' equity...............
- -------------------------------------------------------------------------------------------------------------------------------
Total.....................................
- -------------------------------------------------------------------------------------------------------------------------------
Interest income/earning assets............ 10.18%
Interest expense/earning assets........... 5.11
- -------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning assets........ 5.07%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Interest income on obligations of states and political subdivisions and on
tax exempt commercial loans has been adjusted to a fully taxable equivalent
basis using a marginal federal tax rate of 35% for 1995, 1994 and 1993, and 34%
for prior years.
(2) Non-accrual loans are included in average loan balances.
(3) In 1995, 1994 and 1993, money market checking accounts are included in
"Savings and NOW accounts"; in prior years, they are included in "Money market
savings accounts."
B-6
<PAGE> 45
NET INTEREST MARGIN. The net interest margin was 4.28 percent in 1995 lower
than the 4.58 percent reported in 1994, due in part to the acquisition of higher
priced thrift deposits at December 31, 1994. The margin was also reduced by
approximately 6 basis points as a result of the securitization of $500 million
in credit card receivables completed in June 1995. During 1995 management
implemented specific strategies to improve the core margin, such as steps to
increase the interest spread on newly originated installment and residential
mortgage loans, changes to deposit product pricing and mix and decreased
reliance on short-term borrowings. As a result of these strategies, the core
margin showed improvement during the last six months of 1995. If the first and
second quarter margins are normalized for the impact of the credit card
securitization, the margins would have been as follows: first quarter, 4.17
percent; second quarter, 4.16 percent; third quarter, 4.23 percent; fourth
quarter, 4.32 percent.
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 1995, the provision for loan losses was
increased 5.7 percent to $91.5 million from $86.6 million in 1994 to adequately
cover net charge-offs and the higher risk of loss beginning to be experienced in
the credit card and installment loan portfolios. The 1993 provision was $84.7
million. The 117 percent coverage of net charge-offs by the provision for loan
losses and the securitization of the $500 million in credit card receivables
contributed to the higher allowance as a percent of total loans ratio which was
1.50 percent, up from 1.36 percent at December 31, 1994 and 1.31 percent at
December 31, 1993.
As a percent of average assets, the 1995 provision was 0.39 percent compared
with the 0.38 percent and 0.41 percent reported for 1994 and 1993, respectively.
Additional information on the provision for loan losses, net charge-offs and
nonperforming assets is provided in Tables IX and XI and under the
caption,"Credit Risk Profile," presented later in this discussion.
NON-INTEREST REVENUE. Non-interest revenue of $346.1 million was up 21.7
percent over 1994. Included in this total were $16.3 million in branch sale
gains related to internal restructuring and $17.6 million in net servicing fees
from the credit card securitization. Excluding these two components, total
non-interest revenue would have increased 9.8 percent over 1994. Non-interest
revenue totaled $284.4 million in 1994 and $292.2 million in 1993. Record gains
on the sale of securities and mortgages during 1993 were the primary reasons for
the higher level of non-interest revenue in 1993 compared with 1994. Table V
presents the trends in the major components of non-interest revenue from 1991 to
1995.
B-7
<PAGE> 46
NON-INTEREST INCOME AND NON-INTEREST EXPENSE TABLE V
($ in thousands)
<TABLE>
<CAPTION>
Change
1995/1994
- -------------------------------------------------------------------------------------------------------------------------------
1995 1994 1993 1992 1991 Amount Percent
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST REVENUE
Service charges on deposits..................... $100,281 89,164 84,648 79,522 70,318 11,117 12.5%
Trust and financial services revenue............ 94,179 81,717 77,290 68,850 60,904 12,462 15.3
Investment securities transactions.............. 62 5,349 16,753 14,993 1,088 (5,287) (98.8)
Other operating revenue......................... 151,578 108,143 113,493 97,951 77,590 43,435 40.2
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest revenue...................... $346,100 284,373 292,184 261,316 209,900 61,727 21.7
- -------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Personnel....................................... $430,977 430,563 403,119 410,854 361,187 414 0.1%
Occupancy, net.................................. 64,108 60,471 55,093 57,286 50,413 3,637 6.0
Equipment....................................... 59,322 56,111 53,376 63,134 51,474 3,211 5.7
Data processing................................. 18,825 17,524 14,963 10,380 11,448 1,301 7.4
Amortization of intangibles..................... 21,146 16,577 8,902 38,336 10,303 4,569 27.6
FDIC premiums................................... 28,373 42,055 39,680 38,711 31,032 (13,682) (32.5)
Other operating expense......................... 192,520 190,117 188,395 177,647 149,875 2,403 1.3
- -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense...................... $815,271 813,418 763,528 796,348 665,732 1,853 0.2
- -------------------------------------------------------------------------------------------------------------------------------
Non-interest revenue as a percent of
average assets................................ 1.46% 1.26 1.42 1.33 1.25
Non-interest expense as a percent of
average assets................................ 3.43 3.61 3.72 4.07 3.96
Burden ratio.................................... 1.97 2.35 2.30 2.74 2.71
Efficiency ratio................................ 63.39 65.59 62.72 68.58 67.25
Efficiency ratio, excluding FDIC premiums....... 61.18 62.20 59.46 65.24 64.11
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposit accounts remained the largest component of
non-interest revenue in 1995. New fee structures initiated during the year and a
slightly higher volume of non-interest transaction deposits, accounted for the
12.5 percent increase over a year ago.
In total, trust and financial services revenue increased 15.3 percent over a
year ago. Traditional trust fees increased 12.6 percent as a result of the
additional $600 million in managed assets acquired with the New England Trust
Company and the higher market value of managed assets upon which fees are
assessed. Other financial services fees, derived from brokerage services and
investment advisory services, increased 22.4 percent as investment activity
rebounded from 1994. Total revenue from the sale of Parkstone and other mutual
funds and annuities was $9.6 million compared with $8.7 million in 1994.
Net gains on the sales of investment securities totaled $0.1 million
compared with $5.3 million in 1994 and $16.8 million in 1993. During December
1995, First of America transferred all of its Held to Maturity securities into
the Available for Sale classification. More detail on that reclassification is
provided in Note 4 of the Notes to Consolidated Financial Statements included
later in this document. At December 31, 1995, the amortized cost of Available
for Sale securities totaled $5.0 billion and had a corresponding market value of
$5.1 billion which resulted in a $25.9 million positive adjustment to
shareholders' equity.
Bank card revenue totaled $60.4 million, up 39.9 percent over the $43.2
million earned in 1994. The 1995 total included $17.6 million in net fees from
the credit card securitization. Excluding these fees, bank card revenue would
have been level with a year ago. The securitization, completed during June,
shifted revenue from interest income to fee revenue but had minimal impact on
net income; its benefit was that the funds it provided allowed the company to
reduce short-term borrowings. Bank card revenue totaled $40.0 million in 1993.
The managed credit card portfolio,
B-8
<PAGE> 47
which includes the $835 million in receivables remaining on the balance sheet
and the securitized receivables, was $1.3 billion at December 31, 1995, level
with a year ago as fewer promotional initiatives were implemented in 1995.
Mortgage banking revenue of $31.5 million increased 30.5 percent over 1994.
The main reasons for the increase were a $4.1 million gain on the sale of
servicing rights and $3.5 million in additional gains on the sale of mortgage
loans from the adoption of Financial Accounting Standards Board Statement No.
122, "Accounting for Mortgage Servicing Rights an amendment of FASB Statement
No. 65" (FAS 122). Impairment expense on the capitalized originated mortgage
servicing rights was $95,700. Mortgage originations totaling $1.6 billion were
down 24.8 percent from 1994, but increased each quarter throughout 1995. Despite
the sale of servicing rights, First of America's outside servicing portfolio was
up slightly over a year ago totaling $3.2 billion and added $9.2 million in
servicing revenue.
Other operating revenue increased 46.2 percent over 1994. The largest
component of this category, gains on branch sales, totaled $16.3 million and
added $0.16 to earnings per share. The review of branch offices to determine
their fit with the company's marketing strategies is an ongoing activity, but
such scrutiny was intensified during the internal restructuring effort.
Excluding branch sale gains, other operating revenue increased 6.3 percent over
a year ago. Included in this total were nonaffiliate corporate services at $10.6
million, up 6.6 percent; ATM network fees at $6.6 million, up 7.6 percent; and
credit life income at $4.8 million, up 19.8 percent.
NON-INTEREST EXPENSE. As detailed in Table V, non-interest expense was
$815.3 million in 1995, up only 0.2 percent from 1994. Operating efficiencies
generated by the internal restructuring and reduced FDIC premiums, down $13.7
million for the year, offset the additional operating expense from acquisitions
completed at year-end 1994 and $13.2 million in restructuring charges incurred
during 1995. Non-interest expense was 3.61 percent of average assets for 1994
and 3.72 percent for 1993.
Total personnel cost was $431.0 million in 1995 compared with $430.6 million
in 1994 and $403.1 million in 1993. Excluding severance charges, personnel costs
were down 1.7 percent from 1994 and represented 1.77 percent of average assets
compared with 1.89 percent in 1994. This improvement demonstrates the positive
impact the restructuring had on personnel cost, the largest component of
non-interest expense. Total full time equivalent employees (FTEs) were 12,690 at
December 31, 1995 compared with 14,500 in August 1994 when the restructuring was
announced. The lower level of FTEs was achieved even with the addition of 340
FTEs from acquisitions completed since September 30, 1994. Two ratios which
measure the progress made through internal efficiencies are the number of FTEs
per one million dollars of average assets and net income per FTE. For 1995,
there were 0.53 FTEs per one million dollars of average assets compared with
0.56 a year ago, and $18,653 of net income per FTE versus $16,570 a year ago.
These ratios were 0.63 and $18,559 for 1993.
Net occupancy and equipment costs increased 5.9 percent in 1995 to $123.4
million compared with $116.6 million in 1994 and $108.5 million in 1993. The
1995 growth in this expense was largely the result of acquisitions completed
late in 1994 and early in 1995.
Other operating expense, which includes all the other costs of doing
business such as advertising, supplies, travel, telephone, professional fees and
outside services purchased, was $192.5 million in 1995, up 1.3 percent from
1994's total of $190.1 million. As a percent of average assets, other operating
expense was 0.81 percent compared with 0.84 percent in 1994 and 0.92 percent in
1993.
EFFICIENCY RATIO AND BURDEN 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 revenue. Table V presents the efficiency ratio over the last
five years. The improvement in this ratio to 63.39 percent for 1995 compared
with 65.59 percent a year ago is directly related to revenue growth since total
non-interest expense was basically level with a year ago. The growth in
non-interest revenue offset the impact of a lower net interest margin and
resulting lower net interest income.
The higher level of non-interest revenue also directly impacted the burden
ratio as non-interest revenue was 1.46 percent of average total assets compared
with 1.26 percent a year ago. The lower FDIC premiums in 1995 also served to
improve the burden ratio to 1.97 percent; one of First of America's long term
goals is to maintain this ratio at or below 2.00 percent.
INCOME TAX EXPENSE. Income tax expense was $126.6 million in 1995 compared
with $102.6 million in 1994 and $98.6 million in 1993. The increased income tax
expense was primarily related to the 12.4 percent increase in
B-9
<PAGE> 48
income before taxes. A summary of significant tax components is provided in Note
18 of the Notes to Consolidated Financial Statements included later in this
document.
PRO FORMA RESULTS -- CASH APPROACH
The calculation of "cash earnings" provides an alternative analysis of
First of America's results. "Cash earnings" adds back the amortization of
intangibles and assumes that all intangibles were charged off against retained
earnings upon the original acquisition date of all mergers accounted for as
purchases. These pro forma results, as detailed below, indicate that First of
America's underlying return on equity for the last two years would have been
within the 17 to 18 percent range, which has been the company's stated long term
goal. Also earnings per share and return on assets would have been higher than
reported. The book value per share, while lower than the reported $28.89 for
year-end 1995, would be the equivalent of a reported tangible book value per
share. In fact, the tier I leverage ratio, the strictest regulatory capital
ratio, remains unchanged under these assumptions since it already excludes
intangibles from its computation.
<TABLE>
<CAPTION>
1995 1994 1993
-------- ------- -------
<S> <C> <C> <C>
Net income.............................................. $255,131 235,093 256,012
Earnings per share...................................... 4.02 3.93 4.28
Book value per share (year end)......................... 25.30 21.10 23.27
Return on average assets................................ 1.09% 1.05 1.25
Return on total equity.................................. 17.43 17.77 19.92
Efficiency ratio........................................ 61.75 64.26 61.99
Tier I leverage ratio................................... 6.70 5.81 6.43
</TABLE>
B-10
<PAGE> 49
LINE OF BUSINESS FINANCIAL PERFORMANCE TABLE VI
($ in thousands)
<TABLE>
<CAPTION>
Trust &
Community Bank Mortgage Financial Consolidated
For the year ended December 31, 1995 Banking Card Banking Services Results
<S> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
INCOME STATEMENT
Net interest income (FTE)....................... $779,852 96,779 59,403 4,002 940,036
Provision for loan losses....................... 43,259 48,488 (259) -- 91,488
Non-interest income............................. 140,578 61,972 32,418 94,845 329,813
Non-interest expense............................ 618,735 59,574 55,114 68,618 802,041
Income tax expense (FTE)........................ 97,234 19,097 13,881 11,364 141,576
------------------------------------------------------------
Income before one-time gains and charges........ $161,202 31,592 23,085 18,865 234,744
--------------------------------------------
Gains from branch sales (net of tax)............ 10,464
Severance and other one-time charges (net of
tax).......................................... 8,500
------------
Net income...................................... $236,708
- ---------------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Profit margin (pre-tax)......................... 28.08% 31.93 40.26 30.58 29.50
Return on equity................................ 12.01 31.93 10.26 49.69 13.89
Efficiency ratio................................ 67.22 37.53 60.02 69.42 63.39
- ---------------------------------------------------------------------------------------------------------------
1995 RESULTS BY QUARTER (a)
Net income
First quarter................................. $ 35,600 9,032 2,939 3,527 47,389
Second quarter................................ 40,546 7,855 7,218 4,560 56,586
Third quarter................................. 44,847 8,477 7,051 5,410 66,714
Fourth quarter................................ 40,209 6,228 5,877 5,368 66,019
- ---------------------------------------------------------------------------------------------------------------
Return on equity
First quarter................................. 11.47% 39.33 5.68 40.13 12.03
Second quarter................................ 12.27 32.56 12.96 49.04 13.49
Third quarter................................. 12.96 33.39 12.03 55.29 15.17
Fourth quarter................................ 11.31 23.54 9.95 53.20 14.64
- ---------------------------------------------------------------------------------------------------------------
Efficiency ratio
First quarter................................. 70.91% 34.64 75.95 75.19 68.80
Second quarter................................ 67.62 37.00 55.46 69.79 64.93
Third quarter................................. 64.49 38.92 53.36 65.90 60.29
Fourth quarter................................ 65.88 39.59 58.48 67.40 59.79
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
(a) The consolidated results by quarter include gains on branch sales and
charges for severance and other restructuring costs.
B-11
<PAGE> 50
LINE OF BUSINESS ANALYSIS
An objective of First of America's recent restructuring effort was to define
specific lines of business which would cross legal entity lines and focus its
management and accounting systems accordingly. As a result, First of America now
measures the individual performance of four business lines -- community banking,
bank card, mortgage banking and trust and financial services -- as well as the
performance of certain product lines within those businesses.
In developing the management accounting system for line of business
reporting, certain assumptions and allocations were necessary. Equity was
allocated on the basis of required regulatory levels, inherent operational risk
or market-determined factors as evidenced by similar independent single business
line companies. Support services which were centrally provided were allocated on
a per-unit cost basis or in proportion to the balances of assets and liabilities
associated with a particular business line. Funds transfer pricing was used to
allocate a cost of funds used or a credit for funds provided from
market-determined indices. Because of the assumptions and allocations utilized,
the financial results of the individual business lines might vary from the
actual results if those lines were in fact separate operating entities. While no
comparative results from previous years are available, Table VI presents a
summarized income statement, performance ratios and selected quarterly
information from 1995 for the four business lines identified above.
COMMUNITY BANKING. The community banking business line is responsible for
gathering and managing deposits, lending to commercial and consumer installment
customers, and managing the four state branch networks for the delivery of First
of America's products and services. It also provides customers with home equity
and student loans, international banking services and other general banking
services, such as ATM operations and safety deposit boxes.
Community banking is the core of First of America's business activities, and
its contribution to the consolidated net income is the largest of the business
lines. In 1995 community banking benefited from the reduction of FDIC premiums
at mid-year as evidenced by the increase in its net income from second to third
quarter and by the improvement in its efficiency ratio between those same
quarters. For the full year, community banking earned a return on allocated
equity of 12.01 percent. Excluding the indirect lending product line and the
start-up effort in Florida, it would have earned 15.47 percent on its allocated
equity. Investment in Florida's physical franchise, advertising and other
developmental activities significantly affected its 1995 results; however,
progress was made on re-mixing its customer base and changing its product
offerings. The performance of the indirect lending product line was lowered by
the lingering effect of pricing competition in 1994 and the deterioration of
credit quality during 1995 which necessitated a higher provision for loan losses
particularly in the fourth quarter. Further credit quality problems are not
anticipated, and management has taken steps to improve the interest spreads on
newly originated indirect installment loans.
Community banking's non-interest expense included virtually all of the
goodwill amortization included in the corporation's consolidated financial
results, a total of $21.1 million in 1995. Without that amortization, its
efficiency ratio and return on allocated equity would have been 63.99 percent
and 13.62 percent, respectively.
BANK CARD. Bank card is responsible for managing and servicing First of
America's $1.5 billion managed portfolio of credit card and other revolving
loans, as well as the merchant services operation. In addition to the managed
portfolio of VISA/Mastercard credit cards, bank card manages affinity cards for
30 groups and offers a FirstAir card. The revolving portfolio remained
relatively level with 1994 as fewer customer promotions were initiated than in
previous years. In 1996, renewed emphasis will be placed on promoting the
VISA/Mastercard portfolio.
This business line was a strong performer during 1995 with an efficiency
ratio of 37.53 percent and a return on allocated equity of 31.93 percent. As the
year progressed, the provision for loan losses was increased in order to provide
for net charge-offs which also rose. This reflected a trend in consumer debt
which was generally experienced across the industry. As a result, the bank
card's quarterly net income and return on allocated equity declined over the
second half of the year as indicated in Table VI.
MORTGAGE BANKING. Mortgage banking originates all residential mortgages
across First of America's four community banking states and in separate
origination offices in Arizona, Missouri, North Carolina and South Carolina. The
loans are originated both for portfolio retention and sale to the secondary
market. Mortgage banking also provides
B-12
<PAGE> 51
servicing for First of America's entire portfolio and a $3.2 billion portfolio
for external investors. Since mortgage banking is responsible for originating,
servicing and managing First of America's residential loan portfolio, the
portfolio's interest income and related funds transfer charge are included in
mortgage banking's net income.
Mortgage banking earned the lowest return on allocated equity of the four
business lines in 1995. Its results can vary substantially from period to period
since origination activity is rate-sensitive, and gains on loan sales vary
directly with the volume of originations. Some seasonality was evident in the
1995 results with net income highest during the second and third quarters when
origination activity was at its peak. FAS 122 added $3.5 million in pre-tax
gains during the year and a sale of servicing rights contributed $4.1 million in
pre-tax gains during the second quarter.
TRUST AND FINANCIAL SERVICES. Trust and financial services provides
traditional trust services to individuals and institutions, as well as
investment management and brokerage services. It also manages First of America's
proprietary mutual funds, The Parkstone Group of Funds and recently began
offering certain insurance services and annuity products.
This business line earned the highest return on allocated equity at 49.69
percent. The nature of its business activity -- fee generating and personnel
intensive -- will generally result in comparatively higher returns on equity and
higher efficiency ratios. Net income climbed steadily over the year, in part due
to the increasing market value of its managed assets upon which fees are
assessed. Its managed assets totaled $15.6 billion at year-end 1995, up 18.3
percent from the previous year.
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 the loan
portfolio of each line of business on a regular basis and shares its evaluation
with the management of the business line as well as corporate management.
First of America's loan portfolio includes a large percentage of loans with
balances less than $100,000 which effectively reduces total portfolio risk. At
year-end 1995, consumer installment and revolving loans totaled 28.0 percent of
the total portfolio, one-to-four family residential mortgages and home equity
loans accounted for 32.2 percent, commercial loans totaled 16.1 percent, and
commercial mortgages totaled 23.7 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 $16.1 billion at
year-end 1995, down slightly from the $16.8 billion a year ago.
COMPONENTS OF THE LOAN PORTFOLIO TABLE VII
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------------
Consumer, net................................... $ 4,504,255 5,799,025 5,062,173 4,288,431 4,060,126
Commercial, financial and agricultural.......... 2,589,038 2,344,969 2,148,663 2,170,715 2,223,202
Real estate -- construction..................... 514,612 438,067 252,839 300,954 342,944
Real estate -- mortgage......................... 8,469,037 8,252,797 6,930,480 6,995,917 6,601,755
- ----------------------------------------------------------------------------------------------------------------------
Total loans..................................... $16,076,942 16,834,858 14,394,155 13,756,017 13,228,027
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
CONSUMER LOANS. First of America's consumer loan portfolio, which includes
indirect and direct installment loans, credit cards and other revolving loans,
declined 22.3 percent from 1994's level. The managed credit card portfolio at
$1.3 billion remained level with 1994. First of America offers its credit card
products in all fifty states; the largest portion of the portfolio, 56 percent,
was to customers in its four operating states. As a percent of average loans,
the net charge-offs for the managed portfolio were 3.23 percent in 1995 compared
with 2.14 percent in 1994.
The consumer installment portfolio was $3.5 billion at December 31, 1995,
down 17.9 percent from the previous year due to the combination of intense
competition within the industry and First of America's more stringent pricing
policies. First of America's consumer installment loans originate primarily from
its four state operating area. The net charge-offs as a percent of average
consumer installment loans were 0.91 percent in 1995 and 0.36 percent in 1994.
Management increased the provision for loan losses in 1995 to adequately cover
the estimated risk of loss in this
B-13
<PAGE> 52
portfolio and, unless there is a serious economic downturn, does not expect
further significant deterioration in its credit quality.
RESIDENTIAL MORTGAGE LOANS. At December 31, 1995, residential mortgage loans
totaled $5.2 billion compared with $5.3 billion at year-end 1994. Originations
of residential mortgage loans during 1995 were $1.6 billion compared with $2.2
billion in 1994. The average loan size in the balance sheet portfolio was
$57,200, and the loans in portfolio were originated within First of America's
four home states. First of America's portfolio continued to have excellent
credit quality measurements. Net charge-offs as a percent of average residential
mortgage loans were 0.01 percent in 1995 and 0.02 in 1994.
At December 31, 1995, residential mortgage loans held for sale, originated
at prevailing market rates, totaled $101.3 million with a market value of $104.1
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, totaling $48.9 million. Mandatory commitments to deliver mortgage loans
to investors, at prevailing market rates, totaled $125.0 million as of December
31, 1995.
COMMERCIAL AND COMMERCIAL MORTGAGE LOANS. First of America's commercial and
commercial mortgage loan portfolio is comprised primarily of loans to small and
mid-sized businesses within the local markets of its four operating states.
Evidence of this philosophy is the average loan size within this portfolio at
year-end which was $48,000 for commercial loans and $235,000 for commercial
mortgages, allowing for a more diverse customer base and limiting the exposure
from any one borrower. 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 commercial and commercial mortgages demonstrated the
highest growth of any of the portfolios during 1995. This portfolio grew 11.0
percent to $6.4 billion compared with $5.8 billion at year-end 1994. Total
non-performing commercial and commercial mortgage loans as a percent of
outstandings decreased to 1.38 percent from 1.44 percent a year ago, and net
charge-offs as a percent of average loans was 0.09 percent compared with 0.22
percent for 1994.
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS TABLE VIII
($ in thousands)
<TABLE>
<CAPTION>
One year
to After
One year five five
December 31, 1995 or less years years Total
<S> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Commercial, financial and agricultural............ $1,430,411 710,316 155,847 2,296,574
Commercial tax-exempt............................. 40,808 108,396 143,260 292,464
Real estate construction.......................... 314,236 141,834 58,542 514,612
- -----------------------------------------------------------------------------------------------------
Total............................................. $1,785,455 960,546 357,649 3,103,650
- -----------------------------------------------------------------------------------------------------
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate.................. $462,857 190,516 653,373
With floating or adjustable interest rates........ 497,689 167,133 664,822
- -----------------------------------------------------------------------------------------------------
Total............................................. $960,546 357,649 1,318,195
- -----------------------------------------------------------------------------------------------------
</TABLE>
ASSET QUALITY. Non-performing assets, including nonaccrual loans,
renegotiated loans and other real estate owned, totaled $147.6 million or 0.63
percent of total assets. Non-performing assets were 0.57 percent and 0.86
percent of total assets at year-end 1994 and 1993, respectively. Total
non-performing loans, other real estate owned and other loans of concern for the
past five years are detailed in Table IX.
B-14
<PAGE> 53
RISK ELEMENTS IN THE LOAN PORTFOLIO TABLE IX
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------
Non-accrual loans......................... $104,174 96,814 121,186 126,619 116,995
Restructured loans........................ 12,327 4,852 10,879 20,669 16,837
Other real estate owned................... 31,103 38,662 50,595 48,699 34,601
-------- -------- -------- -------- --------
Non-performing assets................... 147,604 140,328 182,660 195,987 168,433
Past due loans 90 days or more
(excluding the above two categories).... 28,124 18,208 23,462 20,887 32,499
Other loans of concern.................... 17,660 31,653 53,206 37,663 37,189
- -----------------------------------------------------------------------------------------------------
Total..................................... $193,388 190,189 259,328 254,537 238,121
- -----------------------------------------------------------------------------------------------------
</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 $17.7
million at year-end 1995, a decrease of 44.2 percent from 1994's year-end total
of $31.7 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. Management evaluates the
adequacy of the allowance for loan losses quarterly based on information
compiled by the corporate loan review area. 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 1995 was 207.02
percent compared with 224.38 percent at year-end 1994 and 142.86 percent at
year-end 1993. 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 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" (FAS 114). This resulted in a specifically identified allowance
for impaired loan losses of $17.4 million which was transferred from the general
allowance. At year-end 1995, the allowance for impaired loan losses was $17.6
million. The adoption of FAS 114 did not significantly impact the comparability
of the allowance related tables included in this report.
B-15
<PAGE> 54
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES TABLE X
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
- ------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans* Allowance Loans*
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial, financial
and agricultural.... $ 37,133 1.43% $ 33,543 1.43% $ 39,231 1.83% $ 43,466 2.00% $ 49,129 2.21%
Real estate........... 46,712 0.52 55,721 0.68 55,661 0.81 54,873 0.76 49,639 1.14
Consumer.............. 103,498 2.30 76,235 1.31 69,633 1.38 52,847 1.23 54,333 1.34
Unallocated........... 53,839 0.33 62,616 0.37 24,139 0.17 25,607 0.19 21,781 0.16
- ------------------------------------------------------------------------------------------------------------------------
Total................. $241,182 $228,115 $188,664 $176,793 $174,882
- ------------------------------------------------------------------------------------------------------------------------
Allowance to total
loans............... 1.50% 1.36 1.31 1.29 1.32
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
SUMMARY OF LOAN LOSS EXPERIENCE TABLE XI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period.................. $ 228,115 188,664 176,793 174,882 137,012
Provision charged against income................ 91,488 86,571 84,714 78,809 71,030
Allowance for loan losses of acquired/(sold)
banks......................................... -- 11,420 50 (372) 27,094
RECOVERIES:
Commercial, financial and agricultural.......... 5,757 7,277 8,692 7,215 8,616
Real estate -- construction..................... 54 51 -- -- --
Real estate -- mortgage......................... 3,896 2,404 2,615 2,112 1,487
Consumer loans.................................. 47,231 28,402 24,556 24,313 20,177
----------- ---------- ---------- ---------- ----------
Total recoveries................................ 56,938 38,134 35,863 33,640 30,280
----------- ---------- ---------- ---------- ----------
CHARGE-OFFS:
Commercial, financial and agricultural.......... 7,007 13,621 19,764 22,558 13,475
Real estate -- construction..................... 395 80 -- -- --
Real estate -- mortgage......................... 7,777 8,825 10,539 10,588 5,669
Consumer loans.................................. 120,180 74,148 78,453 77,020 71,390
----------- ---------- ---------- ---------- ----------
Total charge-offs............................... 135,359 96,674 108,756 110,166 90,534
----------- ---------- ---------- ---------- ----------
Net charge-offs................................. 78,421 58,540 72,893 76,526 60,254
- ----------------------------------------------------------------------------------------------------------------------
Balance at end of period........................ $ 241,182 228,115 188,664 176,793 174,882
- ----------------------------------------------------------------------------------------------------------------------
Average loans (net of unearned income).......... $16,532,752 15,172,618 13,875,584 13,435,991 11,276,061
- ----------------------------------------------------------------------------------------------------------------------
Earnings coverage of net losses................. 5.80x 7.00 5.91 4.44 4.90
Allowance to total end of period loans.......... 1.50% 1.36 1.31 1.29 1.32
Net losses to end of period allowances.......... 32.51 25.66 38.64 43.29 34.45
Recoveries to total charge-offs................. 42.06 39.45 32.98 30.54 33.45
Provision to average loans...................... 0.55 0.57 0.61 0.59 0.63
Net charge-offs to average loans................ 0.47 0.39 0.53 0.57 0.53
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
B-16
<PAGE> 55
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 95.5 percent at year-end 1995 and
94.8 percent at year-end 1994. 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 83.1 percent compared with 83.3 percent and
78.9 percent for 1994 and 1993, 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, 1995, are presented in Table
XII. The maturity distribution of time deposits of $100,000 or more at year-end
1995 is detailed in Table XIII.
In addition to deposits, First of America's sources of funding include money
market borrowings, capital funds, securitizations 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, 1995 and the Second Amendment dated February 15, 1996
(collectively, the Credit Agreement). The Credit Agreement allows First of
America to borrow up to $350,000,000 on a standby revolving credit basis and an
uncommitted competitive advance basis. 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, 1995, there was no outstanding
balance under the Credit Agreement.
In June 1995, First of America securitized $500 million in credit card
receivables. This transaction was an effective management balance sheet tool
since it had no impact on net income, but released funds which were used to
reduce short-term borrowings.
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, 1995 was $699.9
million, of which $105.0 million was included in long term debt.
DEPOSITS TABLE XII
($ in thousands)
<TABLE>
<CAPTION>
1995 1994 1993
Average Average Average
- ---------------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
<S> <C> <C> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------------
Non-interest bearing.......................... $ 2,710,566 -- $ 2,665,183 -- $ 2,463,534 --
Savings and NOW accounts...................... 3,444,077 1.72% 3,948,604 1.51% 3,980,815 2.08%
Money market savings.......................... 4,254,533 3.92 3,551,445 3.10 3,009,796 2.62
Time.......................................... 9,105,938 5.48 8,849,576 4.50 8,638,044 4.74
- ---------------------------------------------------------------------------------------------------------------------
Total......................................... $ 19,515,114 19,014,808 18,092,189
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
B-17
<PAGE> 56
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.......................... $937,084 256,093 254,617 137,263 1,585,057
Other time deposits.............................. 8,874 7,911 9,700 39,216 65,701
- ----------------------------------------------------------------------------------------------------------------
Total............................................ $945,958 264,004 264,317 176,479 1,650,758
- ----------------------------------------------------------------------------------------------------------------
</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, 1995, totaling $105.5 million in notional amounts versus $707.9 million at
December 31, 1994. This total included notional amounts of $75.0 million as a
hedge against the parent company's 8.50% Subordinated Notes Due February 1,
2004, $10.0 million against various fixed rate bank notes, $12.0 million against
certain FirstRate Fund deposits, and $8.5 million as a hedge against certain
Market Rate certificates of deposit. First of America had swaps of variable rate
instruments for fixed rate instruments with notional amounts totaling $22.0
million, $75.0 million of fixed rate instruments for variable rate instruments
and $8.5 million representing basis swaps.
The aggregate market value of interest rate swaps at year-end was a positive
$499 thousand. The full year 1995 impact from swap activity on net interest
income was a negative $4.0 million versus a negative $1.2 million impact for
1994. If interest rates increased one hundred basis points, First of America
would increase net interest income $173 thousand 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.
During 1994, First of America also entered into interest rate cap agreements
as a means of managing interest rate risk. These caps were agreements to receive
payments for interest rate differentials between an index rate and a specified
maximum rate, computed on notional amounts. At December 31, 1995, First of
America had no outstanding interest rate caps compared with $125 million in
interest rate cap agreements at year-end 1994.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities
and includes the impact of off-balance sheet interest rate swap and cap
agreements. Table XIV presents First of America's Gap position at December 31,
1995, for one year and shorter periods, and Table XV details the company's five
year Gap position. The Gap reports' reliability in measuring the risk to income
from a change in interest rates is tested through the use of simulation models.
At year-end 1995 simulation models showed that less than two percent of First of
America's annual net income was at risk if interest rates were to move up or
down by one percent in a parallel fashion. However, changing economic conditions
affect results, therefore, the management of First of America's interest rate
sensitivity is an ongoing process. Management has determined that these
simulations provide a more meaningful measurement of the company's interest rate
risk positions than the following Gap tables.
B-18
<PAGE> 57
INTEREST RATE SENSITIVITY -- SHORT TERM TABLE XIV
($ in millions)
<TABLE>
<CAPTION>
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1995 Days Days Days Days Days
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Other earning assets....................................... $ 284 284 284 284 285
Investment securities (1).................................. 74 193 301 632 1,369
Loans, net of unearned discount (2)........................ 4,988 5,408 5,919 6,987 8,615
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA).......................... $5,346 5,885 6,504 7,903 10,269
- -------------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits................................. $3,597 3,597 3,597 3,597 3,597
Other core savings and time deposits....................... 1,236 2,149 3,030 4,420 6,577
Negotiated deposits........................................ 365 519 664 738 780
Borrowings................................................. 802 1,109 1,406 1,585 1,777
Interest rate swap agreements (3).......................... (12) 28 28 28 50
- -------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)..................... $5,988 7,402 8,725 10,368 12,781
- -------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)............................................ $ (642) (1,517) (2,221) (2,465) (2,512)
- -------------------------------------------------------------------------------------------------------------------
RSA divided by RSL......................................... 76.22 % 80.35
GAP divided by total assets................................ (10.44) (10.64)
- -------------------------------------------------------------------------------------------------------------------
</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 and interest rate swaps are based
on contractual maturities and estimated repricing.
B-19
<PAGE> 58
INTEREST RATE SENSITIVITY -- LONG TERM TABLE XV
($ in millions)
<TABLE>
<CAPTION>
13 to 25 to 37 to 0 to
December 31, 1995 24 months 36 months 60 months 60 months
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Other earning assets............................. $ -- -- -- 285
Investment securities(1)......................... 1,188 1,019 1,009 4,585
Loans, net of unearned discount(2)............... 1,911 1,829 2,700 15,055
- -------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)................ $ 3,099 2,848 3,709 19,925
- -------------------------------------------------------------------------------------------------------------
LIABILITIES:(3)
Money market type deposits....................... $ 262 262 175 4,296
Other core savings and time deposits............. 3,131 1,830 1,630 13,168
Negotiated deposits.............................. 5 4 87 876
Borrowings....................................... 2 -- -- 1,779
Interest rate swap agreements(3)................. (25) (25) -- --
- -------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)........... $ 3,375 2,071 1,892 20,119
- -------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL).................................. $ (276) 777 1,817 (194)
- -------------------------------------------------------------------------------------------------------------
RSA divided by RSL............................... 99.04 %
GAP divided by total assets...................... (0.82)
- -------------------------------------------------------------------------------------------------------------
</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 and interest rate swaps 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, 1995, First of America's capital ratios exceeded
required regulatory minimums with a tier I risk based ratio of 9.52 percent, a
total risk based ratio of 12.89 percent and a tier I leverage ratio of 6.70
percent. 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, 1995,
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, $3.1 million in 10.675% Subordinated Notes
due in equal installments through 1998 and the above mentioned $200 million in
7.75% Subordinated Notes Due July 15, 2004. This debt is included in tier II
capital on a weighted maturity basis. Additional information relating to First
of America's various long term debt agreements is provided in Note 11 of the
Notes to Consolidated Financial Statements included later in this document.
B-20
<PAGE> 59
RISK-BASED CAPITAL TABLE XVI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994 1993
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIER I CAPITAL:
Common shareholders' equity............................................ $1,827,981 1,578,888 1,523,437
Less: Intangibles...................................................... 227,303 252,979 138,423
Net unrealized gain (loss) on securities available for sale.......... 25,939 (92,271) 31,531
Section 20 affiliate debt and equity................................. 12,500 -- --
- ------------------------------------------------------------------------------------------------------------------
Tier I capital......................................................... 1,562,239 1,418,180 1,353,483
- ------------------------------------------------------------------------------------------------------------------
TIER II CAPITAL:
Allowance for loan losses*............................................. 205,515 210,164 179,094
Qualifying long term debt.............................................. 360,000 361,867 167,396
Less: Section 20 affiliate debt and equity............................. 12,500 -- --
- ------------------------------------------------------------------------------------------------------------------
Tier II capital........................................................ 553,015 572,031 346,490
- ------------------------------------------------------------------------------------------------------------------
Total capital.......................................................... $2,115,254 1,990,211 1,699,973
- ------------------------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS:
Tier I................................................................. 9.52% 8.44 9.45
Total.................................................................. 12.89 11.85 11.87
Tier I leverage ratio.................................................. 6.70 5.81 6.43
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
* Limited to 1.25% of total risk-weighted assets.
TOTAL SHAREHOLDERS' EQUITY. First of America's total shareholders' equity
increased 15.8 percent to $1.8 billion at year-end 1995. The increase in equity
was the result of $128.0 million in earnings retention and the $118.2 million
positive change in the adjustment to equity for available for sale securities.
IN CONCLUSION
In the effort to fully fund the Savings Association Insurance Fund (SAIF),
the U.S. Congress has been considering legislation which would assess a one-time
premium on thrift deposits insured by SAIF of which First of America has
approximately $4.5 billion. When this legislation is finally enacted which is
expected during 1996, First of America will accrue the required liability which
could result in a maximum, one-time expense of $38 million, or $0.39 per share.
After the one-time charge, the premium rate on thrift deposits is expected to
match the lower bank deposit rate.
First of America's management remains committed to its long term goals of a
return on assets of 1.25 percent, an efficiency ratio below 60 percent and a
return on equity of 17 to 18 percent. The benefits of its internal restructuring
effort, combined with a company-wide emphasis on pricing products by market and
customer type and a focus on the business lines which drive higher
profitability, provide the fundamentals for the achievement of these goals in
the future.
B-21
<PAGE> 60
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
STATEMENT OF MANAGEMENT RESPONSIBILITY
The following consolidated financial statements and accompanying notes to
the consolidated financial statements of First of America have been prepared by
management, which has the responsibility for their integrity and objectivity.
The statements have been prepared in accordance with generally accepted
accounting principles to reflect, in all material respects, the substance of
financial events and transactions occurring during the respective periods.
In meeting its responsibility, management relies on First of America's
accounting systems and related internal controls. These systems are designed to
provide reasonable assurance that assets are safeguarded and that transactions
are properly recorded and executed in accordance with management's
authorization. Augmenting these systems are written policies and procedures and
audits performed by First of America's internal audit staff.
The consolidated financial statements and notes to the consolidated
financial statements of First of America, have been audited by the independent
certified public accounting firm, KPMG Peat Marwick LLP, which was engaged to
express an opinion as to the fairness of presentation of such financial
statements.
<TABLE>
<S> <C>
Daniel R. Smith Thomas W. Lambert
Daniel R. Smith Thomas W. Lambert
Chairman and Executive Vice President and
Chief Executive Officer Chief Financial Officer
</TABLE>
LETTER OF AUDIT COMMITTEE CHAIRMAN
The audit committee of the Board of Directors is composed of six independent
directors with Robert L. Hetzler as chairman. The committee held five meetings
during fiscal year 1995.
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, 1995,
its duties, as indicated, were satisfactorily discharged and that First of
America's system of internal controls is adequate.
Robert L. Hetzler
Robert L. Hetzler
Chairman
Audit Committee
B-22
<PAGE> 61
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, 1995 and 1994
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, 1995. 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, 1995 and 1994,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 17, 1996
B-23
<PAGE> 62
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks.......................................................... $ 1,207,062 1,060,788
Bank time deposits............................................................... 49,349 34,883
Federal funds sold and resale agreements......................................... 220,388 20,388
Securities:
Securities held to maturity, market value of $2,942,793 at December 31, 1994... -- 3,112,876
Securities available for sale, amortized cost of $5,020,954 at December 31,
1995 and $2,694,929 at December 31, 1994..................................... 5,060,746 2,587,626
Loans, net of unearned income:
Consumer....................................................................... 4,504,255 5,799,025
Commercial, financial and agricultural......................................... 2,589,038 2,344,969
Commercial real estate......................................................... 3,812,001 3,423,268
Residential real estate........................................................ 5,070,369 5,237,400
Loans held for sale, market value of $104,132 for 1995 and $30,310 for 1994.... 101,279 30,196
----------- ----------
Total loans.................................................................. 16,076,942 16,834,858
Less: Allowance for loan losses.............................................. 241,182 228,115
----------- ----------
Net loans.................................................................... 15,835,760 16,606,743
Premises and equipment, net...................................................... 465,498 476,165
Other assets..................................................................... 761,292 669,233
- -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS..................................................................... $23,600,095 24,568,702
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing........................................................... $ 2,925,679 2,810,203
Interest bearing............................................................... 16,416,788 17,390,063
----------- ----------
Total deposits............................................................... 19,342,467 20,200,266
Securities sold under repurchase agreements...................................... 429,483 583,184
Other short term borrowings...................................................... 1,220,482 1,299,555
Long term debt................................................................... 490,315 681,236
Other liabilities................................................................ 289,367 225,573
----------- ----------
Total liabilities.......................................................... 21,772,114 22,989,814
----------- ----------
SHAREHOLDERS' EQUITY
Common stock - $10 par value:
Authorized Outstanding
1995 100,000,000 63,283,857
1994 100,000,000 62,849,209............................................ 632,839 628,492
Capital surplus.................................................................. 283,409 284,877
Net unrealized gain/(loss) on securities available for sale, net of tax expense
of $13,853 for 1995 and net of tax benefit of $15,032 for 1994................. 25,939 (92,271)
Retained earnings................................................................ 885,794 757,790
----------- ----------
Total shareholders' equity................................................... 1,827,981 1,578,888
- -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY....................................... $23,600,095 24,568,702
- -------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-24
<PAGE> 63
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans.............................................. $1,473,210 1,277,950 1,217,139
Securities:
Taxable income..................................................... 304,145 303,098 262,871
Tax exempt income.................................................. 13,317 17,480 28,102
Federal funds sold and resale agreements............................. 4,651 2,229 2,744
Bank time deposits................................................... 1,201 120 110
---------- --------- ---------
Total interest income................................................ 1,796,524 1,600,877 1,510,966
---------- --------- ---------
INTEREST EXPENSE
Deposits............................................................. 725,161 567,935 570,499
Short term borrowings................................................ 100,684 60,389 18,546
Long term debt....................................................... 46,683 33,818 19,904
---------- --------- ---------
Total interest expense............................................... 872,528 662,142 608,949
---------- --------- ---------
NET INTEREST INCOME.................................................. 923,996 938,735 902,017
Provision for loan losses............................................ 91,488 86,571 84,714
---------- --------- ---------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES.................. 832,508 852,164 817,303
---------- --------- ---------
NON-INTEREST INCOME
Service charges on deposit accounts.................................. 100,281 89,164 84,648
Trust and financial services income.................................. 94,179 81,717 77,290
Investment securities transactions, net.............................. 62 5,349 16,753
Bank card revenue.................................................... 60,449 43,216 39,964
Mortgage banking revenue............................................. 31,505 23,461 39,099
Other operating income............................................... 59,624 41,466 34,430
---------- --------- ---------
Total non-interest income............................................ 346,100 284,373 292,184
---------- --------- ---------
NON-INTEREST EXPENSE
Personnel............................................................ 430,977 430,563 403,119
Occupancy, net....................................................... 64,108 60,471 55,093
Equipment............................................................ 59,322 56,111 53,376
Outside data processing.............................................. 18,825 17,524 14,963
Amortization of intangibles.......................................... 21,146 16,577 8,902
Other operating expenses............................................. 220,893 232,172 228,075
---------- --------- ---------
Total non-interest expense........................................... 815,271 813,418 763,528
---------- --------- ---------
Income before income taxes........................................... 363,337 323,119 345,959
Income taxes......................................................... 126,629 102,616 98,574
- --------------------------------------------------------------------------------------------------------------
NET INCOME........................................................... $ 236,708 220,503 247,385
- --------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE
Primary.............................................................. $ 3.73 3.69 4.20
Fully Diluted........................................................ 3.73 3.69 4.14
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-25
<PAGE> 64
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Preferred Common Capital Securities Retained
Stock Stock Surplus Available for Sale Earnings Total
- ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1993...................... $ 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 0
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
$32,296...................................... (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
Net Income.................................... 236,708 236,708
Issuance of stock:
Acquisition of subsidiaries.................. 3,336 (2,243) 1,093
Stock Options Exercised...................... 1,016 1,089 2,105
Other........................................ (5) (314) (319)
Change in market value adjustment of securities
available for sale, net of tax expense of
$28,885...................................... 118,210 118,210
Cash dividends declared:
Common -- $1.72 per share.................... (108,704) (108,704)
- ----------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1995.................... $ -- 632,839 283,409 25,939 885,794 1,827,981
- ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-26
<PAGE> 65
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.......................................................... $ 236,708 220,503 247,385
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization..................................... 48,263 46,295 39,838
Provision for loan losses......................................... 91,488 86,571 84,714
Provision for deferred taxes...................................... (7,372) (4,974) (7,514)
Amortization of intangibles....................................... 21,146 16,577 8,902
(Gain) loss on sale of securities available for sale/held for
sale............................................................ (3,707) (5,349) (16,753)
(Gain) loss on sale of mortgage loans held for sale............... (19,627) (11,697) (29,456)
(Gain) loss on sale of other assets............................... (16,577) 625 (638)
Proceeds from the sales of mortgage loans held for sale........... 959,721 953,310 1,618,695
Originations of mortgage loans held for sale, net................. (1,011,177) (605,953) (1,891,928)
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable....... (81,195) (4,031) (35,868)
(Increase) decrease in other assets............................... (233,389) 42,044 136,955
Increase (decrease) in accrued expenses and other liabilities..... 38,068 1,510 32,947
----------- ---------- ----------
Net cash from operating activities............................ 22,350 735,431 187,279
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the maturities of investment securities (held to
maturity)......................................................... 368,738 448,395 921,031
Purchases of investment securities (held to maturity)............... (191,325) (1,718,714) (2,820,565)
Proceeds from the sale of securities available/held for sale........ 785,239 1,776,724 1,269,875
Proceeds from the maturities of securities available/held for
sale.............................................................. 518,927 843,109 433,191
Purchases of securities available/held for sale..................... (698,163) (1,649,902) (262,301)
Proceeds from the securitization of loans........................... 498,588 -- --
Net other (increase) decrease in loans and leases................... 251,990 (2,039,577) (398,592)
Premises and equipment purchased.................................... (63,485) (68,993) (93,203)
Proceeds from the sale of premises and equipment.................... 42,466 3,500 2,337
(Acquisition) sale of affiliates, net of cash acquired.............. (4,369) 352,131 475,263
----------- ---------- ----------
Net cash flows used in investing activities................... 1,508,606 (2,053,327) (472,964)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits...................... (164,820) 504,409 50,203
Net increase (decrease) in time deposits............................ (692,979) (97,744) (364,628)
Net increase (decrease) in short term borrowings.................... (232,774) 861,310 656,055
Proceeds from issuance of long term debt............................ 25,004 738,701 222,475
Repayments of long term debt........................................ (213,470) (311,658) (202,333)
Proceeds from issuance of common stock.............................. 2,105 460 1,132
Dividends paid...................................................... (107,429) (96,670) (92,333)
Payments for purchase and retirement of common stock................ -- (123,373) --
Other, net.......................................................... (319) (268) (329)
----------- ---------- ----------
Net cash provided by financing activities..................... (1,384,682) 1,475,167 270,242
----------- ---------- ----------
Net increase (decrease) in cash and cash equivalents................ 146,274 157,271 (15,443)
Cash and cash equivalents at beginning of year...................... 1,060,788 903,517 918,960
- --------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END............................... $ 1,207,062 1,060,788 903,517
- --------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-27
<PAGE> 66
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.
NATURE OF BUSINESS:
First of America Bank Corporation is a multi-bank holding company
headquartered in Kalamazoo, Michigan and was incorporated as a Michigan
corporation in May 1971. Its principal activity consists of owning and
supervising four affiliate financial institutions which operate general,
commercial banking businesses from 613 banking offices and facilities located in
Michigan, Florida, Illinois and Indiana. The Registrant also has divisions and
non-banking subsidiaries which provide mortgage, trust, data processing, pension
consulting, revolving credit, securities brokerage and investment advisory
services.
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. First of America's 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 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.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make certain estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
SECURITIES:
In accordance with Financial Accounting Standards Board Statement No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," 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.
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.
B-28
<PAGE> 67
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 was 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 Statement No. 114. This
resulted in an allowance for impaired loan losses of $17.4 million which was
transferred from the general allowance on that date.
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."
Commercial, commercial mortgage and residential mortgage 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 in the process of
collection. Consumer and revolving loans are generally charged off when payments
are 120 days past due; therefore, they are not included in non-performing loans.
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.
Management has determined that First of America's non-accrual and
renegotiated commercial and commercial mortgage loans meet the definition for
impaired loans under Statement No. 114. Payments received on non-accrual loans
are applied to the principal balance.
OTHER REAL ESTATE OWNED:
Other real estate owned includes, primarily, properties acquired through
foreclosure or deed in lieu of 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.
ORIGINATED MORTGAGE SERVICING RIGHTS:
Effective January 1, 1995, First of America adopted Financial Accounting
Standards Board Statement No. 122, "Accounting for Mortgage Servicing Rights an
amendment of FASB Statement No. 65," which requires the recognition as separate
assets the rights to service mortgage loans for others, however those rights are
acquired. After the residential mortgage loan portfolio is stratified by
servicing type, loan type, rate type and interest rate type, the fair value of
the Originated Mortgage Servicing Rights (OMSRs) is determined using the present
value of estimated expected future cash flows assuming a market discount rate
and certain forecasted prepayment rates based on industry experience. The OMSRs
are amortized in proportion to and over the period of the estimated net
servicing income.
At December 31, 1995, First of America had capitalized $3.3 million in OMSRs
with a fair market value of $3.2 million, resulting in an impairment allowance
and impairment expense of $95.7 thousand. Amortization expense of $193.5
thousand had also been incurred.
B-29
<PAGE> 68
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.
LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF:
On January 1, 1996, First of America adopted Financial Accounting Standards
Board Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of," which requires that long-lived assets
and certain identifiable intangibles be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount may not be
recoverable. The impairment is measured based on the present value of expected
future cash flows from the use of the asset and its eventual disposition. If the
expected future cash flows are less than the carrying amount of the asset, an
impairment loss is recognized based on current fair values. Because First of
America regularly reviews its long-lived assets for impairment and adjusts the
carrying amounts as appropriate, the adoption of this statement did not have a
material impact on the financial statements of the corporation.
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, unless the loan is well secured and in the process of
collection. 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.
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 a
twelve month period.
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 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.
INTEREST RATE CAPS AND 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."
B-30
<PAGE> 69
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 caps and interest rate
swaps as a hedge against certain deposit and debt liabilities in an attempt to
manage interest rate sensitivity.
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. Interest rate swaps are contracts that 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, 1995 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>
- ------------------------------------------------------------------------------------------------------------------------
West Suburban Financial Corp.
(Illinois)............................ Aug. 4, 1995 -- -- $ 1,000 --
Underwriting Consultants, Inc.
(Michigan)............................ Feb. 1, 1995 $ 1,000 148,170 -- **
New England Trust Company (Rhode
Island)............................... Jan. 1, 1995 1,092,000 185,327 -- **
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
- ------------------------------------------------------------------------------------------------------------------------
</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.
On February 28, 1995, First of America Investment Corporation purchased for
$4,742,000 in cash a 49 percent interest in Gulfstream Global Investors LTD, an
investment management firm based in Dallas, Texas. Gulfstream Global Investors
LTD acts as the investment advisor for the Parkstone International Discovery
Fund.
Goodwill, the cost over the fair value of assets acquired, is amortized on a
basis which matches the periods estimated to be benefitted. 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 included in other
assets in the Consolidated Balance Sheets, amounted to $226,979,000 at December
31, 1995 and $252,979,000 at December 31, 1994.
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 $359,319,000 and
$296,840,000 at December 31, 1995 and 1994, respectively.
B-31
<PAGE> 70
NOTE 4: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1995, 1994 and 1993.
<TABLE>
<CAPTION>
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
<S> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
PURCHASE OF AFFILIATES
1995
Gulfstream Global Investors.................. $ 4,742 -- -- 4,742
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>
- ----------------------------------------------------------------------------------------------------------------------
1995......................... $ 503,976 2,851,746 -- 864,519 92,338
1994......................... 38,838 -- -- 641,886 115,193
1993......................... 113,380 3,212,687 465,697 576,945 108,399
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
In conjunction with the Financial Accounting Standards Board's ("FASB")
issuance of A Guide to Implementation of Statement 115 on Accounting for Certain
Investments in Debt and Equity Securities, FASB approved the transfer of
securities from the Held to Maturity to the Available for Sale classification
during the period from November 15, 1995, to December 31, 1995, with no
recognition of any related unrealized gain or loss in current earnings. On
December 1, 1995, First of America's portfolio of Securities Held to Maturity
was transferred, in its entirety, to the classification of Securities Available
for Sale. The unrealized gain related to the transferred securities was $3.9
million (after tax) and was recognized as a component of shareholders' equity.
NOTE 5: SECURITIES
At December 31, 1995, First of America had no Securities Held to Maturity.
Refer to Note 4 for a discussion of the transfer of Securities Held to Maturity
to the Securities Available for Sale classification. The amortized cost and
estimated market value of Securities Held to Maturity at December 31, 1994 and
their gross unrealized gains and losses for 1994 follow.
<TABLE>
<CAPTION>
1994
- ---------------------------------------------------------------------------------------------------------------
Estimated Gross Gross
Amortized Market Unrealized Unrealized
($ in thousands) Cost Value Gains Losses
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................... $2,296,929 2,169,536 910 128,303
State and municipal securities........................... 244,298 245,559 4,091 2,830
Other securities......................................... 571,649 527,698 -- 43,951
- ---------------------------------------------------------------------------------------------------------------
Total.................................................... $3,112,876 2,942,793 5,001 175,084
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 71
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1995 and 1994 follow.
<TABLE>
<CAPTION>
1995 1994
- ---------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Amortized Market
($ in thousands) Cost Value Cost Value
<S> <C> <C> <C> <C>
- ---------------------------------------------------------------------------------------------------------------
U.S. government and agency securities...................... $4,068,386 4,098,741 2,512,227 2,408,432
State and municipal securities............................. 248,947 258,707 1,521 1,523
Collateralized mortgage obligations........................ 579,788 579,441 99,451 96,040
Other securities........................................... 123,833 123,857 81,730 81,631
- ---------------------------------------------------------------------------------------------------------------
Total...................................................... $5,020,954 ,060,746 2,694,929 2,587,626
- ---------------------------------------------------------------------------------------------------------------
</TABLE>
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
- ----------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
<S> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
U.S. government and agency securities........... $ 30,355 -- 436 104,231
State and municipal securities.................. 9,760 -- 2 --
Collateralized mortgage obligations............. -- 347 22 3,433
Other securities................................ 24 -- -- 99
- ----------------------------------------------------------------------------------------------------------------
Total........................................... $ 40,139 347 460 107,763
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
Except as indicated below, total securities of no individual state,
political subdivision or other issuer exceeded 10% of shareholders' equity at
December 31, 1995. At December 31, 1995 and 1994, the book value of securities
issued by the State of Michigan and all of its political subdivisions totaled
approximately $126,225,000 and $150,978,000, respectively, with a market value
of approximately $130,570,000 and $151,074,000, respectively. The securities at
December 31, 1995, 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 $1,516,639,000 at
December 31, 1995, and $1,467,386,000 at December 31, 1994, were pledged to
secure public deposits, exercise trust powers and for other purposes required or
permitted by law.
B-33
<PAGE> 72
SECURITIES AVAILABLE FOR SALE
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in millions)
<TABLE>
<CAPTION>
December 31, 1995 One year or less One year to five years Five years to ten years
- ---------------------------------------------------------------------------------------------------------------------------------
Market Amortized Market Amortized Market Amortized
Value Cost Yield Value Cost Yield Value Cost Yield
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. government securities............ $ 170.9 170.5 5.78% $ 711.3 702.0 6.01% $ 51.8 49.2 6.78%
U.S. agency securities................ 19.0 19.0 6.30 287.5 283.6 6.15 869.7 869.8 5.71
State and municipal securities*....... 67.7 67.3 7.35 77.1 73.6 9.56 20.0 18.7 8.60
Collateralized mortgage obligations... -- -- -- -- -- -- .1 .1 6.42
Other securities...................... 102.4 102.4 6.72 5.1 5.0 8.18 9.0 9.0 6.69
- ---------------------------------------------------------------------------------------------------------------------------------
Total................................. $ 360.0 359.2 6.23% $1,081.0 1,064.2 6.29% $ 950.6 946.8 5.83%
- ---------------------------------------------------------------------------------------------------------------------------------
Market value as a percent of amortized
cost................................. 100.22% 101.58 100.40
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
December 31, 1995 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............ $ -- -- --% $ 934.0 921.7 6.01%
U.S. agency securities................ 1,988.5 1,974.3 6.03 3,164.7 3,146.7 5.96
State and municipal securities*....... 93.9 89.4 8.31 258.7 249.0 8.44
Collateralized mortgage obligations... 579.3 579.7 6.04 579.4 579.8 6.04
Other securities...................... 7.4 7.4 -- 123.9 123.8 7.00
- --------------------------------------------------------------------------------------------------------------------------
Total................................. $2,669.1 2,650.8 6.11% $5,060.7 5,021.0 6.10%
- --------------------------------------------------------------------------------------------------------------------------
Market value as a percent of amortized
cost................................. 100.69 100.79
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
- --------------------------------------------------------------------------------
B-34
<PAGE> 73
SECURITIES HELD TO MATURITY
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1994
- ---------------------------------------------------------------------
Amortized Average
Cost Maturity
- ---------------------------------------------------------------------
<S> <C> <C>
U.S. government and agency securities....... $2,296,929 2.7 yrs.
State and municipal securities.............. 244,298 2.5
Other securities............................ 571,649 3.2
- ---------------------------------------------------------------------
Total....................................... $3,112,876
- ---------------------------------------------------------------------
</TABLE>
SECURITIES AVAILABLE FOR SALE
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1995 1994
- --------------------------------------------------------------------------------------------------------------------
Amortized Average Amortized Average
Cost Maturity Cost Maturity
<S> <C> <C> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
U.S. government and agency securities.................... $4,068,386 2.4yrs. $2,512,227 3.3 yrs
State and municipal securities........................... 248,947 6.1 1,521 7.5
Collateralized mortgage obligations...................... 579,788 2.5 99,451 2.5
Other securities......................................... 123,833 2.1 81,730 --
- --------------------------------------------------------------------------------------------------------------------
Total.................................................... $5,020,954 $2,694,929
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 6: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal interest rates include (1) non-accrual
loans, (2) restructured loans (loans for which the interest rate or principal
balance has been reduced because of a borrower's financial difficulty) and (3)
other real estate owned which has been acquired in lieu of loan balances due.
Information concerning these assets, loans past due 90 days or more and other
loans of concern (loans where known information about possible credit problems
of borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1995 and 1994 follows:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
BALANCES OUTSTANDING:
Non-accrual loans..................................................................... $104,174 96,814
Restructured loans.................................................................... 12,327 4,852
Past due 90 days or more.............................................................. 28,124 18,208
Other loans of concern................................................................ 17,660 31,653
Other real estate owned (included in other assets).................................... 31,103 38,662
- ------------------------------------------------------------------------------------------------------------
Total................................................................................. $193,388 190,189
- ------------------------------------------------------------------------------------------------------------
</TABLE>
Interest income of $3,052,000 and $3,801,000 during 1995 and 1994,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$10,090,000 and $8,520,000 of interest would have been reflected in interest
income during 1995 and 1994, respectively.
First of America has no significant concentrations of credit risk. Its loan
portfolio is well balanced both by type and by geographical area.
B-35
<PAGE> 74
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 1995 totaled less than 5 percent of
total shareholders' equity at year-end 1995. 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 Securities,
Inc. and First of America Community Development Corporation; at December 31,
1995 only First of America Community Development Corporation had any borrowings
outstanding in the amount of $613,400. In conformance with First of America's
corporate policy and applicable law, such extensions of credit to subsidiaries
are made in accordance with sound banking practices and on non-preferential
terms and rates.
In the opinion of management, the amount and nature of these loans to
related parties and subsidiaries do not materially affect the financial
condition of First of America.
NOTE 8: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1995,
1994 and 1993 follows.
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Balance, beginning of year....................................... $ 228,115 188,664 176,793
Additions: Provision charged against income...................... 91,488 86,571 84,714
Allowance of acquired banks, net...................... -- 11,420 50
Recoveries............................................ 56,938 38,134 35,863
- -------------------------------------------------------------------------------------------------------------
376,541 324,789 297,420
Less: Loans charged off.......................................... (135,359) (96,674) (108,756)
- -------------------------------------------------------------------------------------------------------------
Balance, end of year............................................. $ 241,182 228,115 188,664
- -------------------------------------------------------------------------------------------------------------
</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.
As of December 31, 1995, the recorded investment in loans considered to be
impaired under Statement No. 114 was $88.6 million with an average recorded
investment in impaired loans during 1995 of approximately $81.9 million.
Included in the impaired loans total were $42.6 million of impaired loans for
which the related specific allowance for loan losses was $17.6 million. The
remaining $46.0 million of impaired loans did not require a specific allowance
for loan losses due to the net realizable value of loan collateral, guarantees
and other factors.
B-36
<PAGE> 75
NOTE 9: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1995 and 1994 follows.
<TABLE>
<CAPTION>
($ in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
Land........................................................................................ $ 78,326 77,458
Buildings and leasehold improvements........................................................ 446,721 428,877
Equipment................................................................................... 363,241 365,554
Capital leases.............................................................................. 24,115 25,082
-------- -------
912,403 896,971
Less:
Accumulated depreciation and amortization................................................... 446,905 420,806
- ------------------------------------------------------------------------------------------------------------------
Total....................................................................................... $465,498 476,165
- ------------------------------------------------------------------------------------------------------------------
</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 $17,554,000 in 1995, $16,100,000 in 1994, and $10,936,000
in 1993.
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1995.
<TABLE>
<CAPTION>
($ in thousands) Capital Leases Operating Leases
<S> <C> <C>
- --------------------------------------------------------------------------------------------------------------
1996.................................................................. $ 2,119 16,487
1997.................................................................. 2,127 13,785
1998.................................................................. 2,117 10,708
1999.................................................................. 2,057 8,762
2000.................................................................. 2,042 6,186
Thereafter............................................................ 38,931 45,591
-------------- ----------------
Total minimum lease payments.......................................... 49,393 101,519
Amounts representing interest......................................... (28,198) --
- --------------------------------------------------------------------------------------------------------------
Present value of net minimum lease payments........................... $ 21,195 101,519
- --------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10: SHORT TERM BORROWINGS
Information relating to securities sold under agreement to repurchase
follows:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
At December 31:
Outstanding...................................................... $ 429,483 583,184 664,531
Average interest rate............................................ 5.83% 5.75 3.31
Daily average for the year:
Outstanding...................................................... $ 546,232 709,205 326,383
Average interest rate............................................ 6.07% 4.43 3.26
Maximum outstanding at any month end............................. $1,087,851 1,229,099 664,531
- --------------------------------------------------------------------------------------------------------------
</TABLE>
Securities sold under agreements to repurchase are secured transactions with
customers, generally maturing within thirty days. As of December 31, 1995, First
of America did not have repurchase agreements which exceeded 10 percent of total
assets.
B-37
<PAGE> 76
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1995 and 1994
follows.
<TABLE>
<CAPTION>
($ in thousands) 1995 1994
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------
PARENT COMPANY:
7.75% subordinated notes due July 15, 2004............................................ $200,000 200,000
10.625% subordinated notes payable in equal annual installments in 1990 through 1998,
interest payable semi-annually...................................................... 3,111 6,222
8.50% subordinated notes due February 1, 2004......................................... 150,000 150,000
Revolving credit agreement............................................................ -- 30,000
6.35% subordinated debenture due December 31, 2007.................................... 10,000 10,000
Capital lease obligations (Note 9).................................................... 19,970 20,198
-------- -------
383,081 416,420
SUBSIDIARIES:
Bank notes, with interest rates ranging from 4.875% to 5.05%, due through
August 26, 1996..................................................................... 104,971 259,903
Notes payable through 2001............................................................ -- 2,455
8.30% FHLB borrowing payable August 1996.............................................. 820 820
Mortgages and land contracts, payable in installments through 1999 with interest rates
ranging from 4.75% to 10.25%........................................................ 218 303
Capital lease obligations (Note 9).................................................... 1,225 1,335
- ------------------------------------------------------------------------------------------------------------
TOTAL LONG TERM DEBT.................................................................. $490,315 681,236
- ------------------------------------------------------------------------------------------------------------
</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, and by the Second Amendment dated February 15,
1996 (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 operating 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 $1,421,141,000. The indebtedness of subsidiary banks is
subordinated to the claims of their depositors and certain other creditors.
Management has determined that First of America is in compliance with all of its
loan covenants.
B-38
<PAGE> 77
Maturities of outstanding indebtedness at December 31, 1995 follow.
<TABLE>
<CAPTION>
Total Principal
($ in thousands) Amount Due
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
Year ending December 31,
1996............................................................................................. $ 109,316
1997............................................................................................. 432
1998............................................................................................. 460
1999............................................................................................. 441
2000............................................................................................. 463
Thereafter....................................................................................... 379,203
- -------------------------------------------------------------------------------------------------------------------
Total............................................................................................ $ 490,315
- -------------------------------------------------------------------------------------------------------------------
</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.
If issued, each share of Series A Preferred is 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 granted 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.
B-39
<PAGE> 78
The following is a summary of transactions which occurred during 1993, 1994
and 1995:
<TABLE>
<CAPTION>
Shares Under Option Price
Option Per Share
<S> <C> <C>
- -------------------------------------------------------------------------------------------------------------
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....................................... 24,919 11.30
Granted................................................................... 295,900 33.00
Exercised................................................................. (23,050)
Canceled.................................................................. (5,366)
- -------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1994.......................................... 1,247,036 $11.30-40.00
Granted................................................................... 325,200 43.25
Exercised................................................................. (101,589)
Canceled.................................................................. (13,900)
- -------------------------------------------------------------------------------------------------------------
OUTSTANDING AT DECEMBER 31, 1995.......................................... 1,456,747 $11.30-43.25
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 14: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$337,407,000 in 1995, $173,350,000 in 1994 and $200,700,000 in 1993. Unless
prior regulatory approval is obtained, banking regulations limit the amount of
dividends that First of America's banking subsidiaries can declare during 1996,
to the 1996 net profits, as defined in the Federal Reserve Act, plus retained
net profits for 1995 and 1994, which amounted to $50,187,000. Under the FDIC
Improvement Act of 1993, 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 1995 and 1994 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1995, 1994, and 1993
equaled $3,980,000, $8,073,000, and $5,920,000, respectively.
B-40
<PAGE> 79
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits of $304,707 for 1995
and $284,034 for 1994.......................................................... $312,916 294,336
- ------------------------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date.......................... $379,131 345,465
Plan assets at fair value, primarily listed stocks and U.S. Bonds.................. 438,752 358,392
-------- -------
Projected benefit obligation less than plan assets................................. 59,621 12,927
Unrecognized net (gain)/loss....................................................... (33,192) 8,228
Unrecognized prior service cost.................................................... 21,367 25,905
Unrecognized net assets being recognized over 15 years............................. (13,953) (15,902)
-------- -------
Prepaid pension included in other assets........................................... $ 33,843 31,158
- ------------------------------------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE FOLLOWING COMPONENTS:
Service cost....................................................................... $ 11,426 12,114
Interest cost on projected benefit obligation...................................... 24,689 22,661
Actual return on plan assets....................................................... (86,421) 6,948
Net amortization and deferral...................................................... 54,286 (33,650)
- ------------------------------------------------------------------------------------------------------------
Net periodic pension cost.......................................................... $ 3,980 8,073
- ------------------------------------------------------------------------------------------------------------
</TABLE>
First of America's weighted-average discount rate was 7.50 percent at
December 31, 1995 and 8.00 percent at December 31, 1994. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 5.50 percent at year-end 1995 and 6.00
percent at year-end 1994. The expected long term rate of return on assets was
9.50 percent and 9.00 percent at December 31, 1995 and 1994, respectively. The
assumed rates in place at each year-end are used to determine the net periodic
pension cost for the following year.
B-41
<PAGE> 80
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.
The following table presents the plan's funded status reconciled with
amounts recognized in First of America's Consolidated Balance Sheet at December
31, 1995 and 1994:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.............................................................................. $(17,932) (20,626)
Fully eligible active plan participants............................................... (7,065) (7,470)
Other active plan participants........................................................ (8,901) (9,299)
-------- -------
(33,898) (37,395)
Plan assets at fair value............................................................. -- --
-------- -------
Accumulated postretirement benefit obligation in excess of plan assets................ (33,898) (37,395)
Unrecognized prior service cost....................................................... (4,700) (5,498)
Unrecognized net (gain) loss.......................................................... (857) 4,002
- ------------------------------------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other liabilities..................... $(39,455) (38,891)
- ------------------------------------------------------------------------------------------------------------
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1995 AND 1994 INCLUDE THE FOLLOWING COMPONENTS:
- ------------------------------------------------------------------------------------------------------------
Service cost.......................................................................... $ 1,092 1,253
Interest cost......................................................................... 2,992 2,641
Net amortization and deferral......................................................... (524) (405)
- ------------------------------------------------------------------------------------------------------------
Net periodic postretirement benefit cost.............................................. $ 3,560 3,489
- ------------------------------------------------------------------------------------------------------------
</TABLE>
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 10.03 percent and 10.36 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, 1995 and 1994, respectively; the 1995 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 7.5 percent at December 31, 1995 and 8.00 percent at December 31,
1994. To determine First of America's net periodic postretirement benefit cost
for 1995 and 1994, a weighted average discount rate of 8.0 percent and 7.25
percent, respectively, and the health care trend rate of 10.36 percent and 10.95
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,
1995 by 2.1 percent and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year ended
December 31, 1995 by 1.5 percent.
B-42
<PAGE> 81
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) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
OTHER OPERATING INCOME:
Revolving loan fees -- interchange income................................. $ 22,446 31,538 30,104
Revolving loan fees -- merchant discount.................................. 35,989 28,863 22,994
Gains on sale of loans.................................................... 19,627 11,697 29,456
Securitization service fees............................................... 24,123 -- --
Other..................................................................... 49,393 36,045 30,939
- -------------------------------------------------------------------------------------------------------------
Total other operating income.............................................. $151,578 108,143 113,493
- -------------------------------------------------------------------------------------------------------------
OTHER OPERATING EXPENSES:
Services purchased........................................................ $ 20,769 17,814 14,638
Office supplies........................................................... 20,669 20,924 22,541
FDIC insurance............................................................ 28,373 42,055 39,680
Advertising, business development and public relations.................... 18,368 20,884 22,573
Postage................................................................... 17,278 16,458 16,291
Telephone................................................................. 19,907 19,293 17,300
Other..................................................................... 95,529 94,744 95,052
- -------------------------------------------------------------------------------------------------------------
Total other operating expenses............................................ $220,893 232,172 228,075
- -------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE 18: INCOME TAXES
Total income tax expense (benefit) for the years ended December 31, 1995,
1994 and 1993, respectively, was allocated as follows:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
<S> <C> <C> <C>
- -------------------------------------------------------------------------------------------------------------
Income from continuing operations......................................... $126,629 102,616 98,574
Shareholders' equity, for market value adjustments on investment
securities available for sale........................................... 28,885 (32,296) 17,263
- -------------------------------------------------------------------------------------------------------------
Total income tax expense.................................................. $155,514 70,320 115,837
- -------------------------------------------------------------------------------------------------------------
</TABLE>
Income tax expense (benefit) attributable to income from continuing
operations consists of:
<TABLE>
<CAPTION>
($ in thousands) Current Deferred Total
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Year ended December 31, 1995:
U.S. Federal................................................................ $125,611 (6,861) 118,750
State and local............................................................. 8,390 (511) 7,879
- --------------------------------------------------------------------------------------------------------------------
Total....................................................................... $134,001 (7,372) 126,629
- --------------------------------------------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
B-43
<PAGE> 82
Income tax expense attributable to income from continuing operations
differed from the amounts computed by applying the U.S. federal income tax rate
of 35 percent to pretax income from operations as a result of the following:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------
Computed "expected" tax expense.............................................. $127,168 113,092 121,086
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income.................................... (9,277) (9,904) (12,738)
Change in the beginning-of-the-year balance of the valuation allowance for
deferred tax assets allocated to income tax expense...................... -- (883) (9,686)
Alternative minimum tax credits utilized................................... -- -- (5,675)
State and local tax expense (benefit), net of federal tax.................. 5,122 (392) 1,630
Amortization of goodwill................................................... 4,821 3,844 3,116
Other, net................................................................. (1,205) (3,141) 841
- --------------------------------------------------------------------------------------------------------------------
Total........................................................................ $126,629 102,616 98,574
- --------------------------------------------------------------------------------------------------------------------
</TABLE>
The significant components of deferred income tax expense (benefit)
attributable to income from continuing operations for the years ended
December 31, 1995, 1994 and 1993 were as follows:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------
Deferred tax benefit (exclusive of the effects of other components
below).................................................................. $(7,372) (4,811) 8,289
Decrease in beginning-of-the-year balance of the valuation allowance for
deferred tax assets..................................................... -- (883) (9,686)
- --------------------------------------------------------------------------------------------------------------
Total..................................................................... $(7,372) (5,694) (1,397)
- --------------------------------------------------------------------------------------------------------------
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1995 and
1994 are presented below:
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Book loan loss deduction in excess of tax.......................................... $ 83,846 76,073
Deferred compensation.............................................................. 8,135 6,149
Deferred loan fees................................................................. 9,392 10,279
Employee benefits.................................................................. 145 1,916
Other real estate expenses......................................................... 1,827 3,229
Non-accrual loan income............................................................ 4,261 3,292
Market value adjustment on securities available for sale........................... -- 37,556
Expenses not currently deductible for tax purposes................................. 4,619 3,408
Other.............................................................................. 14,257 10,474
-------- -------
Total gross deferred tax assets.................................................... 126,482 152,376
Less valuation allowance........................................................... -- (22,524)
-------- -------
Net deferred tax assets............................................................ 126,482 129,852
-------- -------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation.......................... (10,969) (10,200)
Discount accretion on securities................................................... (1,587) (1,276)
Market value adjustment on securities available for sale........................... (13,853) --
Tax loan loss reserve to be recaptured............................................. (11,698) (7,094)
Other.............................................................................. (8,933) (10,327)
Total gross deferred liabilities................................................... (47,040) (28,897)
- ------------------------------------------------------------------------------------------------------------
Net deferred tax asset............................................................. $ 79,442 100,955
- ------------------------------------------------------------------------------------------------------------
</TABLE>
B-44
<PAGE> 83
The valuation allowance for deferred tax assets as of January 1, 1995 was
$22,524,000. The net change in the total valuation allowance for the year ended
December 31, 1995 was a decrease of $22,524,000.
The valuation allowance for deferred tax assets at January 1, 1995 was
related entirely to market value adjustments on Securities Available for Sale
which would have resulted in capital losses that could be recognized only when
offset against capital gains. During 1995, the market value adjustment on
Securities Available for Sale resulted in an overall capital gain position, and
accordingly, the reduction in the valuation allowance of $22,524,000 has been
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>
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common and common equivalents........................................ 63,500,784 59,811,568 57,416,771
Fully diluted........................................................ 63,500,784 59,811,568 59,772,113
- --------------------------------------------------------------------------------------------------------------
</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, 279,856 in 1995, 281,498
in 1994 and 305,240 in 1993. 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, 279,856 in 1995, 281,498
in 1994 and 305,240 in 1993.
On December 31, 1995 and 1994, there were 63,283,857 and 62,849,209 common
shares outstanding, respectively. At the same dates there were 100,000,000
authorized shares of $10 par value common stock.
NOTE 20: COMMITMENTS AND CONTINGENT LIABILITIES
First of America and its subsidiaries are parties to routine litigation
arising in the normal course of their respective businesses. In the opinion of
management after consultation with counsel, liabilities arising from these
proceedings, if any, are not expected to be material to First of America's
financial position.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notional amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
B-45
<PAGE> 84
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
<TABLE>
<CAPTION>
($ in thousands) 1995 1994
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commitments on unused credit card lines.................................... $ 8,686,390 8,418,466
Other commitments to extend credit......................................... 2,930,624 2,699,651
Mortgages sold with recourse............................................... 79,952 101,565
Mortgage loan sale commitments............................................. 125,000 30,600
Standby letters of credit.................................................. 366,829 305,460
Commercial letters of credit............................................... 5,280 7,199
Foreign exchange contracts................................................. 1,440 13,192
Interest rate swaps........................................................ 105,507 707,864
Interest rate caps......................................................... -- 125,000
- ------------------------------------------------------------------------------------------------------------
Total...................................................................... $12,301,022 12,408,997
- ------------------------------------------------------------------------------------------------------------
</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, 1995, other commitments to
extend credit were comprised of $1,983,159,000 in unused commercial loan
commitments, $947,465,000 in commitments to fund commercial real estate,
construction and land development of which $445,643,000 was secured by real
estate, and $464,953,000 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 $80.0 million
at December 31, 1995 and are not included in the accompanying consolidated
balance sheets. Mortgage loan sale commitments represent agreements to deliver
mortgage loans to investors in future periods.
Standby letters of credit and commercial letters of credit are conditional
commitments issued to secure performance of a customer to a third party and are
subject to the same credit review and approval process as loans. Losses to date
have not been material.
Foreign exchange contracts are entered into for trading activities which
enable customers to transfer or reduce their foreign exchange risk. Foreign
exchange forward contracts represent First of America's largest activity in this
specialized area. Forward contracts are commitments to buy or sell at a future
date a currency at a contracted price and are settled in cash or through
delivery. The risk in foreign exchange trading arises from the potential
inability of the counterparties to deliver under the terms of the contract and
the possibility that the value of a foreign currency might 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.
At December 31, 1994, First of America had outstanding interest rate caps
which totaled $125 million and were designated to certain FirstRate Fund
deposits. First of America also had interest rate swaps with a total notional
value of $707.9 million of which $530.9 million was a hedge against certain
certificates of deposit, $125.0 million as a hedge against long term debt with
the remainder as a hedge against certain other deposits and borrowings. Although
the notional amounts are often used to express the volume of these transactions,
the amounts potentially subject to credit risk are much smaller. The company
minimizes this risk by performing normal credit reviews of its counterparties
and collateralizing its exposure when it exceeds a predetermined limit. The
following table outlines First of America's interest rate caps and interest rate
swaps at December 31, 1995.
B-46
<PAGE> 85
INTEREST RATE SWAPS
($ in thousands)
<TABLE>
<CAPTION>
Net Interest
Weighted Average Average Income Impact
Hedged Notional Fair Market Average Rate Received Rate Paid ------------------
Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1995 1994
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Rising Rate CDs.... $ -- -- -- -- -- (1,158) 82
Market Rate CDs*... 8,507 814 1.8 -- -- (808) (915)
FHLB advance....... -- -- -- -- -- 25 (46)
FirstRate Fund
deposits......... 12,000 (49) 7.5 5.94%/variable 6.03%/fixed (9) (35)
Bank notes......... 10,000 (56) 7.8 5.68/variable 6.23/fixed 24 (72)
Long term debt..... 75,000 (210) 12.4 5.30/fixed 5.88/variable (894) (93)
Interest rate caps... -- -- -- -- -- (1,150) (96)
- ----------------------------------------------------------------------------------------------------------------------
Total................ $105,507 499 10.6 (3,970) (1,175)
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
* This represents a basis swap.
At December 31, 1995, there were no deferred losses included in other assets
from the termination of interest rate swaps. During 1995, no losses were
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 utilized interest rate caps in an attempt to
manage its interest rate risk. As of December 31, 1995, First of America had no
outstanding interest rate caps.
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, the estimated fair value of financial
instruments with short-term maturities is assumed to equal the recorded book
value. These financial instruments include cash and short term investments,
accrued interest receivable and payable and short term borrowings. Estimated
fair values for other financial instruments were determined as follows:
SECURITIES:
Fair values for Held to Maturity and Available for Sale securities were
based on quoted market prices where available. If a quoted market price was not
available, fair value was estimated using quoted market prices for similar
securities.
LOANS RECEIVABLE:
For variable rate loans that reprice frequently and for which there has been
no significant change in credit risk, fair values equal carrying values. The
fair values for fixed rate loans were based on estimates using discounted cash
flow analyses and current interest rates being offered for loans with similar
terms to borrowers of similar credit quality.
LOANS HELD FOR SALE:
Fair values for loans held for sale were based on quoted market prices where
available. If a quoted market price was not available, fair value was estimated
using market prices for similar assets.
B-47
<PAGE> 86
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) were
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, 1995
and 1994 were as follows:
<TABLE>
<CAPTION>
December 31, 1995 December 31, 1994
- -----------------------------------------------------------------------------------------------------
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
Available for sale.................... 5,061 5,061 2,588 2,588
Loans, net.............................. 15,734 15,825 16,577 16,374
Loans held for sale..................... 101 104 30 30
FINANCIAL LIABILITIES:
Deposits*............................... (19,342) (19,422) (20,200) (20,097)
Long term borrowings.................... (490) (520) (681) (657)
Off-balance sheet commitments........... -- 21 -- 29
Interest rate swap agreements........... -- -- -- (17)
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.
B-48
<PAGE> 87
NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1995 and 1994, and the statements of
income and statements of cash flows for the three years ended December 31, 1995
follow.
<TABLE>
<CAPTION>
December 31,
- -------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary banks........................ $ 209,532 54,758
Investment in subsidiaries......................................................... 1,918,540 1,831,786
Other assets....................................................................... 170,613 207,683
- -------------------------------------------------------------------------------------------------------------
Total assets....................................................................... $2,298,685 2,094,227
- -------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities............................................. $ 87,623 98,919
Long term debt..................................................................... 383,081 416,420
---------- ---------
Total liabilities.................................................................. 470,704 515,339
---------- ---------
SHAREHOLDERS' EQUITY
Common stock....................................................................... 632,839 628,492
Surplus............................................................................ 283,409 284,877
Net unrealized gain/(loss) on securities available for sale, net of tax
expense/(benefit) of $13,853 for 1995 and $(15,032) for 1994..................... 25,939 (92,271)
Retained earnings.................................................................. 885,794 757,790
---------- ---------
Total shareholders' equity......................................................... 1,827,981 1,578,888
- -------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity......................................... $2,298,685 2,094,227
- -------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
- -------------------------------------------------------------------------------------------------------------
($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries................................................. $337,407 175,350 205,891
Interest and other income................................................... 339,863 262,615 291,798
-------- ------- -------
Total operating income...................................................... 677,270 437,965 497,689
-------- ------- -------
EXPENSES
Interest on borrowed money.................................................. 33,600 27,793 19,597
Salaries and employee benefits.............................................. 159,461 151,766 134,734
Amortization of intangibles................................................. 5,692 5,974 5,095
Other operating expenses.................................................... 199,162 139,853 171,937
-------- ------- -------
Total operating expenses.................................................... 397,915 325,386 331,363
-------- ------- -------
Income before income taxes and undistributed earnings of subsidiaries....... 279,355 112,579 166,326
Applicable income tax benefit............................................... 19,291 22,609 14,084
-------- ------- -------
Net income before equity in undistributed earnings (losses) of
subsidiaries.............................................................. 298,646 135,188 180,410
Equity in undistributed earnings (losses) of subsidiaries................... (61,938) 85,315 66,975
- -------------------------------------------------------------------------------------------------------------
Net income.................................................................. $236,708 220,503 247,385
- -------------------------------------------------------------------------------------------------------------
</TABLE>
B-49
<PAGE> 88
<TABLE>
<CAPTION>
($ in thousands) 1995 1994 1993
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................................ $236,708 220,503 247,385
Adjustment to reconcile net income to net cash provided by operating
activities.............................................................. 113,558 (13,723) (125,584)
-------- -------- --------
Net cash from operating activities........................................ 350,266 206,780 121,801
-------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased.......................................... (33,157) (24,845) (46,724)
Proceeds from sale of premises & equipment................................ 8,444 4,974 600
Capital infusions, net of redemptions..................................... (31,797) (112,850) (6,535)
-------- -------- --------
Net cash from investing activities........................................ (56,510) (132,721) (52,659)
-------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt.................................. -- 438,000 222,000
Repayment of long term debt............................................... (33,339) (261,195) (190,891)
Proceeds from issuance of common stock.................................... 2,105 460 1,132
Repurchase of common stock................................................ -- (123,373) --
Dividends paid............................................................ (107,429) (96,670) (93,333)
Other, net................................................................ (319) (268) (329)
-------- -------- --------
Net cash from financing activities........................................ (138,982) (43,046) (61,421)
-------- -------- --------
Net increase (decrease) in cash........................................... 154,774 31,013 7,721
Cash at beginning of year................................................. 54,758 23,745 16,024
- -------------------------------------------------------------------------------------------------------------
Cash at year-end.......................................................... $209,532 54,758 23,745
- -------------------------------------------------------------------------------------------------------------
</TABLE>
B-50
<PAGE> 89
SUPPLEMENTAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
STOCK DATA
Book value per common share:
Primary................................... $ 28.89 25.12 25.60 22.12 20.58
Fully Diluted............................. 28.89 25.12 25.60 22.49 21.47
Common shares outstanding:
Weighted average.......................... 63,500,784 59,811,568 57,416,771 54,841,762 53,536,154
Year end.................................. 63,283,857 62,849,209 59,520,710 57,014,244 53,537,438
Market price of Common Stock:
High...................................... $ 46.125 40.125 42.875 37.875 31.750
Low....................................... 29.500 29.750 36.500 29.000 18.250
Year end.................................. 44.375 30.000 39.250 37.875 29.375
Number of shares traded (in thousands).... 19,427 18,313 13,708 14,284 13,612
Price earnings ratio*..................... 11.9x 8.1 9.3 15.4 9.1
Dividend yield (at year end).............. 3.97% 5.60 4.08 3.70 4.36
Dividend payout ratio..................... 45.58 43.90 35.71 53.25 45.35
NON-FINANCIAL DATA
Number of common shareholders*............ 31,300 30,900 28,400 23,800 17,815
Number of banking subsidiaries*........... 4 8 20 23 26
Number of banking offices*................ 613 630 572 551 487
Number of employees (FTE)*................ 12,690 13,307 13,330 12,940 13,404
Number of automated teller machines*...... 675 647 546 498 400
RETURN ON EQUITY AND ASSETS
Return on average total assets............ 1.00% 0.98 1.20 0.75 0.95
Return on average common shareholders'
equity.................................. 13.89 14.44 18.01 11.67 13.66
Return on average total shareholders'
equity.................................. 13.89 14.44 17.50 11.38 13.07
Average common shareholders' equity as a
percent of total average assets......... 7.17 6.77 6.52 5.91 6.28
Average shareholders' total equity as a
percent of total average assets......... 7.17 6.77 6.88 6.63 7.26
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
* Prior years numbers not restated.
B-51
<PAGE> 90
QUARTERLY INFORMATION (Unaudited)
($ in millions except per share data)
<TABLE>
<CAPTION>
1995 Quarters 1994 Quarters
- ----------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third Second First
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- ----------------------------------------------------------------------------------------------------------------
SUMMARY OF EARNINGS
Total interest income................... $ 437.5 442.0 460.6 456.4 433.6 417.1 387.7 362.4
Total interest expense.................. 210.6 217.4 226.3 218.3 196.5 177.3 152.9 135.4
- ----------------------------------------------------------------------------------------------------------------
Net interest income..................... 226.9 224.6 234.3 238.1 237.1 239.8 234.8 227.0
Provision for loan losses............... 27.7 21.4 22.0 20.5 22.2 21.2 22.5 20.6
- ----------------------------------------------------------------------------------------------------------------
Net interest income after provision..... 199.2 203.2 212.3 217.6 214.9 218.6 212.3 206.4
- ----------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit accounts..... 25.6 25.3 25.1 24.3 23.6 23.0 22.3 20.3
Trust income............................ 24.8 24.4 23.3 21.7 20.4 20.4 20.7 20.3
Investment securities transactions...... 1.0 0.5 0.1 (1.5) (4.3) 1.0 1.2 7.5
Other operating income.................. 49.4 42.0 35.0 25.1 27.2 26.7 25.6 28.5
- ----------------------------------------------------------------------------------------------------------------
Total non-interest income............... 100.8 92.2 83.5 69.6 66.9 71.1 69.8 76.6
- ----------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages...................... 85.9 86.3 90.9 93.2 91.7 88.9 88.4 84.7
Employee benefits....................... 16.2 16.4 19.9 22.2 17.0 19.4 20.5 19.9
- ----------------------------------------------------------------------------------------------------------------
Total personnel costs................... 102.1 102.7 110.8 115.4 108.7 108.3 108.9 104.6
Occupancy, net.......................... 16.9 15.8 15.1 16.3 14.7 15.9 14.5 15.3
Equipment............................... 15.2 14.9 14.5 14.7 15.1 14.2 13.8 13.0
Data processing......................... 4.8 4.5 4.7 4.8 3.9 4.6 4.7 4.3
Amortization of intangibles............. 5.3 5.3 5.4 5.3 5.4 4.5 4.0 2.6
Other operating expenses................ 54.1 50.1 58.5 58.1 56.5 59.3 58.5 58.1
- ----------------------------------------------------------------------------------------------------------------
Total non-interest expense.............. 198.4 193.3 209.0 214.6 204.3 206.8 204.4 197.9
- ----------------------------------------------------------------------------------------------------------------
Income before income tax................ 101.6 102.1 86.8 72.6 77.5 82.9 77.7 85.1
Applicable income tax expense........... 35.6 35.4 30.3 25.3 24.9 26.5 24.5 26.8
- ----------------------------------------------------------------------------------------------------------------
Net income.............................. $ 66.0 66.7 56.5 47.3 52.6 56.4 53.2 58.3
- ----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Earnings per common share............... $ 1.04 1.05 0.89 0.75 0.87 0.96 0.88 0.98
Common stock cash dividend paid......... 0.44 0.42 0.42 0.42 0.42 0.40 0.40 0.40
Market price of Common Stock:
High.................................... 46.125 45.250 38.000 34.250 34.875 37.500 40.125 39.000
Low..................................... 41.750 36.375 33.125 29.500 29.750 34.500 35.500 35.375
Period-end.............................. 44.375 42.875 37.125 33.625 30.000 35.250 35.625 37.875
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
B-52
<PAGE> 91
Directors
Jon E. Barfield
Chairman and Chief Executive Officer
Bartech, Inc., Livonia, Michigan
John W. Brown
Chairman and
Chief Executive Officer
Stryker Corporation, Kalamazoo, Michigan
Richard F. Chormann
President and Chief Operating Officer
First of America Bank Corporation
Kalamazoo, Michigan
Joseph J. Fitzsimmons
Retired
Ann Arbor, Michigan
Joel N. Goldberg
President
Thomas Jewelry Company, Pontiac, Michigan
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, Michigan
Dorothy A. Johnson
President and Chief Executive Officer
Council of Michigan
Foundations, Grand Haven, Michigan
Martha Mayhood Mertz
Chief Executive Officer
Mayhood/Mertz Realtors, Inc., Okemos, Michigan
Daniel R. Smith
Chairman and Chief Executive Officer
First of America Bank Corporation
Kalamazoo, Michigan
James S. Ware
Chairman, President and Chief Executive Officer
Durametallic Corporation, Kalamazoo, Michigan
James W. Wogsland
Retired
Peoria, Illinois
Walter J. Wolpin
President, The Wolpin Company,
Wolpin Broadcasting and
Twin-W Realty Company
Detroit, Michigan
Executive Officers
Daniel R. Smith
Chairman and Chief Executive Officer
Richard F. Chormann
President and Chief Operating Officer
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.
Donald J. Kenney
Executive Vice President
Robert K. Kinning
Chairman and Chief Executive Officer
First of America Bank - Illinois, N.A.
Thomas W. Lambert
Executive Vice President and
Chief Financial Officer
Malcolm C. Pownall
Chairman and Chief Executive Officer
First of America Bank - Indiana
John B. Rapp
Executive Vice President
David B. Wirt
Executive Vice President
[recycle logo]
<PAGE> 92
<TABLE>
<S><C>
1. Election of Directors FOR / / WITHHELD as To all Nominees / /
Nominees: Joseph J. Fitzsimmons, Robert L.Hetzler, Daniel R. Smith,
Ley S. Smith
(INSTRUCTION: To withhold authority to vote for any individual nominee, mark FOR above and write nominee's name below)
___________________________________________________________________________________________________________________________________
2. Approval of First of America Bank Corporation Stock FOR / / AGAINST / / ABSTAIN / /
Compensation Plan
3. Ratification of the selection of KPMG Peat Marwick LLP FOR / / AGAINST / / ABSTAIN / /
as independent auditors for FOA
The undersigned hereby acknowledges receipt of a Notice of Annual Meeting of
Shareholders of FOA called for April 17, 1996 and a Proxy Statement for the
Annual Meeting prior to the signing of this proxy.
Dated ___________________________________, 1996
_______________________________________________
_______________________________________________
Please sign exactly as your name(s) appear(s) on
this proxy. When signing in a representing capacity,
please give title.
PLEASE MARK, SIGN, DATE AND PROMPTLY RETURN THIS PROXY CARD USING THE ENCLOSED ENVELOPE.
</TABLE>
FIRST OF AMERICA BANK CORPORATION
211 South Rose Street PROXY
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 17, 1996 AND ANY ADJOURNMENT THEREOF.
The undersigned, being a shareholder of FIRST OF AMERICA BANK CORPORATION
("FOA"), hereby authorizes Thomas W. Lambert and Richard V. Washburn, and each
of them, as proxies, with 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 17, 1996 at 2:00 p.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, FOR approval of the First of America Bank Corporation
Stock Compensation Plan, 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.
CONTINUED ON OTHER SIDE
