UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
September 30, 1997 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of Registrant as specified in its Charter)
Michigan 38-1971791
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
211 South Rose Street, Kalamazoo, Michigan 49007
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
616-376-9000
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at
Common Stock, October 31, 1997
$10 Par Value 87,143,891<PAGE>
FIRST OF AMERICA BANK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
No.
Consolidated Balance Sheets (Unaudited),
September 30, 1997 and December 31, 1996 . 1
Consolidated Statements of Income
(Unaudited) - Three and Nine Months ended
September 30, 1997 . . . . . . . . . . . . 2
Consolidated Statements of Cash Flows
(Unaudited) - Nine Months Ended
September 30, 1997 and 1996 . . . . . . . 3
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . 4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION<PAGE>
<TABLE>
<CAPTION>
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
Sept 30 December 31
($ In thousands) 1997 1996
- ------------------------------- --------- ---------
<S> <C> <C>
ASSETS
Cash and due from banks $ 978,859 1,205,962
Money market investments 95,563 163,400
Securities:
Securities available for sale, amortized cost of $4,996,457 at
September 30, 1997 and $4,549,383 at December 31, 1996 5,038,637 4,562,381
Loans, net of unearned income:
Consumer 3,318,637 3,774,803
Commercial, financial and agricultural 2,775,488 2,722,676
Commercial real estate 4,062,423 3,918,248
Residential real estate 4,243,231 4,531,868
Loans held for sale, market value of $96,850 at September 30, 1997
and $109,955 at December 31, 1996 94,378 108,411
----------- -----------
Total loans 14,494,157 15,056,006
Less: Allowance for loan losses 259,561 252,846
----------- -----------
Net loans 14,234,596 14,803,160
Premises and equipment, net 413,206 433,408
Other assets 929,900 893,868
- ------------------------------------------------------------------- ------------- -----------
TOTAL ASSETS $21,690,761 22,062,179
=================================================================== ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 2,814,167 3,009,252
Interest bearing 13,654,437 14,610,044
----------- -----------
Total deposits 16,468,604 17,619,296
Securities sold under repurchase agreements -- 493,556
Other short term borrowings 2,000,521 1,344,434
Long term debt 886,834 521,124
Company Obligated Mandatory Redeemable New Capital Securities
of Subsidiary Trust Holding Solely Debentures of the Company 150,000 --
Other liabilities 365,837 299,571
----------- -----------
Total liabilities 19,871,796 20,277,981
----------- -----------
SHAREHOLDERS' EQUITY
Common stock-$10 par value 871,362 598,132
Capital surplus 36,793 145,950 <PAGE>
Net unrealized gain/(loss) on securities available for sale, net
of tax expense of $14,763 at September 30, 1997 and net of tax
expense of $4,561 at December 31, 1996 27,416 8,438
Retained earnings 883,394 1,031,678
----------- -----------
Total shareholders' equity 1,818,965 1,784,198
- ------------------------------------------------------------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $21,690,761 22,062,179
=================================================================== ============ ===========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended, Nine Months Ended,
September 30, September 30,
($ in thousands except per share data) 1997 1996 1997 1996
- ------------------------------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans $ 326,937 340,465 977,431 1,030,260
Securities:
Taxable income 69,400 64,626 200,239 205,490
Tax exempt income 7,205 4,242 19,378 11,335
Money market investments 1,855 2,786 6,617 7,433
--------- --------- --------- ---------
Total interest income 405,397 412,119 1,203,665 1,254,518
--------- --------- --------- --------
INTEREST EXPENSE
Deposits 144,286 162,012 431,083 489,795
Short term borrowings 22,712 16,181 69,681 60,460
Long term debt 17,503 8,370 42,536 26,984
--------- --------- --------- --------
Total interest expense 184,501 186,563 543,300 557,239
--------- --------- --------- --------
NET INTEREST INCOME 220,896 225,556 660,365 677,279
Provision for loan losses 22,816 21,966 64,048 69,797
--------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 198,080 203,590 596,317 607,482
--------- --------- --------- ---------
NON-INTEREST REVENUE
Service charges on deposit accounts 30,024 29,025 87,952 82,802
Trust and financial services revenue 34,215 28,113 100,089 84,545
Investment securities transactions, net (2,049) (101) (3,265) (860)
Bank card revenue 23,654 18,711 61,153 54,189
Mortgage banking revenue 7,746 7,357 25,198 20,462
Other operating revenue 21,851 15,924 81,648 48,013
--------- --------- --------- ---------
Total non-interest revenue 115,441 99,029 352,775 289,151
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Personnel 109,577 114,134 342,376 337,246
Occupancy, net 15,108 16,639 46,123 48,792
Equipment 13,828 14,849 42,490 43,865
Outside data processing 5,045 4,628 14,470 13,819
Amortization of intangibles 5,279 5,251 15,840 15,725
Other operating expenses 46,061 72,434 140,203 177,191
--------- --------- --------- ---------
Total non-interest expense 194,898 227,935 601,502 636,638<PAGE>
--------- --------- --------- ---------
Income before income taxes 118,623 74,684 347,590 259,995
Income taxes 39,579 23,661 115,967 87,080
--------- --------- --------- ---------
NET INCOME 79,044 51,023 231,623 172,915
========= ========= ========= =========
EARNINGS PER SHARE
Primary 0.89 0.55 2.59 1.85
Fully Diluted 0.89 0.55 2.59 1.85
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Nine Months Ended,
September 30,
----------------------
($ in thousands) 1997 1996
- ------------------------------- --------- ---------
<S> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 231,623 172,915
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 34,470 35,259
Provision for loan losses 64,048 69,797
Provision for deferred taxes (1,981) (750)
Amortization of intangibles 15,840 15,725
(Gain) loss on sale of securities available for held for sale 2,179 859
(Gain) loss on sale of mortgage loans held for sale (18,489) (14,139)
(Gain) loss on sale of other assets (23,573) (4,207)
Proceeds from the sales of mortgage loans held for sale 836,289 869,091
Originations of mortgage loans held for sale (803,767) (859,768)
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable (8,228) 42,884
(Increase) decrease in other assets 77,339 (114,205)
Increase (decrease) in accrued expenses and other liabilities 55,544 6,957
--------- ---------
Net cash provided by operating activities 461,294 220,418
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of securities available for sale 648,044 913,245
Proceeds from the maturities of securities available for sale 754,952 829,358
Purchases of securities available for sale (1,846,444) (1,233,967)
Net other (increase) decrease in loans and leases 490,483 724,284
Premises and equipment purchased (34,456) (34,955)
Proceeds from the sale of premises and equipment 43,761 22,620
(Acquisition) sale of affiliates, net of cash acquired -- 944
--------- ---------
Net cash provided by investing activities 56,340 1,221,529
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITES:
Net increase (decrease) in short term deposits (402,898) (32,617)
Net increase (decrease) in time deposits (747,794) (1,125,216)
Net increase (decrease) in short term borrowings 162,531 (93,165)
Proceeds from issuance of long term debt 569,845 924
Repayments of long term debt (54,135) (99,029)
Proceeds from issuance of common stock (705) 197
Dividends paid (83,648) (82,345)
Payments for purchase and retirement of common stock (138,695) (130,854)
--------- ---------
Net cash provided by financing activities (695,499) (1,562,105)
--------- ---------
Net increase(decrease) in cash and cash equivalents (177,865) (120,158)
Cash and cash equivalents at beginning of period 1,205,962 1,207,062
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,028,097 1,086,904
========= =========
See accompanying notes to consolidated financial statements.
/TABLE
<PAGE>
NOTE 1: GENERAL
The accompanying interim financial statements are unaudited. In
the opinion of management, all adjustments necessary for a fair
statement of the consolidated financial results have been
included and all such adjustments are of a normal recurring
nature. Certain amounts included in the prior period financial
statements have been reclassified to conform with the current
financial statement presentation.
NOTE 2: NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
September 30,
-------------------------
(in thousands) 1997 1996
- ----------------------------- ----------- ---------
<S> <C> <C>
Non-accrual loans $ 87,873 94,016
Restructured loans 3,100 7,052
Other real estate owned 19,535 28,026
----------- ---------
Total non-performing assets $ 110,508 129,094
============ ==========
</TABLE>
NOTE 3: ALLOWANCE FOR LOAN LOSSES
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
------------------ -----------------
(in thousands) 1997 1996 1997 1996
- ------------------- ------- ------- ------- --------
<S> <C> <C> <C> <C>
Balance, beginning of period $257,953 249,388 252,846 241,182
Provision charged against income 22,816 21,966 64,048 69,797
Recoveries 12,141 15,635 40,805 47,473
Loans charged off (33,349) (34,182) (98,138) (105,645)
--------- -------- -------- --------
Balance, end of period $259,561 252,807 259,561 252,807
========= ======== ======== ========
</TABLE>
At September 30, 1997, total loans considered to be impaired
under Statement No. 114 were $67.5 million with an average for
the quarter of approximately $62.9 million. At September 30,
1996, total loans considered impaired were $80.7 million with an
average for the quarter of approximately $81.5 million. At
quarter-end, the allowance for impaired loans was $14.2 million
and $17.6 million, respectively. At September 30, 1997, the
impaired allowance related to $25.6 million of identified
impaired loans, while the remaining $41.9 million of impaired
loans did not require a specific allowance for loan losses based
on the requirements of Statement No. 114.
NOTE 4: COMMON STOCK AND CALCULATION OF EARNINGS PER SHARE
At the 1997 annual meeting, shareholders approved an increase in
the number of authorized common stock of the company from
100,000,000 to 200,000,000 shares.
On May 30, 1997, a 3-for-2 stock split, effected in the form of a
50 percent stock dividend, was distributed to shareholders.
All prior period data presented in this filing regarding the
number of common shares outstanding and amounts per share have
been restated to reflect the above two events.
At September 30, 1997 and 1996, there were 87,136,168 and
90,844,455 common shares outstanding, respectively. At the same
dates, there were 200,000,000 authorized shares of $10 par value
common stock. Common and common equivalent earnings per share
amounts were calculated by dividing net income applicable to
common stock by the weighted average number of common and common
equivalent shares outstanding during the respective periods
adjusted for outstanding stock options.
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Average common and common
equivalents shares outstanding 88,988,586 91,711,524 89,322,253 93,257,201
</TABLE>
NOTE 5: MERGERS AND ACQUISITIONS
<TABLE>
<CAPTION>
Date of Total Assets Financial
($ in thousands) Acquisition Acquired Reporting Value
- --------------------------------- ---------------- ----------- --------------
<S> <C> <C> <C>
Scott, Doerschler, Messner &
Gauntlett, Inc. January 1, 1997 $ 73 5,455
Elliot & Sons Insurance Agency Inc.,/
Michigan Benefit Plans Inc. January 7, 1997 1,424 4,259
Huttenlockers Kerns Norvell, Inc. February 12, 1996 3,994 3,912
/TABLE
<PAGE>
NOTE 6: ACCOUNTING POLICIES FOR DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps -
To manage interest rate sensitivity, First of America and its
subsidiaries enter into interest rate swaps as a hedge against certain
debt. The contracts represent an exchange of interest payments.The
underlying principal balances of the assets or liabilities are not
affected. Net settlement amounts are reported as adjustments to
interest income or interest expense. Gains or losses on the
termination of interest rate swaps are deferred and amortized over the
remaining life of the designated balance sheet liability. When the
swap becomes uncovered during the swap agreement, the swap is
immediately marked-to-market with a corresponding charge to current
earnings.
NOTE 7: COMPANY OBLIGATED MANDATORILY-REDEEMABLE NEW CAPITAL SECURITIES
OF FIRST OF AMERICA CAPITAL TRUST I
First of America Capital Trust I (the "Trust") was formed for the purpose
of issuing capital securities and investing the proceeds from the sale of
such capital securities in junior suborinated deferrable interest debentures
issued by the corporation. The corporation is the owner of all of the
beneficial interests of the Trust represented by common securities, the
proceeds from the sale of which were also invested in the junior subordinated
deferrable interest debentures issued by the corporation. On January
28, 1997, the Trust issued $4.64 million Common Securites, $150 million
8.12% Capital Securities, Series A and invested the proceeds from the sale
of such securities in $154,640,000 8.12% Junior Subordinated Deferrable
Interest Debentures due January 31, 2027, Series A, issued by the corporation
(the "Series A Debentures"). Pursuant to an exchange offer consummated
on July 30, 1997, the Trust exchanged all of the Series A Debentures held
by the Trust for $154,640,000 8.12% Junior Subordinated Deferrable Interest
Debentures due January 31, 2027, Series B, issued by the corporation
(the "Series B Debentures"). The sole assets of the Trust are these
Series B Debentures.
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary: The following table sets forth the period to period
changes in the principal items included in the
consolidated statement of income for the three and nine
months ended September 30, 1997, compared with the
corresponding 1996 period. The bracketed amounts
represent decreases.
Three Months Ended Nine Months Ended
September 30, September 30,
1997 vs 1996 1997 vs 1996
-------------------- ---------------------
($ in thousands) Change Percent Change Percent
- ----------------------------- -------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Interest and fee income on loans $ (13,528) (4.0)% $ (52,829) (5.1)%
Interest income on investments 7,737 11.2 2,792 1.3
Interest income on money market
investments (931) (33.4) (816) (11.0)
--------- --------- ---------- ---------
Total interest income (6,722) (1.6) (50,853) (4.1)
--------- --------- ---------- ---------
Interest expense on deposits (17,726) (10.9) (58,712) (12.0)
Interest expense on borrowed funds 15,664 63.8 24,773 28.3
--------- --------- ---------- ---------
Total interest expense (2,062) (1.1) (33,939) (5.9)
--------- --------- ---------- ---------
Net Interest Income (4,660) (2.1) (16,914) (2.5)
Provision for loan losses 850 3.9 (5,749) (8.2)
Non-interest income 16,412 16.6 63,624 22.0
Non-interest expense (33,037) (14.5) (35,136) (5.5)
--------- --------- ---------- ---------
Income before income taxes 43,939 58.8 87,595 33.7
Income taxes 15,918 67.3 28,887 33.2
--------- --------- ---------- ---------
Net income $ 28,021 54.9 % $ 58,708 34.0 %
========= ========= ========== =========
</TABLE>
See accompanying notes to consolidated financial statements.
OVERVIEW
Net income for the third quarter was $79.0 million, up 55.0
percent from the $51.0 million reported for the third quarter of
1996 and earnings per share were $0.89 compared with $0.55, an
increase of 61.8 percent. Net income for the 1997 quarter
included, on an after-tax basis, an $800 thousand gain from the
sale of one branch office and a $2.8 million gain from the sale
of $24.0 million of credit card receivables. Partially
offsetting these gains were $1.3 million in one-time charges for
severance and building write-downs. Last year's third quarter
included the one-time expense of the Savings Association
Insurance Fund's (SAIF) assessment of $14.8 million and severance
charges of $1.4 million (after tax). On a core basis, excluding
one-time events from both periods, net income for the quarter
would have been $76.8 million, up 14.3 percent, and earnings per
share would have been $0.86, up 17.8 percent.
For the year-to-date period, net income was $231.6 million, up
34.0 percent from 1996, and earnings per share were $2.59, up
40.0 percent over 1996. One-time events during the first nine
months of 1997 included (net of tax): gains from branch sales of
$13.8 million, severance charges of $4.8 million, a gain of $4.0
million on the sale of certain affinity card receivables, and a
charge of $1.1 million to record the impairment of building
values. The 1996 year-to-date period included after tax gains
from branch sales of $2.9 million, severance charges of $2.3<PAGE>
million, and the SAIF assessment of $14.8 million. Excluding
one-time events from both periods, net income would have been
$219.7 million for 1997 compared with $187.1 million for 1996;
and earnings per share would have been $2.46 and $2.01,
respectively.
A higher net interest margin, growing non-interest revenue, and
stabilizing non-interest expense, excluding one-time charges,
were the primary reasons for the stronger core results.
As part of First of America's ongoing efforts to manage capital
for the benefit of the shareholders, 3.0 million shares of First
of America Common Stock were repurchased this year, increasing
earnings per share $0.02 for the year-to-date period.
Additionally, in January of 1997, First of America privately
placed $150 million of fixed rate trust preferred securities.
These securities reduced First of America's cost of capital and
improved our risk based capital ratios.
At September 30, 1997, total assets were $21.7 billion, down from
$22.1 billion a year ago, mainly as a result of continuing
efforts to restructure the balance sheet to yield a more
profitable earning asset and deposit mix. Loan growth strategies
have been targeted toward increasing the commercial, commercial
mortgage, and home equity loan portfolios. Commercial loan and
commercial mortgage balances for the third quarter of 1997
increased 3.4 percent to $6.7 billion from a year ago while home
equity loans grew 30.4 percent. Residential mortgage and
indirect consumer loans, combined, decreased $1.3 billion, or
15.6 percent, from the same period a year ago.
Core deposits for 1997 were $1.5 billion lower than a year ago as
a result of branch sales completed in 1996 and 1997 and the run
off experienced within certain savings and CD products.
Excluding sold deposits, transaction deposits increased 0.3
percent and time deposits decreased 13.5 percent from the same
period in 1996.
The return on average assets for the third quarter and
year-to-date period of 1997 were 1.48 percent and 1.45 percent,
respectively. For the comparable periods of 1996, the same
ratios were 0.93 percent and 1.03 percent, respectively. Return
on equity was 17.15 percent for the third quarter of 1997 and
11.64 percent for the same 1996 quarter. Year-to-date, the
return on equity ratio was 17.27 percent and 12.91 percent for
1996. Excluding one-time events, year-to-date return on average
assets would have been 1.38 percent compared with 1.12 percent in
1996, and return on equity would have been 16.46 percent compared
with 13.97.
In October 1997, we completed the sale of our Florida operations
to Barnett Banks, Inc. for $160 million. We will realize a gain
on this transaction of $0.14 per share, which will be reflected
in our fourth quarter results; however, it is currently
anticipated that this gain may be minimized by impairment
write-downs and other non-recurring charges to income. The
preceding statement in this paragraph is forward-looking, and
First of America's actual results may differ from those
currently expected because currently anticipated write-downs and
charges are not certain as to their timeing or amount. At
September 30, 1997, our Florida operations had approximately
$1.1 billion in assets, loans of $790 million and deposits of
$870 million. On a year-to-date basis, net income for the
operation was $4.8 million. For the same period, on a pre-tax
basis, net interest income after the provision for loan losses
was $28.9 million, non-interest revenue was $6.6 million and
non-interest expense was $29.6 million.
CONSOLIDATED INCOME ANALYSIS<PAGE>
Net interest income for the third quarter, on a fully taxable
equivalent basis, was $227.0 million, down 1.3 percent from third
quarter 1996, while year-to-date net interest income was down 3.6
percent. Earning assets decreased 2.8 percent to $19.4 billion
from a year ago primarily because of smaller residential mortgage
and consumer installment loan portfolios.
The net interest margin was up 9 basis points to 4.68 percent
from 4.59 percent for the quarter comparison and for the
year-to-date period was 4.67 percent compared with 4.49 percent.
The improvement is a result of management's efforts to
restructure the balance sheet to obtain a more profitable mix
within earning assets and liabilities and the pricing disciplines
being exercised with the origination of new loans and deposits,
particularly in the consumer indirect installment portfolio and
certificate of deposit products.
Table 3 provides detail on the average yields on earning assets
and the average rates paid on interest-bearing liabilities for
the last six quarters.
Management currently expects that earning assets will remain
level or decline slightly during the remainder of 1997, although
commercial and commercial mortgage loans are expected to
increase. Deposits overall are also expected to decrease
slightly, primarily in the CD category, while other deposit types
should remain stable. The net interest margin is expected to
remain basically level or declined slightly with the third
quarter net interest margin of 4.68 percent during the last three
months of 1997. The preceding statements in this paragraph are
forward-looking, and First of America's actual results may
differ from those currently expected. Such differences could
result from a variety of factors including changes in loan demand
and the interest rate environment.
The allowance for loan losses was $260 million at September 30,
1997, compared with $253 million a year ago. The provision for
loan losses for the third quarter increased 23.9 percent to $22.8
million from the second quarter of 1997 as a result of higher net
charge-offs in the commercial loan portfolio. The higher net
charge-offs were mainly the result of two commercial loans that
were charged-off; however, these net charge-offs are not
considered to represent a permanent deterioration of overall
commercial loan quality. The allowance for loan losses to total
loans ratio at September 30, 1997, was 1.79 percent, up from 1.65
percent a year ago and 1.68 percent at year end 1996.
Charge-offs and recoveries by portfolio type are detailed in
Table 5.
Non-interest revenue totaled $115.4 million for the quarter, an
increase of 16.6 percent from a year ago; for the year-to-date
period the increase was 22.0 percent. The year-to-date increase
is due in part to $23.5 million of branch sale gains recorded
this year compared with $4.5 million of gains for the same period
last year. Excluding the impact of branch sale gains from both
periods, non-interest revenue increased 15.7 percent.
Bank card revenue for the quarter included a $4.7 million gain
from the sale of $24.0 million of consumer credit card
receivables; year-to-date, the gain was $6.6 million. If the
gains are excluded from the comparisons, bank card revenue was
approximately level for the quarter and year-to-date periods.
Trust and financial services revenue for the quarter was $34.2
million, up from $28.1 million for the year ago quarter, and for
the year-to-date period was up $15.5 million to $100.1 million.
Revenues from the Trust and Financial Services Division continue
to benefit from expanding insurance and brokerage business and
the higher market values of trust assets upon which fees are
assessed; at quarter-end, such assets were $20.0 billion compared
with $19.4 billion a year ago. Other financial services revenue,
generated by cash management, investment management, brokerage
and insurance services, was $40.1 million for the nine month
period compared with $31.8 million a year ago, benefiting from
the sales and service strategies implemented in partnership with
the branch employees. Insurance revenue for the same periods was
$8.8 million and $3.6 million, respectively, reflecting our
original and continuing commitment to this product line.
Mortgage banking revenue increased 3.1 percent to $7.2 million
for the quarter and was up $4.3 million to $17.5 million for the
year-to-date period. The main reason for the year-to-date
increase was a $4.0 million increase in total gains on mortgage
loan sales, which included a $3.1 million gain on an $89 million
portfolio sale.
Total non-interest expense was $194.9 million for the quarter and
$601.5 million for the year-to-date period, compared with $227.9
million and $636.6 million for the comparable periods a year ago.
Excluding one-time charges, non-interest expense would be down
$9.7 million for the quarterly comparison and $17.8, or 2.9
percent, for the year-to-date comparison. Total personnel costs,
excluding severance charges, decreased 2.5 percent for the
quarter, and were up only 0.3 percent for the first nine months
of 1997 over 1996. Severance charges for 1997 include $0.4
million for the quarter and $7.7 million for the year-to-date
period; for 1996 they included $2.2 million and $3.6 million,
respectively.
On a core operating basis, the burden ratio was 1.56 percent
versus 1.88 percent for the comparative quarters, and 1.69
percent versus 1.94 percent for the nine month periods. On the
same basis, the efficiency ratio was 57.3 percent for the quarter
and 59.2 for the year-to-date period, which continues to compare
favorably with last year's core operating ratios of 61.5 percent
and 62.6 percent, respectively. For full year 1997, the
efficiency ratio is expected to remain below 60 percent. The
preceding is a forward-looking statement, and First of America's
actual results may differ from what has been stated due to a
variety of factors, including but not limited to assumed rates
of revenue growth, expense reductions and the implementation
of internal business plans.
LINE OF BUSINESS RESULTS
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 information systems
accordingly. As a result, First of America currently measures
the individual performance of four business lines -- Commercial
Banking, Retail Sales & Delivery, Consumer Finance & Mortgage,
and Trust & Financial Services -- as well as the performance of
certain product lines within those businesses. A fifth category,
Corporate Investments & Funding, includes activities that are not
directly attributable to any one of the four major lines of
business.
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<PAGE>
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.
For reporting purposes this quarter, Commercial Lending and
Retail Sales & Delivery are combined and shown as Total Community
Banking. Table 1 presents summarized income statements for the
third quarter of 1997 and selected quarterly information for the
past six quarters for the business lines. The results for the
prior quarters have been restated to reflect this new
organizational structure.
Net income for each of the lines of business for the third
quarter of 1997 was higher than the year-ago quarter. Total
Community Banking's net income was up 17.1 percent for the third
quarter of 1997 over the same period of 1996 as a result of a
$5.4 million increase in non-interest income and a $13.2
reduction in non-interest expense. Consumer Finance & Mortgage's
net income increased 7.4 percent due to non-interest expense
being lower by $2.8 million. Trust & Financial Services' net
income was up 8.9 percent as a result of an increase in non-
interest income of $4.9 million which was partially offset by a
$3.2 million increase in non-interest expense.
<TABLE>
<CAPTION>
TABLE 1
LINE OF BUSINESS FINANCIAL PERFORMANCE
For quarter ended September 30, 1997 Total Consumer Trust & Corporate
Community Finance & Financial Investments Consolidated
INCOME STATEMENT Banking Mortgage Services & Funding Results
--------- --------- --------- --------- ---------
- - - ($ in thousands) - - -
<S> <C> <C> <C> <C> <C>
Net interest income (FTE) $ 176,702 42,906 1,481 6,002 227,091
Provision for loan losses 7,679 15,137 -- -- 22,816
Non-interest income 46,430 32,789 33,249 1,191 113,659
Non-interest expense 126,196 31,750 23,695 5,780 187,421
Corporate support 4,016 1,010 754 (5,780) --
Income tax expense (FTE) 31,018 10,115 3,741 1,353 46,227
--------- --------- --------- --------- ---------
Income before one-time gains and charges $ 54,223 17,683 6,540 5,840 84,286
Gains from branch sales, severance and
other one time charges (net of tax) (575)
Goodwill (net of tax) 4,667
---------
Net Income $ 79,044
=========
Contribution to consolidated results 64.33% 20.98 7.76 6.93 100.0
1997 1996
------------------------------------ ------------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
QUARTER RESULTS Sept. 31 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
--------- --------- --------- --------- --------- ---------
COMMUNITY BANKING
Net income $ 54,223 49,915 44,462 51,065 46,320 42,682
Return on equity 20.10 % 18.77 16.94 18.76 16.92 16.07
Efficiency ratio 58.36 61.13 64.24 62.51 64.26 65.84
CONSUMER FINANCE & MORTGAGE
Net income $ 17,683 18,153 15,891 16,288 16,468 15,831
Return on equity 16.62 % 16.69 14.39 14.05 13.67 12.90
Efficiency ratio 43.28 44.96 46.04 45.34 45.96 45.36
TRUST & FINANCIAL SERVICES
Net income $ 6,540 5,294 5,352 5,325 6,004 6,347
Return on equity 34.63 % 28.45 29.10 30.20 34.18 36.49
Efficiency ratio 70.40 74.85 74.82 74.88 68.94 67.37
CORPORATE INVESTMENT & FUNDING
Net income $ 5,840 6,427 7,950 5,732 2,985 2,859
Return on equity -- -- -- -- -- --
Efficiency ratio -- -- -- -- -- --
/TABLE
<PAGE>
ASSET QUALITY AND CREDIT RISK PROFILE
First of America's loan portfolio has no significant
concentrations of credit to any specific borrower or within any
geographic region, effectively reducing credit risk exposure.
Also reducing credit risk are First of America's conservative
lending policies and loan review process. At September 30, 1997,
the loan portfolio was comprised of residential mortgages (29.9
percent), consumer loans (22.9 percent), commercial mortgages
(28.1 percent) and commercial loans (19.1 percent).
The allowance for loan losses was 1.79 percent of total loans
compared with 1.65 percent a year ago; the allowance coverage of
non-performing loans was 285.32 percent compared with 250.13
percent. Non-performing loans and loans 90 days past due are
detailed by portfolio in Table 6.
The asset quality in the commercial loan and residential
mortgage portfolios, approximately three-quarters of total loans,
remains strong. Over the last two years, these portfolios have
experienced minimal net charge-offs.
Across the banking industry there has been a deterioration of
consumer loan quality, and in mid-1995, First of America also
experienced a rise in both delinquencies and net losses in its
installment loan and credit card portfolios from the favorable
levels previously experienced.
To reverse this trend, First of America intensified its
collection efforts and tightened credit controls. As a result,
the consumer installment loan portfolio's net charge-offs began
to stabilize in 1996 and decreased during the first nine months
of 1997. The consumer installment net charge-offs to average
loans for the third quarter was 1.02 percent compared with 1.20
percent for the same quarter of 1996.<PAGE>
However, for the managed credit card portfolio, the net
charge-offs to average loans ratio was 4.91 percent compared with
4.21 percent for 1996. The higher level of credit losses being
experienced is due in part to increases in personal bankruptcies.
To manage this ongoing problem we have undertaken several
initiatives to reduce future losses including new collection
strategies, restructuring of customer loans, and proactive
measures to effect recoveries from bankrupt accounts.
FUNDING, LIQUIDITY AND INTEREST RATE RISK
First of America continues to monitor interest rate risk,
provide liquidity and moderate changes in the market value of
the investment securities portfolio through a centralized funds
management division.
Liquidity is measured by a financial institution's ability to
raise funds through deposits, borrowed funds, capital or the
sale of assets. First of America relies primarily upon core
deposits for its liquidity. At September 30, 1997, core deposits
equalled 96.3 percent of total deposits. First of America does
not issue negotiated CD's in the national money markets, and
limits its level of purchased funds through corporate policy to
less than ten percent of assets. The majority of negotiated
CD's and purchased funds originate from the core deposit
customer base, including downstream correspondents. First of
America's interest rate risk policy is to minimize the effect on
net income resulting from a change in interest rates through
asset/liability management at all levels in the company. Each
quarter an interest rate sensitivity analysis is completed for
each line of business, as well as the corporation as a whole,
using an asset/liability model. Additional analysis is completed
and reviewed each month related to the interest rate sensitivity
of the corporation. The Asset and Liability Committees, which
exist within each line of business and at the corporate level,
review the analysis and as necessary, take appropriate action to
ensure compliance with policy and strategic objectives relating
to prudent risk rate management.
The difference between rate sensitive assets and liabilities,
including the impact of off-balance sheet interest rate swaps, is
presented in Table 7. The GAP reports' reliability in measuring
the risk to income from a change in interest rates is tested
through the use of simulation models. The most recent simulation
models, using various interest rate shock scenarios, show that
less than 4.0 percent of First of America's annual net income is
at risk if interest rates were to move up or down an immediate
one percent. Management has determined that these simulation
models provide a more accurate measurement of the company's
interest rate risk position than the GAP tables.
TABLE 2
INTEREST RATE SWAPS
<TABLE>
<CAPTION>
($ in thousands) Net Interest Income
Impact for the
Weighted Average Average Nine Months Ended
Notional Fair Market Average Rate Received Rate Paid September 30,
Hedged Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1997 1996
- ------------------------ --------- ------------ -------------- --------------- --------------- ---------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Market Rate CDs * -- -- -- -- -- -- (62)
FirstRate Fund deposits -- -- -- -- -- -- (22)
Bank notes -- -- -- -- -- 35 (36)
Long term debt $ 50,000 (281) 10.0 5.60%/fixed 5.69/variable (91) (3)
- ------------------------ --------- ------------ -------------- --------------- --------------- --------- ----------
Total $ 50,000 (281) 10.0 $ (56) $ (123)
========================= ========== ============= ============== ========= ==========
* This represents a basis swap.
</TABLE>
See Note 6 to the consolidated financial statements regarding
First of America and its subsidiaries use of interest rate swaps
as a hedge against certain debt. Although 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. Table 2 outlines First of
America's outstanding interest rate swaps at September 30, 1997.
First of America had outstanding interest rate swaps with a
notional value of $50 million which represented a hedge against
parent company debt. The outstanding swaps had a negative market<PAGE>
value of $281 thousand. At September 30, 1996, outstanding swaps
totalled $80.0 million in notional amounts with a negative market
value of $670 thousand.
At times First of America also utilizes interest rate caps to
manage its interest rate risk. Interest rate caps are contracts
that protect the holder from a rise, beyond a certain point, in
interest rates or some other underlying index. The contract is
based on a notional amount and a premium is paid for the right to
exercise the option. First of America had no outstanding
interest rate caps at September 30, 1997 or 1996.
First of America had no securities classified as held to maturity
at September 30, 1997 or 1996. In accordance with Financial
Accounting Standards Board Statement No. 115 "Accounting for
Certain Investments in Debt and Equity Securities," securities
available for sale are carried at market value which totalled
$5.0 billion at September 30, 1997. Amortized book value was
also $5.0 billion at quarter-end. The $42.2 million net
unrealized gain in securities available for sale resulted in a
corresponding, after-tax positive market value adjustment to
equity of $27.4 million. At December 31, 1996, the positive
market value adjustments to securities and equity from the
securities available for sale portfolio were $13.0 million and
$8.4 million, respectively.
CAPITAL STRENGTH
First of America began its share repurchase program during March
1996. At September 30, 1997, 8.5 million shares of First of
America Common Stock had been repurchased for a total cost of
$314 million. During the third quarter, 1.1 million shares were
repurchased. In October 1997, the repurchase of an additional
6.0 million shares was authorized. Any shares repurchased to
date and any additional repurchases under the current
authorization will be used for general corporate purposes and may
be available for reissuance in connection with the company's
stock based compensation plans, dividend reinvestment plan or
employee savings plan.
In January 1997, First of America privately placed $150 million
of fixed rate capital securities through First of America
Capital Trust I, a newly formed Delaware business trust,
controlled by the corporation. The 8.12% Capital Securities of
First of America Capital Trust I were priced at par. Cash
distributions are payable semi-annually on January 31 and July
31, beginning July 31, 1997. The proceeds from the issuance were
used for general corporate purposes and will further enhance the
corporation's strong capital position, while reducing its cost of
capital.
In July 1997, all of the privately placed 8.12% Capital
Securities were exchanged for indentical, but registered freely
tradable 8.12% Capital Securities
Total shareholders' equity was $1.8 billion at both September 30,
1997 and 1996 as net earnings retained and the positive change in
the market value adjustment to equity for available for sale
securities since September 30, 1996, more than offset the effect<PAGE>
of the share repurchase program. For the first nine months of
1997, the change in the adjustment in the market value of such
securities increased total equity by $19.0 million. Book value
per share rose to $20.87 from the $19.33 reported a year ago.
First of America continues to maintain, both on a consolidated
level and an affiliate basis, capital levels within the
parameters of "well capitalized" as defined by regulatory
guidelines. The consolidated total capital to risk adjusted
assets ratio at September 30, 1997, was 13.99 percent, the tier I
ratio was 10.60 percent and the tier I leverage ratio was 8.07
percent.
UPDATE
First of America recognizes the need to ensure its operations
will not be adversely impacted by Year 2000 computer software
failures. Potential software failures due to processing errors
arising from calculations using the Year 2000 date are a known
risk. A corporate wide task force, with representation from all
major business units, has been established to evaluate and
manage the risks, solutions, and costs associated with fixing
this problem.
Most of the costs incurred in addressing the Year 2000 problem
are currently expected to be expensed as incurred. Management
currently estimates the cost of achieving Year 2000 compliance
to be approximately $30 to $35 million (pre-tax) over the cost of
normal software upgrades and replacements and will be incurred
through the year 1999. A significant portion of these costs will
probably not be incremental to the Registrant, but will rather
represent a redeployment of existing information technology
resources. The preceding statements in this paragraph are
foward looking, and First of America's actual costs and results
may differ due to, amoung other things, additional system
testing, vendor contract negotiations, and technological
developments.
In October 1997, the Accounting Standards Executive Committee of
the AICPA voted to issue a final Statement of Position (SOP),
"Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." However, the issuance of this SOP is
subject to approval by the Financial Accounting Standards Board
(FASB). The AICPA hopes to issue a final SOP in the first
quarter of 1998. The SOP would be effective for financial
statements for fiscal years beginning after December 15, 1998,
with earlier application encouraged.
In summary, the SOP states that the following costs incurred in
developing internal-use software should be capitalized: direct
costs for materials and services paid to external parties for
developing or obtaining the software; payroll and payroll-related
costs for employees' time spent directly on the project; and
interest costs incurred in developing the software.
Currently, banks must expense such costs, which can be material
to the results of operation, in accordance with the guidance
provided by the Comptroller of the Currency. The potential
impact of this SOP on First of America is currently being
evaluated and cannot currently be estimated.
Management's statements of expectations for certain financial
results as included in this report, are forward-looking
statements. First of America's actual performance and
financial results may differ from these projections as a result
of a variety of factors, including but not limited to changes in
the economy, assumed rates of revenue growth, expense
reductions, competition and the implementation of internal
business plans.
<TABLE>
<CAPTION>
TABLE 3
CONSOLIDATED YIELD ANALYSIS (a)
1997 1996
----------------------------- -----------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Average Prime Rate (b) 8.5 % 8.5 8.3 8.3 8.3 8.3
EARNING ASSETS
Money Market Investments 7.31 % 6.57 5.12 6.03 5.83 5.75
U.S. Government and agencies 6.56 6.50 6.41 6.33 6.18 6.13
securities
State and municipal securities 8.09 8.14 8.12 8.13 8.22 8.32
Other securities 6.65 6.48 6.51 6.39 6.32 6.24
-------- -------- -------- -------- -------- --------
Total securities 6.70 6.68 6.57 6.47 6.38 6.28
-------- -------- -------- -------- -------- --------
Consumer installment loans 8.87 8.76 8.67 8.59 8.76 8.53
Commercial revolving loans 13.99 13.97 14.08 14.28 14.16 13.96
Commercial loans 8.92 8.79 8.68 8.74 8.66 8.69
Commercial mortgage loans 9.18 9.13 9.11 9.13 9.12 9.16
Residential real estate loans 8.11 8.05 7.99 7.99 7.97 7.97
-------- -------- -------- -------- -------- --------
Total loans 9.04 8.98 8.92 8.91 8.89 8.85
-------- -------- -------- -------- -------- --------
Total earning assets 8.45 % 8.42 8.34 8.33 8.31 8.23
======== ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES
Checking 2.31 % 2.22 2.13 2.11 2.07 2.17
Savings 3.43 3.41 3.35 3.23 3.24 3.17
CD's 5.42 5.38 5.36 5.48 5.50 5.44
-------- -------- -------- -------- -------- --------
Core deposits 4.07 4.03 4.00 4.07 4.11 4.09
Negatiated CD's 5.56 5.47 5.35 5.37 5.31 5.27
Short term borrowings 5.83 5.67 5.44 5.43 5.45 5.46
Long term debt 7.28 7.57 7.68 7.98 7.94 7.83
-------- -------- -------- -------- -------- --------
Total borrowed funds 6.20 6.22 5.99 6.00 6.11 6.02
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 4.47 % 4.41 4.34 4.34 4.35 4.36
======== ======== ======== ======== ======== ========
NET INTEREST MARGIN
Interest income to average earning 8.45 % 8.42 8.34 8.33 8.31 8.23
assets
Interest expense to average earning 3.77 3.75 3.68 3.69 3.72 3.74
assets
Net interest margin 4.68 4.67 4.66 4.64 4.59 4.49
(a) Fully taxable equivalent, based on a marginal federal income tax rate of 35%.
(b) The First National Bank of Chicago Corporate Base Rate.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 4 FIRST OF AMERICA BANK CORPORATION
Analysis of Net Interest Income
Third Quarter 1997 Versus Third Quarter 1997 Versus
($ in thousands) Third Quarter 1996 Second Quarter 1997
- ------------------------------ -------------------------------- --------------------------------
CHANGES IN RATE AND VOLUME Total Change Due To Total Change Due To
INCREASE (DECREASE): Change Volume Rate Change Volume Rate
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Loans (FTE) $ (13,307) (19,638) 6,331 1,813 (3,231) 5,044
Taxable securities 4,760 1,767 2,993 3,417 3,144 273
Tax exempt securities (FTE) 4,550 4,650 (100) 1,223 1,291 (68)
Money market investments (931) (1,523) 592 (303) (532) 229
------- ------- ------- ------- ------- -------
Total Interest Income (4,928) (14,745) 9,817 6,150 672 5,478
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing deposits (17,726) (16,734) (992) 824 (1,824) 2,648
Short term borrowings 6,531 5,361 1,170 (759) (1,641) 882
Long term borrowings 9,133 9,856 (723) 3,600 4,131 (531)
------- ------- ------- ------- ------- -------
Total Interest Expense (2,062) (1,517) (545) 3,665 665 3,000
------- ------- ------- ------- ------- -------
Change in net interest income (FTE) $ (2,866) (13,227) 10,361 2,485 7 2,478
======= ======= ======= ======= ======= =======
NOTE: The change in income attributable to volume is calculated by multiplying the change in volume times
the prior year's rate. The change in income attributable to rate is calculated by multiplying the change in rate
times the prior year's volume. Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. Fully
taxable equivalent income on certain tax exempt loans and securities is calculated using a 35% tax rate.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 5
SUMMARY OF LOAN LOSS EXPERIENCE
($ in thousands) 1997 1996
- ----------------------------- --------------------------------- --------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
ALLOWANCE FOR LOAN LOSSES ---------- ---------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Balance, at beginning of period $ 257,953 255,766 252,846 252,807 249,388 245,207
Provision charged against income 22,816 18,416 22,816 23,659 21,966 23,230
Recoveries:
Consumer installment 8,125 9,530 9,964 10,933 10,954 10,839
Consumer revolving 2,362 2,227 1,837 1,815 2,043 2,084
Commercial 1,098 1,580 986 1,032 1,411 1,632
Commercial mortgage 500 1,771 611 962 1,194 789
Residential mortgage 56 81 77 34 33 51
--------- --------- --------- --------- --------- ---------
Total recoveries 12,141 15,189 13,475 14,776 15,635 15,395
--------- --------- --------- --------- --------- ---------
Charge-offs:
Consumer installment 14,787 14,160 17,659 20,737 19,149 17,781
Consumer revolving 13,239 13,681 13,043 12,391 11,628 11,824
Commercial 4,575 2,596 1,377 3,577 1,531 2,868
Commercial mortgage 521 608 811 1,416 1,415 1,635
Residential mortgage 227 383 471 275 459 336
--------- --------- --------- --------- --------- ---------
Total charge-offs 33,349 31,428 33,361 38,396 34,182 34,444
--------- --------- --------- --------- --------- ---------
Net charge-offs 21,208 16,239 19,886 23,620 18,547 19,049
--------- --------- --------- --------- --------- ---------
Balance, at end of period $ 259,561 257,953 255,776 252,846 252,807 249,388
========= ========= ========= ========= ========= =========
Average loans outstanding (net of
unearned income) $14,479,236 14,662,478 14,833,677 15,111,023 15,346,731 15,546,597
========== ========== ========== ========== ========== ==========
NET CHARGE-OFFS BY PORTFOLIO
AS % OF LOANS OUTSTANDING (A)
Consumer installment 1.06 % 0.72 1.17 1.37 1.05 0.86
Consumer revolving 4.82 4.85 4.62 4.47 4.18 4.30
Commercial 0.50 0.15 0.06 0.38 0.02 0.19
Commercial mortgage -- (0.12) 0.02 0.05 0.02 0.09
Residential mortgage 0.02 0.03 0.04 0.02 0.04 0.02
MANAGED BANKCARD NET CHARGE-OFFS
On balance sheet $ 9,704 10,224 10,068 9,482 8,431 8,740
Securitized 5,438 4,826 5,475 5,197 4,739 4,811
-------- -------- -------- -------- -------- --------
Total managed bankcard net
charge-offs $ 15,142 15,050 15,543 14,679 13,170 13,551
======== ======== ======== ======== ======== ========
Net charge-offs as % of managed
loans (s) 4.91 % 4.73 4.81 4.60 4.21 4.35
CHARGE-OFFS AS RECOVERIES RATIOS
Net charge-offs to average
loans (a) 0.58 % 0.45 0.54 0.62 0.48 0.49
Earnings coverage of net
charge-offs 6.67 x 7.90 7.14 6.22 5.21 6.20
Recoveries to total charge-offs 36.41 % 48.33 40.39 38.48 45.74 44.70
Provision to average loans 0.63 0.51 0.62 0.62 0.57 0.60
Allowance to total period
end loans 1.79 1.76 1.74 1.68 1.65 1.61
(a) Annualized
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 6
MEASUREMENT OF ASSET QUALITY
($ in thousands) 1997 1996
- ----------------------------- -------------------------------- -------------------------------
3rd Qtr. 2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr.
Sept. 30 June 30 Mar. 31 Dec. 31 Sept. 30 June 30
NON-PERFORMING ASSETS --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Non-accrual loans:
Commercial $ 25,568 21,255 22,383 27,973 37,739 36,454
Commercial mortgage 39,495 43,255 37,568 34,959 36,610 40,398
Residential mortgage 21,361 20,435 20,958 20,684 19,198 18,251
Revolving mortgage 1,449 1,229 1,264 569 469 602
Consumer installment -- -- -- -- -- --
Consumer revolving -- -- -- -- -- --
-------- --------- --------- --------- --------- ---------
Total non-accrual loans $ 87,873 86,174 82,173 84,185 94,016 95,705
--------- --------- --------- --------- --------- ---------
Renegotiated loans:
Commercial $ 1,084 2,093 3,449 3,492 3,881 6,895
Commercial mortgage 1,456 1,665 2,242 2,249 2,438 1,895
Residential mortgage 560 565 613 673 733 741
Revolving mortgage -- -- -- -- -- --
Consumer installment -- -- -- -- -- --
Consumer revolving -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total renegotiated loans $ 3,100 4,323 6,304 6,414 7,052 9,531
--------- --------- --------- --------- --------- ---------
Total non-performing loans $ 90,973 90,497 88,477 90,599 101,068 105,236
--------- --------- --------- --------- --------- ---------
Other real estate owned $ 19,535 19,366 25,230 24,190 28,026 30,933
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 110,508 109,863 113,707 114,789 129,094 136,169
========= ========= ========= ========= ========= =========
Loans past due 90 days or more:
Commercial $ 6,585 1,618 1,542 1,464 2,960 1,479
Commercial mortgage 1,456 1,461 549 704 5,044 2,853
Residential mortgage 830 481 1,793 1,214 2,839 3,010
Revolving mortgage 4,118 1,830 1,745 1,746 1,534 1,411
Consumer installment 9,536 9,787 9,216 12,612 13,700 12,347
Consumer revolving 11,420 8,857 9,729 8,986 7,716 7,000
--------- --------- --------- --------- --------- ---------
Total loans past due 90 days or
more $ 33,945 24,034 24,574 26,726 33,793 28,100
========= ========= ========= ========= ========= =========
ASSET QUALITY RATIOS
Non-performing assets as a % of total 0.51 % 0.51 0.53 0.52 0.58 0.61
assets
Non-performing assets as a % of
total loans + OREO 0.76 0.75 0.77 0.76 0.84 0.88
Allowance coverage of non-performing
loans 285.32 285.04 289.09 279.09 250.13 236.98
Allowance coverage of non-performing
assets 234.88 234.80 224.94 220.27 195.83 183.15
NONPERFORMING ASSET SUMMARY
At December 31, 1996 1995 1994 1993 1992 1991
- ------------------------------ --------- --------- --------- --------- --------- ---------
Non-accrual loans $ 84,185 104,174 96,814 121,186 126,619 116,995
Renegotiated loans 6,414 12,327 4,852 10,879 20,669 16,837
Other real estate owned 24,190 31,103 38,662 50,595 48,699 34,601
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 114,789 147,604 140,328 182,660 195,987 168,433
========= ========= ========= ========= ========= =========
Loans past due 90 days or more $ 26,726 28,124 18,208 23,462 20,887 32,499
/TABLE><PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE 7
INTEREST RATE SENSITIVITY
September 30, 1997
0 to 0 to 0 to 0 to 0 to
($ in millions) 30 Days 60 Days 90 Days 180 Days 365 Days
- ----------------------------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
ASSETS
Other earning assets $ (45) (46) (46) (46) (45)
Investment securities 38 164 64 49 93
Loans, net of unearned discount (46) (28) (6) 28 110
--------- --------- --------- --------- ---------
Total rate sensitive assets (RSA) $ (53) 90 12 31 158
========= ========= ========= ========= =========
LIABILITIES
Money market type deposits $ (30) (30) (30) (30) (30)
Other core savings and time deposits 14 (52) (45) (61) (11)
Negotiated deposits (2) (17) 17 14 16
Borrowings 208 178 113 188 214
Interest rate swap agreements (30) -- -- -- (25)
Interest rate cap agreements -- -- -- -- --
--------- --------- --------- --------- ---------
Total rate sensitive liabilities (RSL) $ 160 79 55 111 164
========= ========= ========= ========= =========
GAP (RSA - RSL) $ (213) 11 (43) (80) (6)
========= ========= ========= ========= =========
RSA divided by RSL (2.85)% 0.36% (0.40)% (0.67)% 0.14%
GAP divided by total assets (0.94) 0.11 (0.14) (0.31) 0.03
Assumptions:
(1) Maturities of rate sensitive securities are based on contractual maturities and estimated prepayments.
(2) Maturities of rate sensitive loans are based contractual maturities, esitmated prepayments and
estimated repricing impact.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest rate caps are based on contractual
maturities and estimated repricing.
/TABLE
<PAGE>
II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(11) Statement regarding computation of per
share earnings.
The computation of common and common
equivalents per share is described in Note
4 to the Consolidated Financial Statements
of this report.
(27) Financial Data Schedule
(b) Reports on Form 8-K
On July 2, 1997, the Registrant filed a Current
Report on Form 8-K dated June 16, 1997,
regarding a news release announcing that it had
entered into an agreement to sell its Florida
operations.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, First of America has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRST OF AMERICA BANK CORPORATION
REGISTRANT
Date: November 13, 1997 /s/ THOMAS W. LAMBERT
Thomas W. Lambert
Executive Vice President and
and Chief Financial and
Accounting Officer)<PAGE>
EXHIBIT INDEX
(27) Financial Data Schedule
