<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] No fee required.
[ ] 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 CORPORATION LOGO]
NOTICE OF ANNUAL MEETING AND PROXY STATEMENT
Annual Meeting of Shareholders
April 16, 1997
<PAGE> 3
foa bank corp. logo
211 South Rose Street
Kalamazoo, Michigan 49007
(616) 376-9000
NOTICE OF ANNUAL SHAREHOLDERS MEETING
APRIL 16, 1997
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 16, 1997 at 9:00 a.m. (Kalamazoo time). A form of
Proxy and Proxy Statement for the meeting are furnished herewith. The purpose of
the meeting is to consider and vote on the following matters:
(1) Election of four Directors to serve until the 2000 Annual Meeting of
Shareholders and until their successors have been elected and qualified.
(2) Approval of an increase in the number of shares of authorized Common
Stock of First of America Bank Corporation to 200,000,000 from
100,000,000.
(3) Approval of the First of America Bank Corporation Director Stock
Compensation Plan.
(4) Ratification of the selection of KPMG Peat Marwick LLP, Certified Public
Accountants, as independent auditors for First of America.
(5) 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 24, 1997,
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 17, 1997
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 16, 1997 at 9:00
a.m. (Kalamazoo time) at the Fetzer Business Development Center, Western
Michigan University, Kalamazoo, Michigan (the "Annual Meeting").
The cost of solicitation will be borne by First of America. In addition to
the use of the mails, proxies may be solicited by directors and persons
regularly employed by First of America in person and by telephone. First of
America has also 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 First of America 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 17, 1997.
Common shareholders of record at the close of business on February 24, 1997
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.
1
<PAGE> 5
PRINCIPAL SHAREHOLDERS
As of the close of business on February 3, 1997, there were 59,863,058
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. The following table sets forth as of February 20, 1997 the
name and address of every person or entity known by First of America to be the
beneficial owner of more than 5 percent of First of America's Common Stock, the
total number of shares beneficially owned and the percent of class so owned.
<TABLE>
<CAPTION>
AMOUNT AND NATURE
NAME AND ADDRESS OF BENEFICIAL PERCENT
TITLE OF CLASS OF BENEFICIAL OWNER OWNERSHIP OF CLASS
- ------------------------------------- ---------------------------------------------- ----------------- --------
<S> <C> <C> <C>
Common Stock First of America Bank Corporation, 3,481,019* 5.8%
Trust Division,
211 South Rose Street,
Kalamazoo, Michigan
</TABLE>
- -------------------------------------------
* The shares are held in various fiduciary capacities by First of America's
affiliate banks and trust companies. Messrs. Chormann and Daniel Smith, each a
director, serve on the Unified Trust Committee of the corporation, which
exercises oversight with respect to the trust departments of First of America's
affiliate banks and its affiliate trust companies. The amount of the shares
shown in which subsidiaries with trust powers have sole voting power is 28,805
shares (0.05% of outstanding common shares), sole investment power is 2,447,836
shares (4.06% of outstanding common shares) and shared investment power is
1,033,183 shares (1.71% of outstanding common shares). There was no shared
voting power.
(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 2000.
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 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, it 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 3, 1997. As of that date,
none of these persons beneficially owned one percent or more of the outstanding
shares. The information that follows is based in part on information supplied by
these persons.
NOMINEES FOR DIRECTORS FOR THREE-YEAR TERMS ENDING IN 2000
JON E. BARFIELD, age 45, is Chairman and Chief Executive Officer of Bartech,
Inc., a provider of contract employment and related staffing services, in
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 beneficially owns
3,724 shares of First of America Common Stock. Additionally, Mr. Barfield has an
account in the First of America Bank Corporation Director Deferred Compensation
Plan (the "Deferral Plan"), the earnings of which are determined as if deferred
fees and credited earnings were invested in
2
<PAGE> 6
First of America Common Stock. His account, which is payable to him only in
cash, includes the current equivalent value of 963 common shares.
RICHARD F. CHORMANN, age 59. On May 1, 1996, Mr. Chormann was named
Chairman, President and Chief Executive Officer of First of America. He has been
employed by First of America and its predecessor since 1958. Mr. Chormann 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 107,519 shares
of First of America Common Stock, which includes 92,350 shares covered by
currently exercisable options granted under the Restated First of America Bank
Corporation 1987 Stock Option Plan ("1987 Stock Option Plan") Mrs. Chormann owns
3,470 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
29,636 common shares.
JOEL N. GOLDBERG, age 59, is retired 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 116,092 shares of First of America Common Stock.
JAMES S. WARE, age 61, is retired 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 beneficially owns 5,388 shares of First of America Common Stock.
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1998
JOHN W. BROWN, age 62, is Chairman, President and Chief Executive Officer of
Stryker Corporation, Kalamazoo, Michigan, a manufacturer of surgical and medical
products. Mr. Brown was appointed a director of First of America in 1992. He
serves on the Nominating and Compensation Committee. Mr. Brown beneficially owns
3,500 shares of First of America Common Stock.
CLIFFORD L. GREENWALT, age 64, 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 Audit, Executive,
Nominating and Compensation, and Public Policy Committees. Mr. Greenwalt
beneficially owns 13,296 shares of First of America Common Stock jointly with
Mrs. Greenwalt. Mrs. Greenwalt owns another 4,007 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 56, 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 beneficially owns 19,375 shares of First of America Common
Stock. Additionally, Ms. Johnson has an account in the Deferral Plan, the
earnings of which are determined as if deferred fees and credited earnings were
invested in First of America Common Stock. Her account, which is payable to her
only in cash, includes the current equivalent value of 1,088 common shares.
MARTHA MAYHOOD MERTZ, age 54, is President of Mayhood/Mertz, Inc., a
commercial real estate development and property management company, in Okemos,
Michigan. She became a director of First of America in August 1993. Ms. Mertz
serves on the Audit and the Nominating and Compensation Committees. She
beneficially owns 2,332 shares of First of America Common Stock. Additionally,
Ms. Mertz has an account in the Deferral Plan, the earnings of which are
determined as if deferred fees and credited earnings were invested in First of
America Common Stock. Her account, which is payable to her only in cash,
includes the current equivalent value of 329 common shares.
3
<PAGE> 7
DIRECTORS NOT STANDING FOR ELECTION WHOSE TERMS END IN 1999
JOSEPH J. FITZSIMMONS, age 62, is retired 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 beneficially owns 1,728 shares of First of America
Common Stock and 400 shares in a retirement account.
ROBERT L. HETZLER, age 51, 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 beneficially owns 900 shares and an additional
6,008 common shares which are held jointly by him and Mrs. Hetzler.
DANIEL R. SMITH, age 62, retired as Chairman and Chief Executive Officer of
First of America on May 1, 1996. He was previously employed by First of America
and its predecessor since 1955. He became a director of First of America in
1982. He serves on the Executive and Public Policy Committees of the Board and
on First of America's Unified Trust Committee. Mr. Smith beneficially owns
199,428 shares of First of America Common Stock, which includes 148,950 shares
covered by currently exercisable options granted under the 1987 Stock Option
Plan. Mrs. Smith owns 796 common shares of which Mr. Smith disclaims beneficial
ownership.
LEY S. SMITH, age 62, is Executive Vice President of Pharmacia & Upjohn,
Inc. and President, U.S. Pharma Product Center, a manufacturer of pharmaceutical
and other products. He was also 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
Multimedia Medical Systems. He became a director of First of America in 1996. He
serves on the Audit and the Nominating and Compensation Committees. He
beneficially owns 1,500 shares of First of America Common Stock. Additionally,
Mr. Smith has an account in the Deferral Plan, the earnings of which are
determined as if deferred fees and credited earnings were invested in First of
America Common Stock. His account, which is payable to him only in cash,
includes the current equivalent value of 616 common shares.
As of February 3, 1997 the directors and executive officers of First of
America as a group beneficially owned 833,254 shares or 1.38 percent of the
outstanding shares of First of America Common Stock. This group had sole voting
and investment power with respect to 762,680 shares or 1.26 percent of the
outstanding First of America Common Stock which includes 489,918 common shares
covered by currently exercisable options granted under the 1987 Stock Option
Plan and shared voting and investment power with respect to 70,574 shares or
0.12 percent of the outstanding common shares. The shares beneficially owned by
William R. Cole, Thomas W. Lambert, David B. Wirt and Donald J. Kenney, Named
Executives (as defined below) who are not directors of First of America, were
52,182, 46,373, 55,438 and 42,184, respectively, which includes 38,833, 32,117,
38,217, and 36,150 shares covered by currently exercisable options granted under
the 1987 Stock Option Plan. Additionally, certain directors and executive
officers have accounts in the Deferral Plan or in a salary deferral savings
plan, with a total current equivalent value of 45,547 common shares.
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 1996. 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 1996. Its principal functions are
to recommend to the full Board the engagement or discharge of the independent
auditors, to direct and supervise investigations into matters relating to
4
<PAGE> 8
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.
The Nominating and Compensation Committee met six times during 1996. 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 stock grants will be
awarded, the number of shares covered by such stock grants, option exercise
prices 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. It also reviews the
qualifications and determines the eligibility of persons to serve as directors
of First of America's affiliate banks. In addition, this Committee 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 four times in 1996. Its principal function
is to oversee compliance by First of America and its affiliate organizations
with the federal Community Reinvestment Act, federal affirmative action
requirements and comparable state laws. It also oversees charitable giving by
First of America and its affiliate organizations and makes recommendations to
the Board with respect to these functions and related matters.
The Board of Directors met eight times in 1996. 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.
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 two
persons serving as chief executive officer during 1996 (the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM COMPENSATION
---------------------------------
ANNUAL COMPENSATION AWARDS PAYOUTS
-------------------------------- ----------------------- -------
RESTRICTED SECURITIES
OTHER ANNUAL STOCK UNDERLYING LTIP ALL OTHER
NAME AND SALARY BONUS COMPENSATION AWARD(S) OPTIONS PAYOUTS COMPENSATION
PRINCIPAL POSITION YEAR ($)(1) ($) ($)(2) ($)(3) (#) ($) ($)(4)
- ---------------------------- ---- ------- ------- ------------ ---------- ---------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Richard F. Chormann(5) 1996 565,400 221,638 -0- -0- 150,000 -0- -0-
Chairman, President and 1995 453,600 44,453 -0- -0- 20,600 69,758 -0-
Chief Executive Officer 1994 453,600 87,318 -0- -0- 14,000 -0- -0-
Daniel R. Smith(6) 1996 241,442 156,800 -0- -0- -0- -0- 249,369(7)
Chairman and Chief Executive 1995 675,000 75,600 -0- -0- 38,350 121,107 -0-
Officer 1994 675,000 148,500 -0- -0- 25,000 -0- -0-
William R. Cole 1996 317,000 93,199 -0- -0- 50,000 -0- -0-
Chairman and Chief Executive 1995 305,000 25,620 -0- -0- 10,400 36,452 -0-
Officer, First of America 1994 274,235 76,924 -0- -0- 7,900 -0- -0-
Bank - Michigan, N.A.
Thomas W. Lambert 1996 275,000 80,851 -0- -0- 50,000 -0- -0-
Executive Vice President and 1995 265,000 22,260 -0- -0- 9,050 34,261 -0-
Chief Financial Officer 1994 265,000 43,725 -0- -0- 6,900 -0- -0-
David B. Wirt 1996 275,000 80,851 -0- -0- 50,000 -0- -0-
Executive Vice President 1995 265,000 22,260 -0- -0- 9,050 34,261 -0-
1994 265,000 43,725 -0- -0- 6,900 -0- -0-
Donald J. Kenney 1996 266,500 78,352 -0- -0- 50,000 -0- -0-
Executive Vice President 1995 260,000 21,840 -0- -0- 8,850 31,253 -0-
1994 236,925 39,093 -0- -0- 6,750 -0- -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) As described more fully under the caption "Long-Term Compensation Plan
Awards in Last Fiscal Year," as of December 31, 1996, each of the Named
Executives other than Mr. Smith held Performance Share Rights to receive an
equivalent number of shares of restricted stock upon the corporation's
attainment of certain return on equity and efficiency ratio goals. The number of
Rights and the value of the related restricted stock (based on the closing price
on the New York Stock Exchange as of December 31, 1996) are as follows: Mr.
Chormann, 20,000 Rights valued at $1,202,500; Mr. Cole, 6,000 Rights valued at
$360,750; Mr. Lambert, 6,000 Rights valued at $360,750; Mr. Wirt, 6,000 Rights
valued at $360,750; and Mr. Kenney, 6,000 Rights valued at $360,750.
(4) Except as described for Mr. Smith, the corporation does not provide any
other forms of executive compensation.
(5) Mr. Chormann became Chairman, President and Chief Executive Officer on May
1, 1996, prior to which he was President and Chief Operating Officer.
(6) Mr. Smith retired as Chairman and Chief Executive Officer on May 1, 1996. He
remains a director of the corporation.
(7) The amount shown is comprised of (i) $218,269 awarded to Mr. Smith in
connection with his retirement, (ii) $14,000 in corporate and affiliate
non-employee director's retainer fees, and (iii) $17,100 paid in corporate and
affiliate board and committee meeting fees.
6
<PAGE> 10
OPTION GRANTS IN LAST FISCAL YEAR
The following table presents information concerning the stock options
granted to the Named Executives under the First of America Bank Corporation
Stock Compensation Plan (the "Employee Stock Compensation Plan") during 1996 and
the potential realizable value for the stock options granted based on future
market appreciation assumptions.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
ASSUMED ANNUAL RATES OF STOCK
INDIVIDUAL GRANTS PRICE APPRECIATION FOR OPTION TERM(1)
------------------------------------------------------------ --------------------------------------
NUMBER OF
SECURITIES % OF TOTAL EXERCISE
UNDERLYING OPTIONS OR BASE
OPTIONS GRANTED TO PRICE
GRANTED EMPLOYEES IN ($/SH) EXPIRATION
NAME (#)(2) FISCAL YEAR (3) DATE 0% ($) 5% ($) 10% ($)
- ------------------------ --------------- --------------- ----------- ---------- ------ ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Richard F. Chormann(4) 150,000 30% $54.44 10/28/2006 -0- 5,136,000 13,014,000
Chairman, President
and Chief Executive
Officer
Daniel R. Smith(5) -0- -0- -- -- -- -- --
Chairman and Chief
Executive Officer
William R. Cole 50,000 10 54.44 10/28/2006 -0- 1,712,000 4,338,000
Chairman and Chief
Executive Officer, First
of America Bank -
Michigan, N.A.
Thomas W. Lambert 50,000 10 54.44 10/28/2006 -0- 1,712,000 4,338,000
Executive Vice
President and Chief
Financial Officer
David B. Wirt 50,000 10 54.44 10/28/2006 -0- 1,712,000 4,338,000
Executive Vice
President
Donald J. Kenney 50,000 10 54.44 10/28/2006 -0- 1,712,000 4,338,000
Executive Vice
President
All Shareholders 2,049,711,000 5,193,719,000
</TABLE>
- -------------------------------------------
(1) The potential realizable value is reported net of the option 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 $88.68 and
$141.20, respectively. The amounts shown for "All Shareholders" are based on
59,863,058 shares (number of shares outstanding as of February 3, 1997). This
presentation is not intended to forecast possible future appreciation of the
corporation's common shares.
(2) Vesting is based on achievement of the stock price targets of $62.50, $72.50
and $85.00. One-third of the stock options vest at each stock price target. All
unvested stock options will become vested on October 29, 2003, provided the
option holder remains employed on such date. The vested stock options may be
exercised at any time after October 29, 1997.
(3) The option price shown represents the average of the high and low prices on
the New York Stock Exchange on the grant date.
(4) Mr. Chormann became Chairman, President and Chief Executive Officer on May
1, 1996, prior to which he was President and Chief Operating Officer.
(5) Mr. Smith retired as Chairman and Chief Executive Officer on May 1, 1996. He
remains a director of the corporation.
7
<PAGE> 11
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
The following table presents information about the exercise during 1996, by
the Named Executives, of stock options previously granted under the 1987 Stock
Option Plan. Also shown are the number of shares covered by and the estimated
value of unexercised options under both the 1987 Stock Option Plan and the
Employee Stock Compensation Plan at December 31, 1996.
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF VALUE OF
SECURITIES UNDERLYING UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY
AT FY-END (#) OPTIONS AT FY-END ($)
--------------------- ---------------------
SHARES ACQUIRED VALUE REALIZED EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) ($) UNEXERCISABLE UNEXERCISABLE(1)
- ------------------------- ---------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Richard F. Chormann(2) -0- -0- 92,350 / 168,400 3,082,610 /1,211,083
Chairman, President
and Chief Executive
Officer
Daniel R. Smith(3) 14,000 495,250 176,150 / -0- 5,247,206 / -0-
Chairman and Chief
Executive Officer
William R. Cole -0- -0- 38,833 / 59,567 1,241,433 / 472,679
Chairman and Chief
Executive Officer, First
of America Bank -
Michigan, N.A.
Thomas W. Lambert 3,200 69,002 32,117 / 58,333 986,256 / 448,450
Executive Vice
President and Chief
Financial Officer
David B. Wirt -0- -0- 38,217 / 58,333 1,225,444 / 448,450
Executive Vice
President
Donald J. Kenney -0- -0- 36,150 / 58,150 1,197,481 / 444,844
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 Tuesday, December 31, 1996 of
$60.125.
(2) Mr. Chormann became Chairman, President and Chief Executive Officer on May
1, 1996, prior to which he was President and Chief Operating Officer.
(3) Mr. Smith retired as Chairman and Chief Executive Officer on May 1, 1996. He
remains a director of the corporation.
8
<PAGE> 12
LONG-TERM COMPENSATION PLAN AWARDS IN LAST FISCAL YEAR
The following table reflects: (1) estimated future cash payments under First
of America's Long-Term Incentive Compensation Plan based on the Named
Executive's target award and the minimum threshold and maximum amounts for the
three-year performance cycle beginning January 1, 1996; and (2) performance
share rights under the Employee Stock Compensation Plan held by the Named
Executive and the threshold and maximum amounts for the performance period
between January 1, 1997 and June 30, 1998. Estimated cash payments under the
Long-Term Incentive Compensation Plan, reported as the first line for each Named
Executive, are contingent upon attaining the corporation's earnings per share
performance goals during the performance cycle shown. Restricted stock awards
pursuant to performance share rights under the Employee Stock Compensation Plan,
reported as the second line for each Named Executive, are contingent upon
attaining return on equity and efficiency ratio performance goals during the
performance period shown. Both First of America's Long-Term Incentive
Compensation Plan and Employee Stock Compensation Plan are more fully described
in the Nominating and Compensation Committee Report on Executive Compensation
under the captions "Long-Term Incentive Compensation" and "Stock-Based
Compensation".
LONG-TERM INCENTIVE PLAN -- AWARDS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
ESTIMATED FUTURE PAYOUTS
UNDER NON-STOCK PRICE-BASED PLAN (1)(2)
PERFORMANCE --------------------------------------------------
OR OTHER
NUMBER OF PERIOD UNTIL
UNITS OR MATURATION OR THRESHOLD TARGET MAXIMUM
NAME OTHER RIGHTS PAYOUT ($) OR (#) ($) OR (#) ($) OR (#)
- -------------------------- ------------ ----------------- ------------ ---------- ----------
<S> <C> <C> <C> <C> <C>
Richard F. Chormann(3) None 1/1/96 - 12/31/98 $52,500 210,000 273,000
Chairman, President and 20,000 1/1/97 - 6/30/98 6,667 shares 20,000 20,000
Chief Executive Officer
Daniel R. Smith(4) None 1/1/96 - 12/31/98 $ 3,889 15,555 20,222
Chairman and Chief None -- -- -- --
Executive Officer
William R. Cole None 1/1/96 - 12/31/98 $19,813 79,250 103,025
Chairman and Chief 6,000 1/1/97 - 6/30/98 2,000 shares 6,000 6,000
Executive Officer
First of America Bank -
Michigan, N.A.
Thomas W. Lambert None 1/1/96 - 12/31/98 $17,188 68,750 89,375
Executive Vice President 6,000 1/1/97 - 6/30/98 2,000 shares 6,000 6,000
and Chief Financial
Officer
David B. Wirt None 1/1/96 - 12/31/98 $17,188 68,750 89,375
Executive Vice President 6,000 1/1/97 - 6/30/98 2,000 shares 6,000 6,000
Donald J. Kenney None 1/1/96 -12/31/98 $16,656 66,625 86,613
Executive Vice President 6,000 1/1/97 - 6/30/98 2,000 shares 6,000 6,000
</TABLE>
- -------------------------------------------
(1) In the first line for each Named Executive, the minimum incentive award
shown under the column titled "Threshold" represents the estimated payment that
would be awarded if the corporation's minimum internal earnings per share
threshold 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 1996 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.
(2) In the second line for each Named Executive, amounts shown under the column
titled "Number of Units or Other Rights" are the number of Performance Share
Rights granted under the Employee Stock Compensation Plan. Based on the
particular number of such Rights, the number of shares shown under the column
titled "Threshold" represents the restricted stock award that would be made if
achievement of the corporation's minimum return on equity and efficiency ratio
goals (specified for purposes of the performance share rights held) are attained
during the last quarter of the performance cycle. The "Target" (which is also
the "Maximum") restricted stock award will be made if achievement of the
corporation's targeted return on equity and efficiency ratio goals (specified
for purposes of the performance share rights held) are attained for two
consecutive quarters, or during the last quarter, of the performance cycle. The
estimated Employee Stock Compensation Plan future restricted stock payouts under
the threshold, target and maximum award columns were computed based on the
number of Rights to receive restricted stock awards granted to the Named
Executive in 1996.
(3) Mr. Chormann became Chairman, President and Chief Executive Officer on May
1, 1996, prior to which he was President and Chief Operating Officer.
(4) Mr. Smith retired as Chairman and Chief Executive Officer on May 1, 1996. He
remains a director of the corporation.
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
- ------------ -------- -------- -------- -------- --------
<C> <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 final average compensation and years of service with the
corporation or subsidiary. The Retirement Plan benefit formula is 70 percent of
the participant's final average compensation minus 50 percent of the primary
social security benefit, prorated for service of less than 35 years.
Compensation, for determinations under the Retirement Plan, includes base salary
and incentive payments made under the Annual Incentive Plan and is reduced by
any portion of base salary or Annual Plan incentive payment deferred under a
deferred compensation arrangement. Income derived from stock compensation is not
included in compensation for Retirement Plan or Supplemental Plan
determinations. Employees who were employed before January 1, 1985 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. Chormann -- $587,085, 37 years; Mr.
Cole -- $338,604, 35 years; Mr. Lambert -- $320,303, 33 years; Mr. Wirt --
$320,303, 31 years; and Mr. Kenney -- $289,789, 10 years. Mr. Smith retired
effective May 1, 1996 after 40 years of service and on June 1, 1996 began
receiving his annual retirement benefit of $573,327 which was computed in
accordance with the retirement plans described above.
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 for executive officers, including the Named
Executives, were amended and restated effective November 20, 1996 to provide
that in the event of a change in control of First of America before November 20,
2001, the employment of the officer covered by the Agreement may not be
terminated except for cause during the two-year and three-month period
commencing three months
10
<PAGE> 14
before the date of a change in control and ending two years following the change
in control (the "Change in Control Period").
The Agreement generally defines change in control as follows: (1) five days
before expiration of a tender or exchange offer that would have the effect of
giving a person, entity or group beneficial ownership of 25 percent or more of
First of America's voting stock; (2) consummation of a merger, consolidation or
sale of substantially all assets of First of America approved by its
shareholders; (3) the acquisition of beneficial ownership of 25 percent or more
of First of America's voting stock by a person, entity or group; or (4) a change
in composition of a majority of the Board of Directors in any period of two
consecutive years without prior approval of or participation by the Board in
such change.
During the Change in Control 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 principal
office of employment. During the thirteenth month following a change in control,
the executive may resign for any reason and receive the payments specified in
the Agreement. In the event an executive officer is terminated or resigns
following adverse action by First of America or its successor (in accordance
with the terms of the Agreement) or the executive resigns for any reason during
the thirteenth month following a change in control, the officer is entitled to
regular salary payments, target incentive award payments under the Annual
Incentive Plan, and continuation in employee benefit plan coverages for a
three-year period following the termination, as well as payment of the Long-Term
Incentive Plan target award for a one year period.
All or a portion of the payments under the Management Continuity Agreements
following a change in control may constitute excess parachute payments under
Internal Revenue Code, Section 280G. Excess parachute payments are subject to
excise tax payable by the recipient and are not deductible by the corporation.
The Agreements provide that in the event an excess parachute payment is payable
to an executive officer, First of America, or its successor, shall make an
additional payment to the executive so that the executive retains, after taxes,
an amount equal to the excise tax on the excess parachute payment.
In the event of the officer's death, either before or after a change in
control occurs, the surviving spouse will continue to receive the regular salary
payments for one year, providing that at time of death the change in control
payments under the agreement have not commenced. 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 payable under the Management Continuity
Agreement in the event of a change in control will be dependent on future salary
levels, annual target incentive award 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 through the initial transition period. With continuation of
these officers' employment reasonably assured, First of America and its
shareholders should be more assured that these officers will act, with respect
to a possible change in control, for the benefit of First of America and its
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. The Board annual retainer fee has been increased to $26,000 annually
effective January 1, 1997, to reflect average competitive board compensation for
comparable peer U.S. bank holding companies. Of the annual retainer, $13,000
will be payable in equity compensation under the proposed Director Stock
Compensation Plan (see "(3) Approval of Director Stock Compensation Plan"). The
Board and committee meeting fees were retained at $1,100 per meeting.
11
<PAGE> 15
Effective April 1, 1996, the Board of Directors adopted the First of America
Bank Corporation Director Deferred Compensation Plan (the "Deferral Plan") under
which directors of the corporation and its affiliate banks may defer their
retainer and meeting fees on a pre-tax basis. The Deferral Plan is a
non-qualified, unfunded plan providing for director elections to defer 100
percent of their retainer fees and/or meeting fees, with deferred amounts
accruing earnings as though they were invested in First of America Common Stock.
Currently, distributions of deferral accounts will only be made in cash, either
in one lump sum payment or in installment payments following the directors'
retirement or other termination. Subject to shareholder approval, the Deferral
Plan has been amended, restated and renamed the Director Stock Compensation
Plan, which generally allows directors and other specified committee members to
receive their fees in various forms of equity compensation. (see "(3) Approval
of Director Stock Compensation Plan").
DIRECTOR STOCK OWNERSHIP POLICY
The Board has adopted a Director stock ownership policy effective January 1,
1997, which applies to all current and future Directors of the corporation. This
Director stock ownership policy complements the stock ownership guidelines
implemented for management employees (see Management Stock Ownership Policy
section) and further aligns the interests of the Directors with other
shareholders. The policy requires that each Director acquire a minimum of 2,500
shares of First of America common stock or share equivalents within five years
of the effective date of the policy or five years from the date of election or
appointment to the Board. The ownership requirement will be adjusted to reflect
certain changes in the corporation's capital structure, such as a stock dividend
or split. Besides direct or personal ownership, certain forms of indirect
ownership will also be included. In addition, share equivalents or phantom stock
credited under the Deferral Plan or the Director Stock Compensation Plan will be
counted. The share holdings and interests for most of the current Board members
currently exceed the required number of shares under this ownership policy.
DIRECTOR STOCK COMPENSATION
In addition to adopting the Director stock ownership policy, the Board also
modified the director compensation program for members of the boards of First of
America and its affiliates and non-board members of certain committees
designated by the Nominating and Compensation Committee. Under the Director
Stock Compensation Plan (which is the amended and restated Deferral Plan; see
"(3) Approval of Director Stock Compensation Plan") the Nominating and
Compensation Committee (the "Committee") may, once each year, specify a portion
of annual retainer fees, meeting fees, committee fees or any other fees for
service on boards or designated committees, which is required to be paid in a
form of equity-based compensation. In every year, at least 50 percent of Board
retainer fees will be paid in equity-based compensation. In addition, unless the
Committee determines otherwise, all board members may elect to receive their
remaining fees in equity-based compensation. It is expected that equity-based
compensation will increase the share holdings of current directors, assist new
directors in achieving the required stock ownership levels, and serve the
long-term best interests of all shareholders. The equity-based compensation will
be paid beginning in the second quarter of 1997, provided the Director Stock
Compensation Plan is approved by shareholders at the Annual Meeting.
Under the Director Stock Compensation Plan, once the Committee has specified
the required levels of equity-based compensation, it will also determine the
forms of equity-based compensation in which each director may be paid. The
alternatives may include common stock, stock options and deferred stock
equivalents known as phantom stock, and, in the case of required equity-based
compensation only, restricted stock. The applicable provisions and tax
consequences relating to each of these equity-based compensation alternatives
varies. All equity compensation payments will be based on the market price of
First of America Common Stock at the time the applicable fees are earned. This
new director compensation program offers directors the flexibility to select the
type of equity-based compensation which best suits their individual
circumstances, while providing shareholders with the assurance that a
substantial portion of director fees is paid in equity-based compensation.
12
<PAGE> 16
NOMINATING AND COMPENSATION COMMITTEE REPORT
ON EXECUTIVE COMPENSATION
OVERVIEW
OBJECTIVES. First of America's executive compensation program is intended to
attract, retain, motivate and reward highly qualified executive officers to
achieve the corporation's business objectives. This executive compensation
program is integrated with First of America's annual and long-term business
plans in order to establish a strong link between executive compensation and
corporate performance. The Nominating and Compensation Committee of First of
America's Board of Directors (the "Committee") believes that a significant and
direct relationship between executive compensation and corporate performance as
well as its strategic objectives will enhance long-term performance and increase
shareholder value. The Committee also believes that stock ownership by executive
officers and stock-based compensation arrangements which align the executive
officer's interests with those of First of America shareholders are beneficial
in enhancing shareholder value. Based on these premises, under the direction and
oversight of the Committee, First of America has implemented an executive
compensation program that encourages and facilitates stock ownership by
executive management and under which, over the longer-term, more than half of
the compensation of First of America's executive officers is variable and
directly dependent upon corporate financial performance. To motivate improved
performance and more closely align the relationship between the executive
compensation program and shareholder value, the Committee approved a new
long-term stock compensation program for executive officers effective in 1996
and modification of the Annual Incentive Compensation Plan for 1997 as well as
approving a stock ownership policy for all stock plan participants. The
revisions to the executive compensation programs are described in detail within
the "Stock-Based Compensation" and "Annual Incentive Compensation" sections of
this report.
The Committee recognizes that Section 162(m) of the Internal Revenue Code
imposes 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 Committee recognizes, however, that
certain payments following a change in control pursuant to the Management
Continuity Agreements may result in compensation in excess of the $1 million
annual limitation under Section 162(m).
COMPONENTS OF COMPENSATION. The major components of First of America's
executive compensation program consist of a formal base salary program, the
Annual Incentive Compensation Plan ("Annual Plan"), the Long-Term Incentive
Compensation Plan through December 31, 1998 ("Long-Term Plan"), the 1987 Stock
Option Plan and the Employee Stock Compensation Plan (the latter two plans
collectively, the "Stock Plans"). 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").
MANAGEMENT STOCK OWNERSHIP POLICY
The Board of Directors adopted stock ownership guidelines effective in
October, 1996 for all current participants of the Employee Stock Compensation
Plan. The guidelines are intended to encourage increased ownership of First of
America Common Stock by executive and management staff, motivate management to
increase shareholder value, and more closely align management and shareholder
interests. These guidelines apply to over 175 management employees and establish
ownership targets which vary by position and responsibility level. The ownership
targets are expressed as a specified number of shares for each position and
range from 50,000 shares for the Chairman, President and Chief Executive Officer
("CEO") (10,000 -- 15,000 shares for other executive officers) to 1,000 shares
for Stock
13
<PAGE> 17
Compensation Plan participants at lower management levels. These targets will be
adjusted for certain changes in the corporation's capital structure such as a
stock dividend or split.
It is expected that the ownership targets will be achieved within the
five-year interval following the later of the effective date of this policy or
the initial date of participation under the Stock Compensation Plan. Future
stock option grant levels may be adversely impacted by failure to achieve the
ownership targets. Direct and certain forms of indirect stock ownership will be
counted toward achieving these targets. Shares held under the Reserve Plus
401(k) plan and share equivalents credited under the non-qualified Supplemental
Savings Plan will also be counted for this purpose. However, unexercised stock
options under the 1987 Stock Option Plan and the Employee Stock Compensation
Plan will not be credited for ownership purposes. The Committee intends to
monitor management's progress toward achievement of these ownership guidelines
on an annual basis over the next five years and report the results in the annual
proxy statement.
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 stock grants under the
corporation's Stock Plans.
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 target incentive award
opportunities at the median or average competitive levels of the applicable peer
universe. The defined peer group for each of the executive compensation plans
differs from the composition of bank holding companies included in the KBW 50
Index referenced under the Performance Graph appearing later in this document.
The KBW 50 Index consists of fifty of the largest U.S. bank holding companies,
including the money center banks, many of which are substantially larger than
First of America. First of America limits its peer groups for compensation
comparisons to smaller select groups of comparably sized U.S. bank holding
companies, substantially all of which are also included under the KBW 50 Index.
The Committee considers that these peer groups represent the primary
competitors in the banking industry for financial performance measurement
reasons as well as employee recruitment, remuneration and retention. The
composition of the peer groups used for determining external performance goals
are established by the Committee at the beginning of the particular year for the
Annual Plan and at the beginning of each three year performance period for the
Long-Term Plan. The peer group for measurement of peer financial performance
results under the Annual Plan in 1996 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 1994-1996
performance period consisted of similarly situated U.S. bank holding companies
with assets of $10 to $40 billion at the beginning of that performance period.
The 1996 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.
14
<PAGE> 18
RELATIONSHIP OF EXECUTIVE COMPENSATION TO CORPORATE PERFORMANCE
SALARY. First of America's executive officers' salaries, including the Named
Executives, are determined in accordance with a formal base salary program,
which is approved and periodically reviewed by the Committee. This program
provides formalized salary adjustment guidelines and base salary range
parameters to guide the Committee's decision making concerning executive base
salary levels. The base salary ranges are mainly determined by the employee's
internal position responsibility and external market comparisons with the
prevailing base salary levels of similar positions with comparable
responsibilities in other comparably-sized bank holding companies, with equal
consideration being given to both factors. The midpoints of the salary ranges
are targeted at the median or average competitive levels of the peer group, and
executives are expected to achieve the midpoint of their salary range over a
reasonable time interval. Current base salaries for the executive officer group
as a whole are slightly below the midpoints of their applicable salary ranges.
Base salary comparisons are made to the median or average competitive levels of
the peer group without regard to the fact that First of America does not provide
such company-paid perquisites as personal automobiles or club memberships as is
the practice for many of the peer organizations.
The base salary program is performance-based, with executive base salary
increases and progression within the assigned salary ranges entirely dependent
upon individual performance. Management performance plans with individually
defined objectives are established annually for the executive officers, and base
salary decisions are principally based on the assessment of the executive's
actual performance results relative to the objectives defined in the performance
plan. These objectives consist of both personal objectives unique to the
individual executive and common corporate profit plan or business plan goals,
many of which are shared by the executive officers as a group.
The base salaries of executive officers for 1996 were determined by the
Committee in February 1996 based on 1995 performance considerations. In
reviewing the base salary recommendations for the executive officers, the
Committee first considered the salary increase guidelines in effect for 1996 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, 1995's return on common equity ("ROE") of
13.89 percent and fully diluted earnings per share ("EPS") of $3.73. These
common corporate performance factors were considered in conjunction with the
individual performance assessment of the executive officers.
ANNUAL INCENTIVE COMPENSATION. The Annual Plan is intended to reward a broad
range of First of America's and its affiliates' management employees, including
the Named Executives, for achievement of specific ROE goals. Annual bonuses paid
to First of America's executive officers, including the Named Executives, are
determined in accordance with the corporation's Annual Plan. The Committee is
responsible for reviewing and approving incentive payments under the Annual
Plan. Target incentive awards for a given year are set based on a percentage of
the participant's current base salary. Incentive payments for 1996 were 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 was
determined by the median ROE of a selected peer group of comparably sized U.S.
bank holding companies. The internal and external ROE goals were weighted
equally for purposes of determining awards for participants under the Annual
Plan. The target amounts were paid if both the internal and external ROE goals
were fully (100 percent) achieved. No incentive payments were made to
participants unless First of America's ROE was at least 80 percent of the
internal goal or at least 90 percent of the external goal.
During 1996, First of America's reported earnings were reduced by an
unplanned non-recurring after-tax expense of $13.9 million associated with the
required one-time Savings Association Insurance Fund (SAIF) assessment. As
contemplated by the Annual Plan, the Committee adjusted the corporation's 1996
ROE to exclude this unplanned nonrecurring expense for purposes of determining
the 1996 incentive awards. The Committee made this adjustment because of the
relatively broad based participation under the Annual Plan and the fact that
this expense was not included under the 1996 profit plan. By adjusting the ROE
results, the Committee believes that the incentive awards more accurately
reflect the participants' contributions toward core earnings performance for the
year.
The corporation's adjusted ROE of 15.14 percent was 107.8 percent of the
internal ROE goal which resulted in award payments of 132.0 percent of the
participant's annual target award level for this component of the Plan. The
Committee also adjusted both the corporation's ROE and the ROE results of the
peer bank group to determine incentive compensation results under the external
peer group ROE goal. Adjusted ROE results, excluding the SAIF
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<PAGE> 19
assessment expense, were determined for the peer banks to provide comparable
performance results to the corporation's adjusted ROE for performance
measurement under the peer group ROE goal. The corporation's adjusted ROE
performance was 91.0 percent of the adjusted external peer group goal of 16.63
percent which resulted in award payments of 64.0 percent of the participant's
annual target award for this component of the Plan.
Based on the foregoing, the corporation's consolidated performance was 99.4
percent of the composite of the internal and external ROE goals. This resulted
in annual incentive award payments of 98.0 percent of each participant's,
including the Named Executives, annual target award opportunity for 1996. Based
on peer group data available for 1995 and estimates for 1996, these incentive
awards, including the CEO's award, were below the median level of similar
compensation paid by a selected group of comparably sized U.S. bank holding
companies.
The Committee has approved the amendment of the Annual Incentive Plan for
1997 to place added emphasis on the importance of achieving the corporation's
annual earnings objectives while providing higher target incentive opportunities
for the achievement of these objectives. The performance measures are being
revised to focus exclusively on improved corporate earnings to enhance
shareholder value. For 1997, corporate performance results will only be measured
under the corporate ROE goal rather than the combination of the internal
corporate ROE and external peer group ROE goals previously in effect. To
complement this change as well as to support the corporate restructuring
scheduled to occur during 1997, line of business performance measures are being
introduced for most participants to facilitate the achievement of the
corporation's 1997 profit plan objectives. Specific performance goals will be
established under the business unit measures for every participant based on
their position responsibilities. This reinforces the importance of achieving the
performance expectations at the business unit level. A significant portion of
the participant's incentive award will be determined by their performance
results under these business unit measures. Concurrent with this change, the
target incentive opportunities are also being increased to competitive levels to
ensure that the incentive compensation provided under the Annual Plan is
commensurate with the position responsibilities and higher performance
expectations as well as to provide a competitive compensation structure to
attract, reward, and retain qualified management.
Further Annual Plan changes are also intended to motivate improved corporate
performance results. The minimum performance threshold level for the corporate
ROE component will be increased from the present minimum achievement level of 80
percent to 85 percent effective in 1997 to raise the overall performance
standards under the Annual Plan. No incentive awards will be payable to any
Annual Plan participant if the corporation does not achieve at least 85 percent
of its 1997 ROE goal. Annual Plan participants will also be required to achieve
a minimum composite performance level of at least 90 percent of their business
unit goals to receive any payment under the corporate ROE component. To
recognize and reward superior performance results in 1997, the maximum incentive
opportunity is also being increased from 160 percent of participants' target
award levels at a 120 percent achievement level to 200 percent of the target
award level at a 130 percent achievement relative to the Plan goals. All of
these changes are intended to establish higher performance standards and to
motivate higher performance achievement by Annual Plan participants.
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.
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 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
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<PAGE> 20
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. 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, President 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 three-year performance period ending
December 31, 1996 were determined under both the internal and external EPS
goals. No incentive award was payable under the Long-Term Plan for this period
because the Corporation did not achieve the minimum EPS performance threshold of
$5.10 under the internal EPS goal or the minimum threshold of 10.86 percent
compounded annual EPS growth under the external peer group goal as of the end of
the performance period.
The Long-Term Plan will be discontinued at the close of the 1996-1998
performance period ending December 31, 1998 to place greater focus on equity
based long-term compensation programs. The new equity based compensation program
is discussed under the Stock-Based Compensation section. Future performance
results and any applicable incentive awards will continue to be determined and
payable to Long-Term Plan participants under the existing terms and conditions
of the Plan for the final two performance periods ending December 31, 1997 and
December 31, 1998.
STOCK-BASED COMPENSATION. The corporation's stock compensation programs are
intended to align the long-term interests of its executive officers and
management staff with those of its shareholders and to motivate achievement of
enhanced long-term shareholder value. The long-term compensation strategy for
executive officers, including the Named Executives, was revised in 1996 to place
greater focus on long-term performance-based stock compensation programs to
provide a closer correlation between executive compensation and both the
corporation's future financial and stock price performance. The changes in the
long-term compensation structure described below should result in increased
emphasis on enhancing future shareholder value.
Stock option grants in years prior to 1996 were made under the 1987 Stock
Option Plan. No further stock options will be granted under the 1987 Stock
Option Plan. Beginning in 1996, the Employee Stock Compensation Plan approved by
shareholders at the 1996 Annual Meeting was implemented. Stock options exercised
by the corporation's executive officers in 1996, including the Named Executives
shown in the Summary Compensation and the Aggregated Option Exercises in Last
Fiscal Year Tables, were granted in previous years under the 1987 Stock Option
Plan.
Stock options previously granted under the 1987 Stock Option Plan have a
ten-year term and will remain in effect until either the options are exercised
or the ten-year term expires. Nonstatutory stock options to purchase shares of
First of America Common Stock were granted to a broad range of management level
employees of the corporation and its subsidiaries at option prices not less than
fair market value as of the grant dates under the prior 1987 Stock Option Plan.
Options granted under the 1987 Stock Option Plan vest and become exercisable
over a three-year period such that one-third of the option shares may be
exercised one year after the grant date, two-thirds after two years, and all
shares after three years.
Beginning in 1996, stock-based compensation was provided under the Employee
Stock Compensation Plan adopted earlier in the year. Under this Employee Stock
Compensation Plan, the Committee may approve stock options or restricted stock
grants which may be contingent on achievement of specific performance-based
criteria as defined under the Plan. The option price for stock options and the
value of restricted stock awards granted under this Plan are based on the fair
market value as of the date of the grant. The Committee determines the
participants to whom restricted stock or option grants are made, the number of
shares or options to be awarded, and the vesting terms of the grant, including
any performance criteria and objectives related to the award, which are not
specifically defined by the Plan. In addition, the Committee also determines any
other terms or conditions for such grants, including the timing and expiration
date of the awards, which are not specifically defined by the Plan.
The new long-term stock compensation program adopted by the Committee for
the Corporation's executive officers consists of performance-based stock options
("Performance Stock Options") and performance-based rights ("Performance Share
Rights") to receive shares of restricted stock ("Shares"). These forms of
equity-based compensation are designed to provide additional incentives that
will motivate executive management toward
17
<PAGE> 21
achieving aggressive corporate financial performance objectives and stock price
targets which, in turn, should enhance long-term shareholder value and more
closely align the long-term compensation for executive officers with shareholder
interests. This compensation program is also intended to increase the stock
ownership levels of executive officers.
Vesting under the Performance Stock Options is contingent on achievement of
predetermined stock price targets. The performance vesting feature is designed
to motivate executives to improve corporate earnings which should result in
future stock price appreciation. Performance Stock Options will be granted to
the executive officers every two years and replace the prior stock option grant
practices with service based vesting. The option price for Performance Stock
Options is determined by the fair market value of First of America Common Stock
at the grant date. For the initial Performance Stock Option granted on October
29, 1996 as defined under the "Option Grants in the Last Fiscal Year Table," the
option price amounted to $54.44 per share.
Until October 29, 2003, the Performance Stock Options will vest upon
achievement of the predetermined stock price targets of $62.50, $72.50, and
$85.00 per share. One-third of the option shares granted to the executive
officers on October 29, 1996 will vest when each of these stock price targets
are achieved. The market price of First of America Common Stock must be
maintained at or above these stock price targets for a minimum of 15 days out of
25 consecutive trading days before the option grants become vested. The vested
options may be exercised on or after October 29, 1997. After seven years
following the grant date, any options that have not previously vested will vest
and may be exercised for the remainder of the option term. The Performance Stock
Options granted on October 29, 1996 have a ten-year term. In the event of a
change in control of the corporation prior to October 29, 2003, Performance
Stock Options, which have not yet vested by achieving the stock price targets,
will expire without compensation to the option holder. The Performance Stock
Options also expire upon termination of employment except where termination is
due to retirement, disability or death.
Awards of Shares to be made pursuant to the Performance Share Rights are
contingent upon the corporation achieving aggressive ROE and efficiency ratio
goals during the 18-month performance period commencing on January 1, 1997 and
ending June 30, 1998. These goals were established by the Committee in October,
1996. Shares will be awarded to the executives only if the specified performance
goals are achieved within this designated period. As with the Performance Stock
Options, the Committee intends to grant in every other year Performance Share
Rights subject to achievement of defined financial performance objectives.
The full number of Shares will be awarded if the ROE goal as well as the
efficiency ratio goal are attained at the end of the 18-month performance
period. The Shares may be granted prior to the end of this period if both the
ROE and efficiency ratio goals are achieved for two consecutive quarters before
the close of the period. None of the Shares will be granted if the corporation
does not achieve the minimum ROE threshold and a minimum efficiency ratio by the
end of the performance period. The Committee has determined that the specific
ROE and efficiency ratio goals are confidential and relate to the corporation's
business strategy and, as a result, are not disclosed herein. A portion of the
Shares will be granted if the corporate ROE and efficiency ratio results exceed
the minimum performance thresholds but are below the goal attainment. If the
performance objectives are achieved and the Shares are awarded, these Shares are
then subject to a three-year restriction period following the grant date and
shall be forfeited upon any termination of the executive during that period for
reasons other than death, disability or retirement. In the event of a change in
control of the corporation before the performance objectives are achieved, the
Performance Share Rights will be canceled and no Shares will be granted under
the program. If a change in control occurs after the Shares have been granted
but before they have vested and if the executive's employment terminates so as
to result in payments under a Management Continuity Agreement, then vesting of
the Shares will be accelerated to the date of termination.
The Committee had previously established a practice of granting annual stock
option awards to all stock plan participants in October each year. However, the
normal annual stock option award which would have been made in October 1996 was
deferred to 1997 so that the participants' work performance and contributions to
the 1996 performance results could be taken into consideration in the grant
allocation process.
Stock options under the 1987 Stock Option Plan and the Employee Stock
Compensation Plan have option prices equal to the market price of the underlying
shares on the grant date. The value to be realized from the options, if any, is
dependent on appreciation in the market price for First of America Common Stock
above the option price. The date of exercise, and, thus the time frame within
which value may be realized and the relationship of that value to the
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<PAGE> 22
corporation's performance, will be determined by the individual option holder.
The Stock Plans do not permit the adjustment of the option price, except to
recognize changes in capitalization, such as stock splits and dividends,
following the option grant.
OTHER COMPENSATION ARRANGEMENT. 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 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 the performance and base salary of the Chief Executive
Officer ("CEO") annually and determines his base salary based on this
performance review. The base salary of the 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 this salary range is targeted at the
average competitive market level for comparable CEO positions in peer U.S. bank
holding companies as described earlier in the report.
DANIEL R. SMITH. Mr. Daniel R. Smith retired as Chairman and Chief Executive
Officer effective May 1, 1996 after a successful career of over 40 years with
the corporation. He continues his service with the corporation as a Director and
member of the Executive and Public Policy Committees of the Board and the
Unified Trust Committee. Mr. Smith's 1995 base salary was retained at $675,000
for 1996. However, in recognition and appreciation of his past contributions to
the growth and success of the corporation and its positive assessment of his
tenure as Chairman and CEO, the Committee awarded Mr. Smith $218,269, in
connection with his retirement. Mr. Smith began receiving his monthly retirement
benefits under the Corporation's retirement plans effective June 1, 1996.
Mr. Smith received a prorated incentive award of $156,800 under the Annual
Incentive Plan for 1996. His Annual Plan award was determined in accordance with
the terms and conditions of the Plan and the performance results described
earlier in this report, except that the payment made in connection with Mr.
Smith's retirement was taken into consideration with his base salary in
determining the amount of his incentive award.
Mr. Smith did not receive any Long-Term Plan award for the three-year
performance period ending December 31, 1996 because the corporation did not
achieve the minimum performance level under either the internal or external EPS
goals and no incentive award was payable under the Long-Term Plan.
Mr. Smith did not receive any stock compensation or stock option grants
prior to his retirement in 1996.
RICHARD F. CHORMAN. Mr. Richard F. Chormann assumed the office of Chairman,
President and Chief Executive Officer of the corporation on May 1, 1996. The
Committee increased Mr. Chormann's 1996 base salary from $453,600 to $500,000
effective January 1, 1996, based on his performance and contributions during the
prior year as President and Chief Operating Officer of the corporation.
Upon his promotion to the Chairman, President and CEO position, Mr. Chormann
received a promotional increase in his annual base salary from $500,000 to
$600,000 to recognize his expanded role and responsibility as well as his
contributions to the transition of the corporation's leadership. This base
salary level also reflects competitive market practices for chief executive
officer positions at other comparable peer bank holding companies.
Mr. Chormann's 1996 annual incentive award was determined under the Annual
Plan formulas and performance results described earlier in this report. His
Annual Plan award of $221,638 was computed using the actual base salary paid
during 1996. It is based on the adjusted corporate ROE performance of 15.14
percent relative to the internal ROE profit plan goal of 14.04 percent and 15.14
percent relative to the external peer group ROE goal of
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<PAGE> 23
16.63 percent. The composite performance results of 99.4 percent between these
measures resulted in an Annual Plan award of 39.2 percent of his 1996 base
salary.
No Long-Term Plan award was paid to Mr. Chormann for the three-year
performance period ending December 31, 1996 because the corporation did not
achieve the minimum performance level under either the internal or external EPS
goals.
As previously discussed in the Stock-Based Compensation section of this
report, a new equity-based long-term compensation program was adopted for
executive officers effective October 29, 1996. This program replaces the
Long-Term Plan and the previous annual stock option grant practices under the
prior 1987 Stock Option Plan. The new long-term stock compensation program
consists of the combination of performance vested stock options (Performance
Stock Options) and performance-based rights (Performance Share Rights) to
receive restricted stock awards which are intended to motivate achievement of
aggressive corporate financial objectives, enhance long-term shareholder value,
and increase stock ownership levels among the executive officers. Under this new
program, the grants to executive officers will be made every other year under
the Employee Stock Compensation Plan approved by shareholders at the previous
Annual Meeting. The first such grant was made on October 29, 1996.
Under the Employee Stock Compensation Plan, Mr. Chormann received a grant of
150,000 Performance Stock Options with an exercise price of $54.44 per share
which will vest either in increments of 50,000 shares upon the corporation's
achievement of predetermined stock price targets or as of October 29, 2003. In
no event will the Performance Stock Options become exercisable until October 29,
1997. Mr. Chormann was also awarded 20,000 Performance Share Rights to receive
restricted stock contingent on achievement of designated ROE and efficiency
ratio goals within the eighteen month period ending June 30, 1998. If the
designated minimum ROE and efficiency ratio goals are not achieved, then the
restricted stock will not be granted. If these goals are achieved and restricted
stock is awarded, the shares will then be subject to a three-year restriction
period following the grant.
Submitted by the Nominating & Compensation Committee of the Board of
Directors.
<TABLE>
<S> <C>
James S. Ware, Chairman Dorothy A. Johnson
John W. Brown Martha M. Mertz
Joseph J. Fitzsimmons Ley S. Smith
Clifford L. Greenwalt
</TABLE>
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<PAGE> 24
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 Total Return 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>
1991 100.00 100.00 100.00
1992 133.96 127.42 107.61
1993 144.22 134.48 118.48
1994 115.39 127.62 120.02
1995 178.49 204.41 165.12
1996 250.12 289.15 203.03
</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 1996 indebted to the
financial subsidiaries of First of America. All such indebtedness is pursuant to
loans which were made in the ordinary course of business and on substantially
the same terms, including interest rates and collateral, as those prevailing at
the time for comparable transactions with other persons and did not involve more
than the normal risk of collectibility or present other unfavorable features.
(2) AMENDMENT OF ARTICLES OF INCORPORATION TO INCREASE THE
NUMBER OF AUTHORIZED SHARES OF COMMON STOCK TO 200,000,000
First of America's Restated Articles of Incorporation provide that the
authorized number of shares of First of America Common Stock is 100,000,000. As
of February 3, 1997 there were 59,863,058 common shares outstanding and
1,714,093 common shares, 3,000,000 common shares, and 100,000 common shares
reserved for issuance under the 1987 Stock Option Plan, the Employee Stock
Compensation Plan, and the Director Stock Compensation Plan (subject to
Shareholder approval of Proposal (3)), respectively.
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<PAGE> 25
The Board of Directors considers it advisable to increase the authorized
number of shares of First of America Common Stock to 200,000,000. The additional
authorized common shares will be available for any purpose for which shares of
common stock may be issued under the Michigan Business Corporation Act. For
example, this could include, among other things, possible issuance from time to
time pursuant to employee benefit plans, dividend reinvestment plans, exercise
of stock options, acquisitions, private placements, public offerings for cash,
stock dividends or stock splits and the issuance of shares upon exercise of
conversion rights associated with preferred stock or other convertible
securities which may be issued from time to time. Although no definitive
decision has yet been made, in light of the recent substantial increase in the
market price of First of America Common Stock, management is considering whether
or not to recommend to the Board of Directors the use of a portion of the
additional common shares to effect a stock split in the form of a stock
dividend. The corporation currently has no other plans, arrangements,
understandings or commitments for the issuance of the additional common shares.
It is considered advisable, however, to have the authorization to issue such
shares in order to enable the corporation, as the need may arise, to move
promptly to take advantage of market conditions and the availability of other
favorable opportunities without the delay and expense involved in calling a
shareholders' meeting for such purpose.
There are no preemptive rights with respect to the authorization or issuance
of the additional authorized common shares and those common shares may be issued
without further action by shareholders, except where such approval would be
required by rules of the New York Stock Exchange. Any issuance of First of
America Common Stock must be for proper business purposes and for proper
consideration from the recipient. Issuance of additional common shares could,
under some circumstances, dilute the voting rights, equity and earnings per
share of existing common shareholders. Nevertheless, the corporation anticipates
that it would receive value for any additional common shares issued, thereby
reducing or eliminating the economic effect of such dilution to shareholders.
Although the decision of the Board of Directors to propose an increase in
the number of shares of First of America Common Stock authorized for issuance
did not result from any effort, known to First of America, by any person to
accumulate First of America Common Stock or to affect a change in control of the
corporation, one effect of an increase in authorized common shares may be to
make more difficult certain types of attempts to obtain control of the
corporation not approved by the Board of Directors.
The financial statements of First of America, supplementary financial
information and management's discussion and analysis of financial condition and
results of operations are set forth in Appendix B attached to this Proxy
Statement.
This Proposal (2) will be voted on by the holders of First of America Common
Stock entitled to vote at the Annual Meeting, and the affirmative vote of a
majority of the outstanding shares of First of America's Common Stock is
required for its approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR
INCREASING THE NUMBER OF AUTHORIZED COMMON SHARES.
(3) APPROVAL OF DIRECTOR STOCK COMPENSATION PLAN
BACKGROUND
The Board of Directors of First of America (the "Board" or "Board of
Directors") unanimously recommends that shareholders approve amendments to and
the restatement of the First of America Bank Corporation Director Deferred
Compensation Plan (the "Existing Plan"). The Existing Plan currently permits any
director who is not an employee of First of America or its subsidiaries and who
serves on a First of America board to defer his or her retainer fees, meeting
fees, committee fees and/or chairperson fees until he or she no longer serves on
any First of America boards (his or her "Separation from Service"). The Existing
Plan was approved by the Board of Directors on February 21, 1996 and became
effective April 1, 1996.
As more fully discussed below, the Board of Directors amended and restated
the Existing Plan, effective February 19, 1997, subject to shareholder approval,
and renamed it the First of America Bank Corporation Director Stock Compensation
Plan (the "Restated Plan"). The Restated Plan establishes a comprehensive new
equity-based compensation structure for outside directors and other individuals
receiving fees for serving on certain policy-making
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<PAGE> 26
committees or advisory boards designated by First of America's Nominating and
Compensation Committee (collectively, "Participating Directors"). The Restated
Plan will provide for payment of retainer fees, meeting fees, committee fees,
chairperson fees or any other fees payable for service as a Participating
Director (collectively, "Director's Fees") in First of America Common Stock
("Common Stock"), Common Stock subject to a substantial risk of forfeiture based
on continued service ("Restricted Stock"), rights to purchase shares of Common
Stock at a specified price ("Stock Options") and deferral of Director's Fees
through the crediting of phantom stock, the value of which is based on Common
Stock ("Phantom Stock"). Because most of these features involve shares of Common
Stock, shareholder approval of the Restated Plan is required by the listing
rules of the New York Stock Exchange. Approval of the Existing Plan by
shareholders was not required. Common Stock, Restricted Stock, Stock Options
and/or Phantom Stock may be granted under the Restated Plan on and after the
effective date, provided that the shareholders approve the Restated Plan. If the
Plan is not approved by the shareholders, any Common Stock, Stock Options or
Restricted Stock granted under the Restated Plan will be rescinded and void.
Deferrals made previously under the Existing Plan, as well as Phantom Stock
credits made under the Restated Plan, will, however, continue to be valid in
such event. The discussion which follows is qualified in its entirety by
reference to the Restated Plan, a copy of which is attached to the Proxy
Statement as Appendix A.
THE EXISTING PLAN
Under the Existing Plan, directors may currently elect to defer 100 percent
of any or all types of Director's Fees. For directors who participate in the
Existing Plan ("Deferring Directors"), once such fees are earned, credits are
made to a bookkeeping account established for each director (a "Deferral
Account") as if the earned fees were being invested in Common Stock. The value
of the Deferral Account is determined based on the value of Common Stock and
additional credits are made to the Deferral Account as additional fees are
earned and as dividends are paid on actual Common Stock. For example, if a
meeting fee of $1,100 becomes payable to a Deferring Director, and, on the day
on which credits are made to such director's Deferral Account, Common Stock is
worth $60 per share, his or her Deferral Account will be credited as if 18.33
shares ($1,100 / $60) of Common Stock were purchased on his or her behalf. If
First of America were to subsequently declare a $0.47 per share dividend, the
Deferral Account would be credited with a fractional share valued at $8.62
(18.33 shares x $0.47) as soon as practicable after the day of the actual
dividend payment. Under the Restated Plan, as further explained below, with some
slight modifications, this deferral feature and related Deferral Account
valuation is retained through elections to receive Phantom Stock. For all
Deferring Directors, as of the effective date of the Restated Plan, Deferral
Account balances will be valued in terms of Phantom Stock units without
affecting actual dollar values of the Deferral Accounts. In addition, as of such
date, Phantom Stock credits will be made in accordance with previous elections
made under the Existing Plan.
Under both the Existing Plan and the Restated Plan, credits to a Deferral
Account continue until the value of the Deferral Account is distributed to the
Participating Director or his or her designated beneficiary after Separation
from Service. Distributions will either be in a single lump sum payment as soon
as practicable after Separation from Service, a single lump sum payment on the
fifth or tenth anniversary of Separation from Service or in five or ten annual
installments beginning after the first anniversary of Separation from Service.
Under the Existing Plan, Deferring Directors must elect the desired method of
distribution prior to beginning deferrals, and may only change such election
with a penalty applied after Separation from Service. The Restated Plan permits
Participating Directors to change these elections as long as such change is made
at least three months prior to Separation from Service and in the calendar year
preceding Separation from Service. Pursuant to the terms of the Restated Plan,
in addition to Deferral Account distributions in cash as permitted under the
Existing Plan, distributions may be made in Common Stock or any combination of
Common Stock and cash. Furthermore, the Restated Plan redefines "Separation from
Service" to occur when the Participating Director ceases to serve on any First
of America board, designated committee or designated advisory board. Both
changes will apply to Deferral Accounts created under the Existing Plan.
THE RESTATED PLAN
Under the Restated Plan, each year the Nominating and Compensation Committee
(the "Committee") may establish "Designated Equity Compensation," that is, the
percentage or portion of each type of Director's Fees which will be payable in a
form of equity-based compensation. At a minimum, 50 percent of Board retainer
fees will be Designated Equity Compensation. For all Designated Equity
Compensation, the Committee may authorize one or
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more of the following forms of equity-based compensation: Common Stock,
Restricted Stock, Stock Options and Phantom Stock. If more than one form is
authorized, Participating Directors must select from the available choices. The
remaining portion of Director's Fees is defined as "Optional Equity
Compensation," which may, at the election of the Participating Director, be paid
in, (i) Common Stock; (ii) Phantom Stock; and/or (iii) Stock Options unless
otherwise specified by the Committee.
DESCRIPTION OF THE RESTATED PLAN. The aggregate number of shares of Common
Stock that may be issued and outstanding pursuant to granting of Common Stock or
Restricted Stock or the exercise of Stock Options under the Restated Plan (the
"Stock Pool") will not exceed 100,000 shares. The total number of shares of
Common Stock that may be granted to a Participating Director under the Restated
Plan will not exceed 10,000 shares. Shares of Common Stock which would have been
issued pursuant to the exercise of a Stock Option, but are withheld as payment
of the Stock Option price and/or tax withholding liability may be added back
into the Stock Pool and reissued. Similarly, shares of Restricted Stock which
are forfeited may be added back into the Stock Pool and reissued. 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 Restated Plan and any awards granted under the
Restated Plan which are determined on a per share basis, including, but not
limited to, the amount of common shares in the Stock Pool, the Stock Option
price and number of common shares associated with any outstanding Stock Options
and the number of Phantom Stock units credited to any Deferral Account. No such
adjustments will be required by reason of the issuance or sale by First of
America of additional shares of Common Stock or securities convertible into or
exchangeable for shares of Common Stock. On February 28, 1997, the closing sales
price of Common Stock as reported on the New York Stock Exchange was $62.625 per
share.
PURPOSE AND ELIGIBILITY. The Restated Plan has the dual purpose of (1)
helping First of America attract and retain the services of highly qualified
Participating Directors, upon whose judgment, initiative and efforts the
corporation is substantially dependent and providing those persons with
equity-based compensation to more closely align their interests with those of
First of America and its shareholders, and (2) providing a means for
Participating Directors to accumulate savings through deferral of the payment of
their Director's Fees and to defer taxation on such fees. Consistent with the
first objective, the Restated Plan requires payment of a portion of Director's
Fees in equity-based compensation. In order to achieve the second objective, the
Restated Plan gives the Committee discretion to allow Participating Directors to
defer up to 100 percent of all Director's Fees through elections to receive
Phantom Stock.
In general, the Committee may specify all or any portion of Director's Fees
as Designated Equity Compensation to be paid in a form of equity-based
compensation. All Participating Directors will be required to receive
equity-based compensation for that portion of Director's Fees authorized as
Designated Equity Compensation and may be eligible to receive Optional Equity
Compensation for the remainder of their Director's Fees. Directors on First of
America's Board will, however, be required to receive at least 50 percent of
Board retainer fees in Designated Equity Compensation. All Participating
Directors may be eligible to receive Optional Equity Compensation. As of the
date of this Proxy Statement, there are 62 Participating Directors who are paid
some type of Director's Fees.
DESIGNATED EQUITY COMPENSATION AND OPTIONAL EQUITY COMPENSATION. Once each
year the Committee may establish the Designated Equity Compensation for any and
all Director's Fees paid by First of America or its subsidiaries and the forms
of equity-based compensation which may be elected by Participating Directors for
payment of such Designated Equity Compensation. The Designated Equity
Compensation for the Board, however, shall be established each year at no less
than 50 percent of Board retainer fees. The Designated Equity Compensation
determinations and forms of available equity-based compensation approved by the
Committee in previous years shall remain in effect unless changed in accordance
with the Restated Plan. If authorized by the Committee, Participating Directors
will choose the desired form or forms of available Designated Equity
Compensation payable. If a Participating Director fails to make such a choice
with respect to all or a portion of his or her Designated Equity Compensation,
payment of such amount will be made in Common Stock or an alternative form of
payment determined by the Committee. If the Committee does not establish
Designated Equity Compensation for a type of Director's Fees, the Designated
Equity Compensation for such fees will be zero, except in the case of Director's
Fees for the Board where the Designated Equity Compensation will be 50 percent
of Board retainer fees.
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Unless otherwise specified by the Committee, Participating Directors may
elect to receive the portion of Director's Fees specified as Optional Equity
Compensation in cash, Common Stock, Stock Options, Phantom Stock or any
combination of the four. If any form or forms of equity-based compensation are
made available to a Participating Director as Optional Equity Compensation,
failure to make an election with respect to the desired form or forms will
result in payment of Optional Equity Compensation in cash. The Committee
presently intends to limit the forms of Optional Equity Compensation for
directors serving on boards of First of America subsidiaries to cash or Phantom
Stock. Any previous year's limitations on the forms of available Optional Equity
Compensation remain in effect unless changed in accordance with the Restated
Plan.
COMMON STOCK. If a Participating Director receives or elects to receive
Common Stock as Designated Equity Compensation or Optional Equity Compensation,
the appropriate number of shares of Common Stock with a fair market value equal
to the amount of applicable Director's Fees payable in Common Stock will be
delivered to the Participating Director as soon as practicable after such fees
are earned. For purposes of determining amounts of equity-based compensation
payable, 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 that
the fees are earned or, if no trading occurred on that date, on the latest
trading date prior to such date.
RESTRICTED STOCK. If a Participating Director receives or elects to receive
Restricted Stock as Designated Equity Compensation, First of America will issue
to the Participating Director, as fees are earned, the appropriate number of
shares of Restricted Stock equal to the number of shares of Common Stock with a
fair market value equal to the applicable Director's Fees payable in Restricted
Stock. Such shares will be held in escrow by First of America until they vest.
The vesting conditions based upon continued service, as determined by the
Committee, shall be stated in the agreement for the Restricted Stock award. In
no event shall the period for full vesting exceed ten years from the date of the
award. Once Restricted Stock vests, the common shares held in escrow shall be
transferred to the Participating Director as soon as practicable thereafter. Any
Restricted Stock which has not vested as of a restricted stockholder's
Separation from Service shall be forfeited, except in the case of a change in
control. See "Change in Control" below.
STOCK OPTIONS. If a Participating Director receives or elects to receive
Stock Options as Designated Equity Compensation or Optional Equity Compensation,
First of America will issue to the Participating Director, as fees are earned,
the appropriate number of Stock Options (exercisable for one share each) equal
to the number of shares of Common Stock with a fair market value equal to the
amount of applicable Director's Fees payable in Stock Options times a multiplier
which will not exceed 10. The multiplier will be established by the Committee
based on a reasonable option valuation method such that the value of the Stock
Options granted reasonably approximates the value of Director's Fees to be paid
in the form of Stock Options. The price that a Stock Option holder must pay in
order to exercise a Stock Option may be stated in terms of a fixed dollar
amount, a percentage (not less than 100 percent) of fair market value of Common
Stock at the time of the grant or such other method as determined by the
Committee in its discretion. In no event shall the Stock Option price be less
than the fair market value per share of Common Stock on the date of the Stock
Option grant. The Committee, in its discretion, may permit a Stock Option holder
to pay all or a portion of the Stock Option price, and/or the tax withholding
liability, if applicable, by withholding common shares to be issued under the
Stock Option being exercised.
The period during which a Stock Option may be exercised shall be determined
by the Committee at the time of the Stock Option grant and may not extend beyond
ten years from the date of the grant. Stock options issued as Designated Equity
Compensation under the Restated Plan may vest and become exercisable after a
specified period of time, as determined by the Committee at the time of grant.
All Stock Options issued as Optional Equity Compensation, however, will be fully
vested and immediately exercisable as of the date of their grant. To the extent
not previously exercised, each Stock Option will terminate upon the expiration
of the Stock Option period specified in the Stock Option agreement provided,
however that, subject to the discretion of the Committee, each Stock Option will
terminate, if earlier: (i) six months after the Stock Option holder's Separation
from Service for any reason other than death, disability, or retirement; or (ii)
five years after the date of the Stock Option holder's Separation from Service
by reason of death, disability or retirement.
PHANTOM STOCK. If a Participating Director receives or elects to receive
Phantom Stock as Designated Equity Compensation or Optional Equity Compensation,
First of America will credit to the Participating Director's Deferral Account,
as fees are earned, the appropriate number of Phantom Stock units equal to the
number of shares of
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Common Stock with a fair market value equal to the amount of Director's Fees
payable in Phantom Stock. In addition, as actual dividends are paid on Common
Stock, the Participating Director's Deferral Account will be credited with
additional Phantom Stock as if the same dividends were paid on Phantom Stock and
immediately reinvested in Phantom Stock. Dividend credits will be made based on
the number of Phantom Stock units credited to a Deferral Account as of the
Common Stock dividend record date.
ADMINISTRATION. The Restated Plan shall generally be administered by the
Nominating and Compensation Committee (the "Committee"), although the Committee
may delegate its powers or duties to employees of First of America or any of its
subsidiaries, provided that such delegation is consistent with maintaining an
exemption from the short-swing profit liability provisions of Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). Under the
terms of the Restated Plan, the Committee has full power and authority: (1) to
interpret the Restated Plan, resolve ambiguities that arise under the Restated
Plan and make equitable adjustments for any mistakes or errors made in the
administration of the Restated Plan; (2) to determine all questions arising in
the administration of the Restated Plan, including the power to determine the
rights of Participating Directors and their beneficiaries; (3) to adopt such
rules and regulations as it may deem reasonably necessary for the proper and
efficient administration of the Restated Plan consistent with its purposes; (4)
to enforce the Restated Plan in accordance with its terms and any rules and
regulations adopted by the Committee; (5) to determine the period or periods of
time during which Stock Options may be exercised or become exercisable, the
option price and the duration of such Stock Options, and other matters to be
determined by the Committee in connection with specific Stock Option grants and
Stock Option agreements as specified under the Restated Plan; (6) to determine
the period or periods of time during which the Restricted Stock may vest, and
other matters to be determined by the Committee in connection with specific
issuances of Restricted Stock and Restricted Stock agreements as provided in the
Restated Plan; and (7) to do all other acts which in its judgment are necessary
or desirable for the proper and effective administration of the Restated Plan.
Operation of the Restated Plan is intended to avoid giving rise to any potential
short-swing profit liability under Section 16 of the Exchange Act.
AMENDMENT AND TERMINATION. The Board may amend the Restated Plan at any time
in its sole discretion, provided that: (1) any such amendment will be effective
at such date as the Board may determine; (2) no amendment shall reduce the value
of a Participating Director's Deferral Accounts as of the date the Board adopts
the amendment, but an amendment may change the manner in which distributions or
earnings or losses on Deferral Accounts are determined; (3) no such action may,
without the approval of the shareholders of the corporation, materially increase
(other than by reason of a capital stock adjustment) the aggregate number of
shares of Common Stock, Option Stock and Restricted Stock in the Stock Pool that
may be granted pursuant to the Restated Plan; and (4) no action of the Board or
Committee shall alter or impair any Stock Option or Restricted Stock previously
granted or awarded under the Restated Plan without the consent of such affected
optionee or restricted stockholder. The Board may terminate the Restated Plan at
any time; however, no termination shall alter or impair any Stock Option or
Restricted Stock previously granted or awarded under the Restated Plan without
the consent of such affected optionee or restricted stockholder, nor shall any
termination reduce the value of the Participating Director's Deferral Accounts
as of the date the Board terminates the Restated Plan.
NONTRANSFERABILITY; DIVIDEND AND VOTING RIGHTS; WITHHOLDING. Shares of
Common Stock issuable under the Restated Plan are freely transferable. Phantom
Stock is only transferable by will or the laws of descent and distribution.
Stock Options granted may only be transferred by will, the laws of descent and
distribution, or, at the discretion of the Committee, by direct gift to a family
member, or gift to a family trust or family partnership. The transfer of
Restricted Stock is prohibited, except as required by law, until the shares
vest. Any prohibited transfer of Restricted Stock will be void and of no effect.
Notwithstanding the restrictions on transferability, a beneficiary or
beneficiaries may be designated under the Restated Plan to receive all or part
of a Participating Director's Deferral Account distribution, any unexercised
Stock Options and/or any unvested shares of Restricted Stock held in escrow upon
the Participating Director's death.
Holders of Stock Options shall have no dividend rights or voting rights
until the Stock Options have been exercised. Participating Directors with
Phantom Stock balances in Deferral Accounts have no voting rights and no formal
dividend rights, but will receive Deferral Account credits in amounts equal to
dividend payments as dividends are paid on Common Stock. Holders of Common Stock
and Restricted Stock shall have all associated dividend rights and voting rights
immediately following their grants.
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The Restated Plan provides that upon the exercise of Stock Options, the
option holder shall pay to First of America its tax withholding liability, if
any, in cash, by withholding shares being issued pursuant to exercise of the
Stock Options or in such other form acceptable to the Committee. The Restated
Plan makes no provision for payment of tax withholding liability for Common
Stock, Restricted Stock or Phantom Stock. Currently, First of America is not
required to withhold any amounts for any compensation or payments under the
Restated Plan.
CHANGE IN CONTROL. Unless otherwise approved by the Committee and specified
in the Stock Option agreement, in the event of a change in control of the
corporation or a liquidation or dissolution of the corporation, on the effective
date of such change in control, all Stock Options shall be cancelled and in lieu
of further rights under the Stock Options, Stock Option holders shall receive
from First of America, in cash, the difference between the fair market value of
a share of Common Stock and the Stock Option price. This right is referred to in
the Restated 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
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, upon a change
in control, the Board is required to receive an opinion from the independent
auditors of the surviving company that the rights granted by this provision will
not prevent the transaction from being accounted for as a pooling of interests.
If the Board does not receive the required opinion, it may nullify the
provision. In such case, upon the change in control, all previously vested Stock
Options would continue to be exercisable and all unvested Stock Options would
become immediately and fully exercisable until their expiration.
With respect to Restricted Stock, unless otherwise approved by the Committee
and specified in the Restricted Stock agreement, all outstanding shares of
Restricted Stock shall become immediately and fully vested upon a change in
control of the corporation. In the case of Phantom Stock, the Committee is
obligated to make appropriate arrangements with the corporation's successor to
ensure distribution of all Deferral Accounts in accordance with the Restated
Plan. Participating Directors may, however, subject to approval by the
Committee, make an election prior to a change in control requesting an
alternative distribution schedule in the event of a change in control,
including, but not limited to, payment in cash of all Deferral Account balances
as of the date of the change in control.
For purposes of the Restated Plan, a change in 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
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(iv) if during any period of two consecutive years continuing directors
cease to comprise a majority of First of America's Board of Directors.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary generally describes the principal federal (but not
state and local) income tax consequences of compensation under the Restated
Plan. The summary is general in nature and is not intended to cover all tax
consequences that may apply to a particular individual 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 DIRECTOR IN THE RESTATED PLAN SHOULD CONSULT
HIS OR HER TAX ADVISOR REGARDING SPECIFIC TAX CONSEQUENCES INCLUDING THE
APPLICATION AND EFFECT OF STATE AND LOCAL TAX LAWS.
COMMON STOCK. Payment of Director's Fees in Common Stock will constitute
taxable ordinary income to the Participating Director at the time it is earned.
In the same year it is earned, First of America will be entitled to a deduction
in an amount equal to the income taxable to the Participating Director.
RESTRICTED STOCK. Unless otherwise elected by the Participating Director
pursuant to Section 83(b) of the Code, Restricted Stock awards will not result
in taxable income to the Participating Director or a tax deduction to First of
America for federal income tax purposes at the time of grant. Once Restricted
Stock vests, as described above, the fair market value of the Common Stock on
the date earned will be included in the recipient's ordinary income as
compensation, except where the recipient previously elected to include in his or
her ordinary income as compensation, the fair market value of the Common Stock
at the time the Restricted Stock was awarded. First of America will be entitled
to a corresponding income tax deduction at the time it becomes taxable to the
Participating Director.
Dividends paid on unvested Restricted Stock will generally be treated as
compensation income by the Participating Director and deductible by First of
America. Where a Participating Director has elected to include in gross income
the fair market value of the Restricted Stock at the time of grant pursuant to
Section 83(b) of the Code, however, dividends paid on unvested Restricted Stock
will be treated as dividend income, rather than compensation income, and will
not be deductible by First of America.
STOCK OPTIONS. For Stock Options, the difference between the market value of
Common Stock on the date of exercise and the Stock Option price will constitute
taxable ordinary income to the Stock 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 Stock Option holder. The Stock Option
holder's basis will equal the market value of Common Stock on the date of
exercise. The gain or loss on any subsequent disposition of such Common Stock by
the Stock Option holder will be taxed as a capital gain or loss to the Stock
Option holder, and will be long-term capital gain or loss if the Stock Option
holder has held such Common Stock for more than one year at the time of sale.
PHANTOM STOCK. Phantom Stock Deferral Account credits made pursuant to the
Restated Plan are intended to be treated as deferred compensation subject to
deferred taxation. As such, any Phantom Stock or other deferred compensation
payable under the Restated Plan shall not be deemed compensation and shall not
be included in a Participating Director's taxable income nor deductible by First
of America under federal or state law until actually received by the
Participating Director. In order to ensure that Phantom Stock or other deferred
compensation payable under the Restated Plan is not deemed received until it is
distributed, the Committee may restrict the timing of Participating Directors'
elections to receive Phantom Stock beyond that generally provided under the
Restated Plan. Any other rights, powers, privileges or duties in connection with
the establishment and administration of Deferral Accounts under the Restated
Plan shall not be effective if and to the extent that the same, if effective,
would result in the compensation deferred under the Restated Plan being subject
to taxation before actual receipt by the Participating Director. Accordingly,
all provisions of the Restated Plan relating to the Deferral Accounts shall be
subordinate to this
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requirement and any interpretations to be given to the Restated Plan shall be
made in such a manner as to carry out this intention.
LIMITED STOCK APPRECIATION RIGHTS. A Stock Option holder who receives a
limited stock appreciation right related to a Stock Option will not recognize
income and First of America will not be allowed a deduction at the time the
Stock Options, including such limited stock appreciation rights, are granted.
The amount of cash received upon payment of stock appreciation in the event of a
change in control of the corporation will be ordinary income to the Stock Option
holder and will be deductible by First of America for federal income tax
purposes.
WITHHOLDING. Each Participating Director is compensated as a self-employed
individual, rather than an employee of First of America. First of America is not
currently required by federal law to withhold any amounts from compensation that
is paid to self-employed individuals.
OTHER CHANGE IN CONTROL TAXATION ISSUES. Upon a change in control, the
Restated Plan provides that vesting of Restricted Stock and Stock Options shall
be accelerated, and allows for the accelerated payment of Phantom Stock Deferral
Accounts. Pursuant to Section 280G of the Code, a portion of such Restricted
Stock, Stock Options and Phantom Stock Deferral Accounts may be classified as a
parachute payment. If parachute payments equal or exceed 300 percent of a
Participating Director's base amount which is generally the Participating
Director's average total taxable compensation paid by the corporation in the
preceding five calendar years, then the amount by which such portion exceeds the
base amount is considered an excess parachute payment. Excess parachute payments
are not deductible by the corporation and are subject to a 20 percent excise tax
on the Participating Director.
This Proposal (3) will be voted on by the holders of First of America Common
Stock entitled to vote at the Annual Meeting, and the affirmative vote of a
majority of the outstanding shares of First of America's Common Stock is
required for its approval.
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR APPROVAL OF THE PLAN.
(4) SELECTION OF AUDITORS
Upon the recommendation of the Audit Committee (which consisted of the
following outside Directors: Mr. Hetzler, Chairman, Messrs. Barfield, Goldberg,
Greenwalt, Smith, Walter Wolpin (now retired), 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
common shares 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 1998 Annual
Meeting of Shareholders when selection of auditors shall again be subject to
ratification by the shareholders.
Representatives of KPMG Peat Marwick LLP are expected to be present at the
Annual Meeting and will have the opportunity to make a statement and respond to
appropriate questions.
OTHER MATTERS
Management does not know of any matters to be presented at the Annual
Meeting other than those described above. However, if any other matters properly
come before the meeting or any adjournment thereof, the holders of the proxies
are authorized to vote thereon at their discretion.
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SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
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, 1996 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were complied with, except that one
report relating to one transaction was not timely filed on behalf of Ms. Mertz
and one report relating to one transaction was not timely filed on behalf of Mr.
Wolpin. These inadvertent discrepancies were corrected promptly upon being
brought to their 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, 1996 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 17, 1997, 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
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APPENDIX A
FIRST OF AMERICA BANK CORPORATION
DIRECTOR STOCK COMPENSATION PLAN
SECTION I -- PLAN
1.1 PLAN. First of America Bank Corporation, a Michigan corporation,
established the Director Deferred Compensation Plan effective April 1, 1996 for
the purpose of providing a means for Directors of the Company and Participating
Companies to accumulate savings through deferral of the payment of their
Director's Fees, and to defer the taxation of such fees. The amended and
restated Plan, renamed the First of America Bank Corporation Director Stock
Compensation Plan, will become effective on the date of its adoption by the
Board, provided that the Plan is approved by shareholders of the Company
(excluding holders of shares of Stock, Restricted Stock or Stock Options issued
by the Company under this Plan) within twelve months after that date. If the
Plan is not approved by the shareholders of the Company, any Stock, Restricted
Stock or Stock Options granted under this Plan will be rescinded and void.
Deferrals made previously under the Director Deferred Compensation Plan, as well
as Phantom Stock credits made under this Plan, will, however, continue to be
valid in such event. This Plan will remain in effect until it is terminated by
the Board under Section 13.3 hereof.
1.2 PURPOSE. In addition to the original intent of the Director Deferred
Compensation Plan, the amended and restated Plan has the purpose of advancing
the interests of the Company and its shareholders by helping the Company attract
and retain the services of highly qualified Directors, upon whose judgment,
initiative and efforts the Company is substantially dependent. The Plan also has
the objective of paying a portion of Director's Fees in Equity Compensation to
encourage Stock ownership by such Directors and to further align their interests
with those of other shareholders.
SECTION II -- DEFINITIONS
2.1 The following words and phrases have the respective meanings stated
below unless a different meaning is plainly required by the context:
(a) "1934 Act" means the Securities Exchange Act of 1934, as amended.
(b) "Beneficiary" means any person who is entitled to receive Phantom
Stock Account distributions, Stock Options or Restricted Stock under this
Plan after the death of a Director pursuant to Section 11.1.
(c) "Board" or "Board of Directors" means the Board of Directors of the
Company, or any other entity authorized to act on its behalf.
(d) 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:
a. after giving effect to such offer such corporation, person,
other entity or group would own twenty-five percent (25%) or more of
the Voting Stock of the Company;
b. there shall have been filed documents with the Securities and
Exchange Commission ("SEC") in connection therewith (or, if no such
filing is required, public evidence that the offer has already
commenced); and
c. such corporation, person, other entity or group has secured all
required regulatory approvals to own or control twenty-five percent
(25%) or more of the Voting Stock of the 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
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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;
(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 twenty-five percent (25%) or more of the Voting
Stock of the Company; or
(iv) if during any period of two (2) consecutive years Continuing
Directors cease to comprise a majority of the Company's Board of
Directors.
(e) "Code" means the Internal Revenue Code of 1986, as amended.
(f) "Committee" means the Nominating and Compensation Committee of the
Company's Board of Directors.
(g) "Company" means First of America Bank Corporation, a Michigan
corporation and its successor or successors.
(h) "Continuing Director" means:
(i) any member of the Board of Directors of the Company at the
beginning of any period of two (2) consecutive years; and
(ii) any person who subsequently becomes a member of the Board of
Directors of the Company; if
a. 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
b. 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.
(i) "Deferring Director" means a Director or former Director for whom a
Phantom Stock Account has been established under the Plan.
(j) "Designated Committee" means the Company's Unified Audit Committee,
the Company's Unified Trust Committee and any other committee advisory board
designated by the Committee to be subject to the provisions of this Plan.
(k) "Designated Equity Compensation" means the percentage or amount of
Director's Fees established by the Committee, which will be payable in a
form of Equity Compensation.
(l) "Director" means a member of the Board of Directors or a member of
the board of directors of a Participating Company, who is entitled to
receive Director's Fees. Solely for purposes of this Plan, the term
"Director" shall also include any person serving on a Designated Committee.
(m) "Director's Fees" means the board and committee meeting fees and the
board and committee retainer fees, including fees to serve as a chairperson
of a board or committee or any other fees, payable to Directors for their
service as Directors, as established by the Company or a Participating
Company.
(n) "Disability" has the same meaning as "permanent and total
disability," as defined in Section 22(e)(3) of the Code.
(o) "Entry Date" means the first day of each Plan Year or the first day
of service as a Director.
(p) "Equity Compensation" means compensation in the form of Stock,
Restricted Stock, Phantom Stock, or Stock Options.
(q) "Fair Market Value" means as of the date in question, the market
price per share of Stock determined by the Committee 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
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;
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(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.
(r) "Optional Equity Compensation" means the percentage or amount of
Director's Fees other than the Designated Equity Compensation.
(s) "Option Price" with respect to any particular Stock Option means the
exercise price at which the Optionee may acquire a share of Option Stock
called for under such Stock Option.
(t) "Option Stock" means Stock issued or issuable by the Company
pursuant to the valid exercise of a Stock Option.
(u) "Optionee" means a Director to whom a Stock Option is granted
hereunder, and any transferee of such Stock Option received pursuant to a
transfer authorized under this Plan.
(v) "Participating Company" means any wholly owned subsidiary of the
Company, any wholly owned subsidiary of such a subsidiary, or any other
company designated by the Company.
(w) "Pension Plan" means the First of America Bank Corporation
Employees' Retirement Plan.
(x) "Phantom Stock" means a share equivalent the value of which is based
upon the value of one share of Stock.
(y) "Phantom Stock Account" means any bookkeeping account established
for maintaining Phantom Stock credits under this Plan.
(z) "Plan" means the First of America Bank Corporation Director Stock
Compensation Plan, formerly known as the First of America Bank Corporation
Director Deferred Compensation Plan, as herein set forth.
(aa) "Plan Year" means the period commencing each year on the day of
that year's Annual Meeting of Shareholders of the Company and ending the
following year on the day prior to that year's Annual Meeting of
Shareholders.
(ab) "Restricted Stock" means Stock issued by the Company which is
subject to the restrictions imposed in Section 6.1 of this Plan.
(ac) "Restricted Stock Agreement" means an agreement between the Company
and a Director to evidence the terms and conditions of the issuance of
Restricted Stock hereunder.
(ad) "Restricted Stockholder" means a Director to whom any Restricted
Stock is issued hereunder, and any transferee of such Stock received
pursuant to a Transfer required by law.
(ae) "Retirement" means Separation from Service, as a Director on a
board or Designated Committee after attaining age 60.
(af) "Separation from Service" means the cessation of service as a
Director for any reason. If a Director serves on more than one board or
Designated Committee of the Company or Participating Companies, a Separation
from Service shall not be deemed to have occurred until the cessation of
service as a Director on all such boards or Designated Committees.
(ag) "Stock" means the Company's common stock.
(ah) "Stock Option" means a right granted pursuant to this Plan
entitling the Optionee to acquire one share of Stock issued by the Company.
(ai) "Stock Option Agreement" means an agreement between the Company and
a Director to evidence the terms and conditions of the issuance of Stock
Options hereunder.
(aj) "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,
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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
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.
(ak) "Valuation Date" means June 30th, September 30th, December 31st,
March 31st of each Plan Year and such other dates as are designated by the
Committee to value the Phantom Stock Accounts of Deferring Directors under
this Plan.
(al) "Voting Stock" means those shares of the Company entitled to vote
generally in the election of directors.
SECTION III -- PLAN FEATURES
3.1 DESIGNATED EQUITY COMPENSATION. At least 45 days prior to the
commencement of each Plan Year, the Committee may establish the Designated
Equity Compensation for all Director's Fees and the forms of Equity Compensation
which may be elected by Directors for payment of such Designated Equity
Compensation. In no event shall the Designated Equity Compensation for the Board
be less than 50% of Board retainer fees. The Designated Equity Compensation
determinations and forms of available Equity Compensation approved by the
Committee for previous years remain in effect unless changed in accordance with
this Section 3.1. Pursuant to Section 4.1, Directors will elect the desired form
or forms of available Equity Compensation payable. If the Board does not
establish Designated Equity Compensation for a type of Director's Fees, the
Designated Equity Compensation for such fees will be zero, except in the case of
Board retainer fees where the Designated Equity Compensation will be 50% of such
fees.
3.2 OPTIONAL EQUITY COMPENSATION. With respect to the Optional Equity
Compensation, unless the Committee determines otherwise at least 45 days prior
to the commencement of each Plan Year, Directors may elect to receive Stock,
Phantom Stock or Stock Options instead of cash, pursuant to Section 5.2. The
limitations on the forms of available Optional Equity Compensation approved by
the Committee for previous years remain in effect unless changed in accordance
with Section 3.2.
3.3 SHARES RESERVED UNDER THE PLAN. Subject to Sections 13.2 and 13.4 of
this Plan, the aggregate number of shares of Stock, including Option Stock and
Restricted Stock, that may be issued and outstanding pursuant to the granting of
Stock, the exercise of Stock Options and the granting of Restricted Stock under
this Plan (the "Stock Pool") will not exceed 100,000 shares. Also subject to
Sections 13.2 and 13.4, the aggregate number of shares of Stock, including
Option Stock and Restricted Stock that may be issued under this Plan to any
individual will not exceed 10,000 shares. Shares of Restricted Stock that are
forfeited, as described in subsection 6.1(c) and shares of Option Stock withheld
as payment of an Option Price and/or tax withholding liability as described in
subsection 7.1(d) may be added back into the Stock Pool and reissued. Shares of
Option Stock that would have been issuable pursuant to Stock Options, but that
are no longer issuable because all or part of those Stock Options have
terminated or expired may also be added back into the Stock Pool to be available
for issuance. The Company may purchase shares on the open market or issue
authorized shares but unissued shares to satisfy its obligations under the Plan.
SECTION IV -- DESIGNATED EQUITY COMPENSATION
4.1 TIMING OF DESIGNATED ELECTIONS. If an election is required for an
upcoming Plan Year, at least 30 days prior to the first day of such Plan Year, a
Director shall make a written election as to the form or forms of available
Equity Compensation desired for payment and/or deferral of the Designated Equity
Compensation (the "Designated
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Election"). If a Director is elected or appointed after the first payment of
Director's Fees in a Plan Year, the Director's Designated Election must be made
prior to the effective date of such election or appointment.
4.2 METHOD OF DESIGNATED ELECTION. Except as the Committee may otherwise
provide, Directors may choose more than one form of available Equity
Compensation for payment and/or deferral of the Designated Equity Compensation.
As long as a Director's Designated Election is consistent with the available
forms of Equity Compensation, unless the Director notifies the Committee of a
change, the Director's Designated Election shall remain in effect until
Separation from Service. If a Director's Designated Election is not consistent
with the available forms of Equity Compensation, the Director must make a new
Designated Election in accordance with Section 4.1. If a Director fails to make
a necessary Designated Election with respect to all or a portion of the
Director's Designated Equity Compensation, payment of such amount will be made
in Stock pursuant to Section 4.4, unless Stock is not an available form of
Designated Equity Compensation in the Plan Year, in which case the Committee
shall determine the form of payment. If a Director serves on more than one board
or Designated Committee of the Company or Participating Companies, a separate
election shall be required for the Director's Fees for each such board or
Designated Committee.
4.3 CHANGE IN DESIGNATED ELECTION. Any change in a Director's Designated
Election will not take effect until a subsequent Entry Date. All changes must be
made in accordance with Section 4.1. In the event of a change in the Director's
Fees, the amount of Stock, Restricted Stock, Phantom Stock or Stock Options to
be received will be adjusted proportionately as soon as practicable with respect
to such changed Director's Fees, without action by the Director.
4.4 STOCK. If a Director receives or elects to receive Stock in payment of
the Designated Equity Compensation, the Company shall determine the number of
shares of Stock with a Fair Market Value equal to the Designated Equity
Compensation of the Director's Fees as of the date on which any Director's Fees
become payable. For a participant in the First of America Shareholders
Investment Plan, whole and fractional shares will be added to the Director's
account under that plan as soon as practicable after such date. For any other
Director, shares in an amount rounded to the nearest whole share will be
delivered to the Director or an account designated by the Director.
4.5 RESTRICTED STOCK. If a Director receives or elects to receive Restricted
Stock in payment of the Designated Equity Compensation, as of any date on which
Director's Fees become payable to that Director, the Company shall issue to the
Director and hold in escrow pursuant to subsection 6.1(d)(iii) a number of
shares of Restricted Stock equal to the number of shares of Stock, rounded to
the nearest whole share, which would be issuable to the Director under Section
4.4.
4.6 PHANTOM STOCK. If a Director receives or elects to receive Phantom Stock
for deferral of the Designated Equity Compensation, the Director's Phantom Stock
Account shall be credited with a number of whole and fractional units of Phantom
Stock equal to the number of whole and fractional shares of Stock which would be
issuable under Section 4.4, as of any date on which Director's Fees become
payable to that Director. In addition, as actual dividends are paid on Stock,
Phantom Stock Accounts will be credited with a number of whole and fractional
units of Phantom Stock as if the same dividends were paid on Phantom Stock and
immediately reinvested in Phantom Stock. Dividend credits will be made based on
the number of units of Phantom Stock credited to a Phantom Stock Account as of
the dividend record date for Stock.
4.7 STOCK OPTIONS. If a Director receives or elects to receive Stock Options
in payment of the Designated Equity Compensation, as of any date on which
Director's Fees become payable to that Director, the Director shall receive a
number of Stock Options based on the following formula:
[Number of whole and fractional shares of Stock which would be issuable
under Section 4.4] multiplied by [Multiplier]
The "Multiplier" referred to above shall be established by the Committee
annually 45 days prior to the beginning of each Plan Year, but may be changed as
frequently as the Committee deems appropriate. The value of the Multiplier shall
be determined based on a reasonable option valuation method such that the value
of the Stock Options granted reasonably approximates the equivalent value of the
Director's Fees payable in Stock Options, but shall in no event exceed ten (10).
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SECTION V -- OPTIONAL EQUITY COMPENSATION
5.1 PARTICIPATION. Unless a Director has made an election in accordance with
Section 5.2 to receive all or any portion of Optional Equity Compensation in
Stock, Phantom Stock and/or Stock Options (the "Optional Election"), on any date
on which Director's Fees become payable to a Director, he or she will be paid in
cash an amount equal to the Optional Equity Compensation. Any Optional Election
becomes effective as of the first Entry Date coincident with or following the
Director's appointment or election as a Director. If the Director declines to
make an Optional Election at the initial Entry Date, the Director may make an
Optional Election effective upon any subsequent Entry Date.
5.2 TIMING OF OPTIONAL ELECTIONS. At least 30 days prior to the first day of
a Plan Year, unless the Committee determines otherwise pursuant to Section 3.2,
a Director may make an Optional Election by giving written notice authorizing
payment of Optional Equity Compensation in Stock, Stock Options and/or deferral
of Optional Equity Compensation through receipt of Phantom Stock. If a Director
is elected or appointed after the first payment of Director's Fees in a Plan
Year, the Director's Optional Election must be made prior to the effective date
of such election or appointment.
5.3 METHOD OF OPTIONAL ELECTION. Except as the Committee may otherwise
provide, Directors may choose more than one form of Equity Compensation for
payment and/or deferral of the Optional Equity Compensation. Unless the Director
notifies the Committee of a change, the Director's Optional Elections shall
remain in effect until Separation from Service. If a Director serves on more
than one board or Designated Committee of the Company or Participating
Companies, a separate Optional Election shall be required for the Director's
Fees for each such board or Designated Committee.
5.4 CHANGE IN OPTIONAL ELECTION. Any change in a Director's Optional
Election will not take effect until a subsequent Entry Date. All changes must be
made in accordance with Section 5.2. In the event of a change in the Director's
Fees, the amount of Stock, Stock Options or Phantom Stock to be received will be
adjusted proportionately as soon as practicable with respect to such changed
Director's Fees, without action by the Director.
5.5 STOCK. If a Director elects to receive Stock in payment of the Optional
Equity Compensation of certain Director's Fees, the Company shall determine the
number of shares of Stock with a Fair Market Value equal to the Optional Equity
Compensation of such Director's Fees as of the date on which any Director's Fees
become payable. For a participant in the First of America Shareholders
Investment Plan, whole and fractional shares will be added to the Director's
account under that plan as soon as practicable after such date. For any other
Director, shares in an amount rounded to the nearest whole share will be
delivered to the Director or an account designated by the Director.
5.6 PHANTOM STOCK. If a Director elects to receive Phantom Stock for
deferral of the Optional Equity Compensation, the Director's Phantom Stock
Account shall be credited with a number of whole and fractional units of Phantom
Stock equal to the number of whole and fractional shares of Stock which would be
issuable under Section 5.5, as of any date on which Director's Fees become
payable to that Director. In addition, as actual dividends are paid on Stock,
Phantom Stock Accounts will be credited with a number of whole and fractional
units of Phantom Stock as if the same dividends were paid on Phantom Stock and
immediately reinvested in Phantom Stock. Dividend credits will be made based on
the number of units of Phantom Stock credited to a Phantom Stock Account as of
the dividend record date for Stock.
5.7 STOCK OPTIONS. If a Director elects to receive Stock Options in payment
of the Optional Equity Compensation, as of any date on which Director's Fees
become payable to that Director, the Director shall receive a number of Stock
Options based on the following formula:
[Number of whole and fractional shares of Stock which would be issuable
under Section 5.5] multiplied by [Multiplier]
The "Multiplier" referred to above shall be established by the Committee
annually 45 days prior to the beginning of each Plan Year, but may be changed as
frequently as the Committee deems appropriate. The value of the Multiplier shall
be determined based on a reasonable option valuation method such that the value
of the Stock Options granted reasonably approximates the value of the Director's
Fees to be payable in the form of Stock Options, but shall in no event exceed
ten (10).
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SECTION VI -- RESTRICTED STOCK
6.1 TERMS OF RESTRICTED STOCK AGREEMENTS. All issuances of Restricted Stock
made in a single Plan Year pursuant to this Plan will be evidenced by one
Restricted Stock Agreement between the Company and the Director to whom such
Restricted Stock is issued, in form and substance satisfactory to the Committee
in its sole discretion, consistent with this Plan. The terms of a Restricted
Stock Agreement shall apply equally to all issuances of Restricted Stock made in
the Plan Year to which the Restricted Stock Agreement relates except that
Restricted Stock Vesting Periods will differ based on the timing of each
issuance. Without limiting the foregoing, the following terms and conditions
will be considered part of each Restricted Stock Agreement (unless otherwise
stated therein):
(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 the Director's status as a Director of the Company or a Participating
Company or member of a Designated Committee.
(b) RESTRICTED STOCK VESTING PERIODS. Except as otherwise provided
herein, the period or periods of time during which shares of Restricted
Stock will be subject to the restrictions imposed under this Plan or any
other restrictions (the "Restricted Stock Vesting Period") shall be
specified in the Restricted Stock Agreement. Restricted Stock Vesting
Periods shall be determined by the Committee in its discretion, but shall
not 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.
(c) FORFEITURE OF RESTRICTED STOCK. To the extent that the applicable
Restricted Stock Vesting Period has not elapsed, 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 a
Director 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 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 6.1(d), or exercise any other legal or equitable remedy.
(iii) ESCROW. All shares of Restricted Stock issued pursuant to this
Plan will be held in escrow by the Company 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 is appointed as the escrow holder with
the authority to take all such actions and to effectuate all such
Transfers and/or releases as are in accordance with the terms of this
Plan 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 6.1(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
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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 Securities Act of 1933, as amended,
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.
SECTION VII -- STOCK OPTIONS
7.1 TERMS OF STOCK OPTION AGREEMENTS. All Stock Options granted in a single
Plan Year pursuant to this Plan will be evidenced by one Stock Option Agreement
between the Company and the Director to whom such Stock Options are granted, in
form and substance satisfactory to the Committee in its sole discretion,
consistent with this Plan. The terms of a Stock Option Agreement shall apply
equally to all grants of Stock Options made in the Plan Year to which the Stock
Option Agreement relates, except that Option Prices will differ based on the
timing of each grant. Without limiting the foregoing, the following terms and
conditions will be considered a part of each Stock Option Agreement (unless
otherwise stated therein):
(a) COVENANTS OF OPTIONEE. Nothing contained in this Plan, any Stock
Option Agreement or in any other agreement executed in connection with the
granting of a Stock Option under this Plan will confer upon any Optionee any
right with respect to the continuation of the Director's status as a
Director of the Company or a Participating Company or member of a Designated
Committee.
(b) STOCK OPTION VESTING. Except as otherwise provided herein, the
Committee in its discretion may specify a period of time within which each
Stock Option will vest and first become exercisable. All Stock Options
granted without specific vesting provisions, or as Optional Equity
Compensation, shall be fully and immediately vested and exercisable as of
the date of the grant.
(c) EXERCISE OF THE STOCK OPTION.
(i) MECHANICS AND NOTICE. Stock Options may be exercised to the
extent exercisable by giving written notice to the Company specifying the
number of Stock Options to be exercised, the date of the grant of the
Stock Option or Stock Options to be exercised, the Option 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. 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 a Stock Option granted under this Plan, the
Optionee will pay to the Company in cash, through share netting as
described in subsection 7.1(d), 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 7.1(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.
(iii) PAYMENT OF OPTION PRICE. Each Stock Option Agreement will
specify the Option Price, with respect to the exercise of Stock Options
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, or such other method as determined by the Committee in
its discretion. In no event will the Option Price for a Stock Option
granted hereunder be less than the Fair Market Value of the Stock at the
time such Stock Option 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.
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(d) SHARE NETTING. The Optionee may pay all or a portion of the Option
Price and/or the tax withholding liability, if applicable, with respect to
the exercise of a Stock Option by withholding shares of Option Stock ("share
netting"), provided that the Committee determines that the Fair Market Value
of such netted 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.
(e) TERMINATION OF THE STOCK OPTION. Except as otherwise provided
herein, each Stock Option Agreement will specify the period of time, not to
exceed ten years, to be determined by the Committee in its discretion,
during which the Stock Option granted therein will be exercisable (the
"Option Period"). To the extent not previously exercised, each Stock Option
will terminate upon the expiration of the Option Period specified in the
Stock Option Agreement; provided, however, that, subject to the discretion
of the Committee, each Stock Option will terminate, if earlier: (a) six
months after the date of the Optionee's Separation from Service for any
reason, other than death, Disability, or Retirement; or (b) five years after
the date of the Optionee's Separation from Service by reason of such
person's death, Disability or Retirement.
(i) LIMITED STOCK APPRECIATION RIGHTS. Notwithstanding any other
provision of this Agreement, and except as provided in subsection
7.1(e)(i)b, below, each Stock 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 Stock
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 Stock Option relates.
a. For purposes of subsection 7.1(e)(i) 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 shareholders 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.
b. The Board 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 7.1(e)(i)
do not prevent the Change in Control from being accounted for as a
pooling of interests. If the Board does not receive the required
opinion, it may declare subsection 7.1(e)(i) to be nullified. In such
case, all previously vested Stock Options shall continue to be fully
exercisable, and all unvested Stock Options shall become immediately
and fully exercisable, upon the Change in Control pursuant to the terms
of this Plan.
(f) MODIFICATION OF STOCK OPTIONS. Subject to the terms and conditions
and within the limitations of this Plan, the Committee may modify
outstanding Stock Options granted under this Plan, but in no event may the
Committee change the Option Price as stated in the Stock 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 Stock Option Agreement, if
expressed as a percentage of Fair Market Value, a market or peer group index
or otherwise. Notwithstanding the foregoing, no modification of any Stock
Option will, without the consent of the holder of the Stock Option, alter or
impair any rights or obligations under any Stock Option previously granted
under this Plan.
(g) TRANSFERABILITY OF STOCK OPTIONS. Stock Options will be subject to
Transfer by the Optionee only by will or the laws of descent and
distribution or, at the discretion of the Committee, by direct gift to a
family member, or gift to a family trust or family partnership. The terms
"family member," "family trust" and "family partnership" shall have meanings
consistent with Section 704 of the Code. Stock Options will be exercisable
only by the Optionee during the Director's lifetime, or, by any of the
recipients of the Transfers specifically permitted by this subsection
7.1(g).
(h) COMPLIANCE WITH LAW. Notwithstanding any other provision of this
Plan, Stock 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
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exercise a Stock Option will be further subject to the requirement that if
at any time the Committee or legal counsel of the Company 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 Stock Option or the purchase of shares of Option Stock,
the Stock 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.
(i) STOCK CERTIFICATES. Certificates representing the Option Stock
issued pursuant to the exercise of Stock 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 7.1(i) have been complied with.
(j) OTHER PROVISIONS. The Stock 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 Stock
Options granted hereunder, not inconsistent with this Plan, as may be
determined by the Committee in its sole discretion.
SECTION VIII -- PHANTOM STOCK (DEFERRED COMPENSATION)
8.1 PHANTOM STOCK DEFERRALS. Pursuant to Section 4.6, each Director may
defer all or a part of the Designated Equity Compensation of one or more types
of Director's Fees by electing to receive Phantom Stock instead of such fees, if
Phantom Stock is an available form of Equity Compensation for the Plan Year.
Pursuant to Section 5.6, each Director may defer all or a part of the Optional
Equity Compensation of one or more types of Director's Fees by electing to
receive Phantom Stock instead of cash payment of such fees.
8.2 EFFECT OF DEFERRAL. To the extent the Company is required to withhold
taxes or any other amounts from Phantom Stock Account credits or any other
deferrals pursuant to any federal, state or local law, the Committee may provide
for such withholding in any manner it deems appropriate.
8.3 PRE-EXISTING DIRECTOR DEFERRED COMPENSATION PLANS OR AGREEMENTS. For all
Phantom Stock Accounts established prior to February 19, 1997, the effective
date of this amended and restated Plan, in order to facilitate record keeping
which will be compatible with the operation of the Plan as amended and restated,
all such Phantom Stock Accounts will be valued in terms of units of Phantom
Stock. With Committee approval, a Deferring Director may elect to consolidate
any other accumulated deferrals or Phantom Stock he or she may have under any
other director deferred compensation plan sponsored by a Participating Company
with the Director's Phantom Stock Account in this Plan. Such transferred amounts
will be governed by the provisions of this Plan for all purposes. No cash
payments, after-tax deferral accounts or qualified plan rollovers or transfers
will be accepted under this Plan.
8.4 NON-ALIENATION. No Phantom Stock Account under this Plan shall be
subject to anticipation, alienation, sale, assignment, pledge, encumbrance or
charge, and any attempt to anticipate, alienate, sell, assign, pledge, encumber
or charge the same shall be void. No Phantom Stock Account under this Plan shall
in any manner be liable for or subject to the debts, contracts, liabilities or
torts of the person entitled to such Account except such claims as may be made
by the Company or any Participating Company.
8.5 UNSECURED CREDITORS. All amounts held in Phantom Stock Accounts under
this Plan will be unsecured liabilities of the Company. Nothing contained
herein, and no action taken pursuant to the provisions of this Plan shall create
or be construed to create a trust of any kind, or a fiduciary relationship
between the Company, Participating Companies, Directors or any other person. To
the extent that a Director or any other person acquires a right to receive
payments under the terms of this Plan, such rights shall be no greater than the
rights of an unsecured general creditor of the Company or Participating
Companies. All payments made under the terms of this Plan shall be made from the
general funds of the Company, or Participating Companies, and no segregation of
assets shall be made for the payment of any Phantom Stock Account distributions
under the terms of this Plan to any Deferring Director or beneficiary thereof.
Notwithstanding the foregoing, the Company may establish an irrevocable Rabbi
Trust to provide funding of Phantom Stock Accounts payable under the Plan. At
all times, the assets of such trust shall remain subject to the claims of the
Company's creditors and Deferring Directors' claims to such assets shall be no
greater than those of an unsecured, general creditor of the Company.
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8.6 TAX TREATMENT OF PHANTOM STOCK. Any Phantom Stock or other compensation
deferred under this Plan shall not be deemed compensation and shall not be
included in a Director's taxable income nor deductible by the Company under
federal or state law until actually received by the Deferring Director. In order
to ensure that Phantom Stock or other deferred compensation payable under this
Plan is not deemed received until it is distributed according to Section X, the
Committee may require Deferring Directors to make Designated Elections and
Optional Elections earlier than 30 days prior to the beginning of a Plan Year.
Any other rights, powers, privileges or duties in connection with the
establishment and administration of Phantom Stock Accounts under this Plan shall
not be effective if and to the extent that the same, if effective, would result
in the compensation deferred under this Plan being subject to taxation before
actual receipt by the Deferring Director. All provisions of this Plan relating
to the Phantom Stock Accounts shall be subordinate to this requirement and any
interpretations or constructions to be given to this Plan shall be made in such
a manner as to carry out this intention.
SECTION IX -- MAINTENANCE AND VALUATION OF PHANTOM STOCK ACCOUNTS
9.1 MAINTENANCE OF SEPARATE PHANTOM STOCK ACCOUNTS. For each Deferring
Director, the Company shall establish a separate Phantom Stock Account according
to generally accepted accounting principles, which shall reflect all deferrals
and Phantom Stock accumulations under this Plan and adjustments to the value of
Deferring Director's Phantom Stock Accounts in accordance with Section 9.2. Each
Deferring Director will be furnished a statement of the Director's Phantom Stock
Accounts not less often than annually and following the complete distribution of
such Phantom Stock Accounts to the Deferring Director.
9.2 VALUATION OF PHANTOM STOCK ACCOUNTS. Phantom Stock Accounts will be
credited, as described in Sections 4.6 and 5.6, with units of Phantom Stock and
dividend credits on such Phantom Stock. No specific assets will be invested
under this Plan nor will shares be held on behalf of a Deferring Director. The
value of each of a Deferring Director's Phantom Stock Accounts will be
determined as if assets were invested in shares of Company Stock.
The Committee shall have the authority to establish such consistent and
nondiscriminatory accounting procedures as it deems appropriate to credit
Phantom Stock and dividends and transfers from other director deferred
compensation plans to a Deferring Director's Phantom Stock Accounts, and to
specify the date as of which the value of Company Stock shall be determined for
purposes of valuing a Deferring Director's Phantom Stock Accounts. Phantom Stock
Accounts shall be valued as of each Valuation Date.
Upon a partial or total distribution of the Deferring Director's Phantom
Stock Accounts, the Committee shall determine the value of the Deferring
Director's Phantom Stock Accounts by adding (i) the value of such Phantom Stock
Accounts as of the Valuation Date preceding the date of distribution, and (ii)
any additional Phantom Stock or dividend credits to the Phantom Stock Account
since the Valuation Date preceding the date of distribution.
SECTION X -- DISTRIBUTION OF PHANTOM STOCK ACCOUNT BALANCES
10.1 FORMS OF DISTRIBUTION. All distributions of Phantom Stock Account
balances will be paid in cash, Stock, or some combination of both, in accordance
with an election made by the Deferring Director prior to receiving a
distribution. If no election is made, distributions will be made in cash. In the
event that fractional shares of Stock become payable to a Deferring Director, in
lieu of payment in fractional shares, the Deferring Director will receive the
value of such shares in cash.
10.2 DISTRIBUTION UPON SEPARATION FROM SERVICE.
(A) GENERAL RULE. In the event of a Deferring Director's Separation from
Service, the Deferring Director shall receive a single distribution of
Phantom Stock Account balances as of the date of Separation from Service as
soon as practicable following the Director's Separation from Service, unless
the Deferring Director has previously elected an alternative method of
distribution under Section 10.2(b).
(B) TIMING OF ALTERNATIVE DISTRIBUTION METHOD ELECTION. An election of
an alternative method of distribution of Phantom Stock Account balances
described in Sections 10.2(c) or 10.2(d) must be made by the
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Deferring Director on a form supplied by the Company and delivered to the
Committee no later than the earlier of:
(i) three months prior to the Director's Separation from Service; or
(ii) the last day of the calendar year preceding the calendar year in
which the Director's Separation from Service occurs.
(C) SINGLE DEFERRED DISTRIBUTION. A Deferring Director may elect to
receive a single deferred distribution of the Director's Phantom Stock
Account balances on the 5th or 10th anniversary of the Deferring Director's
Separation from Service. The distribution will be made by the Company as
soon as practicable following the anniversary date elected by the Deferring
Director. If a Deferring Director makes an election under this Section
10.2(c), and dies prior to receiving all amounts payable under the Plan, the
remaining amounts payable shall be distributed to the Deferring Director's
Beneficiary in accordance with the Deferring Director's election.
(D) 5 OR 10 YEAR INSTALLMENTS. A Deferring Director may elect to receive
a deferred distribution of Phantom Stock Account balances in 5 or 10 annual
installments commencing as soon as practicable following the first
anniversary of the Deferring Director's Separation from Service. The amount
of each annual distribution shall equal the total value of the Deferring
Director's Phantom Stock Account in the Plan as of the Valuation Date
immediately preceding the distribution divided by the number of payments
remaining to be made to the Deferring Director. If a Deferring Director
makes an election under this Section 10.2(d), and dies prior to receiving
all amounts payable under the Plan, the remaining amounts payable shall be
distributed to the Deferring Director's Beneficiary in accordance with the
Deferring Director's election.
10.3 CESSATION OF DEFERRING DIRECTOR. A Deferring Director shall continue to
participate in the Plan until such time as the full value of the Director's
Phantom Stock Accounts has been distributed.
10.4 EFFECT OF A CHANGE IN CONTROL ON PHANTOM STOCK ACCOUNTS. Subject to
prior approval by the Committee of an alternative course of action, including
immediate distribution of all Phantom Stock Account balances, in the event of a
Change in Control of the Company, the Committee shall make appropriate
arrangements with and obtain such binding commitments from the Company's
successor as are necessary to provide for the distribution of all Phantom Stock
Accounts in accordance with the terms of this Plan.
SECTION XI -- BENEFICIARIES
11.1 BENEFICIARY DESIGNATION. A Director may designate, by written notice
delivered to the Committee or its designee prior to the Director's death, a
Beneficiary or Beneficiaries to receive, in the event of the Director's death,
all or part of the amount of the Director's Phantom Stock Accounts, any of the
Director's Stock Options granted pursuant to the Plan or any of the Director's
unvested shares of Restricted Stock granted pursuant to the Plan. A designation
of Beneficiary may be replaced by a new designation or may be revoked by the
Director at any time by written notice delivered prior to the Director's death.
11.2 ABSENCE OF BENEFICIARY OR UNCERTAIN BENEFICIARY. If no beneficiary
designation is in effect at the time of a Director's death, or if no designated
beneficiary survives the Director, or such designation conflicts with law,
payment of the amount, if any, payable under the Plan upon the Director's death
shall be made to the Director's estate.
If the Committee is in doubt as to the right of any person to receive such
amount, the Committee may retain such amount without liability for any interest
thereon, until the rights to such amount are determined or the Committee may pay
such amount into any court of appropriate jurisdiction and such payment shall be
a complete discharge of the liability of the Company, the Participating
Companies, the Plan and the Board. Every person receiving or claiming payment
under this Plan shall be presumed to be mentally competent and of full legal age
until the date on which the Committee receives a written notice, that such
person is incompetent or a minor for whom a guardian or other person legally
vested with the care of the Director's person or estate has been appointed.
However, if the Committee shall find that any person to whom an amount is
payable is unable to care for the Director's affairs because of incompetency or
the person is a minor, any payment due (unless a prior claim shall have been
made by a duly appointed legal representative) may be paid to the spouse, child,
parent, brother, or sister of such person, or to any person or
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<PAGE> 46
institution deemed by the Committee to have incurred expense for such person
otherwise entitled to payment. To the extent permitted by law, any such payment
so made shall be a complete discharge of liability under this Plan.
In the event a guardian of the estate of any person receiving or claiming
payment under this Plan shall be appointed by a court of competent jurisdiction,
payments may be made to such guardian provided that proper proof of appointment
and continuing qualification is furnished to the Company. To the extent
permitted by law, any such payment so made shall be a complete discharge of any
liability under the Plan.
SECTION XII -- ADMINISTRATION
12.1 ADMINISTRATION OF PLAN. This Plan will be administered by the
Committee, which may delegate such powers or duties to employees of the Company
or a Participating Company, as it deems appropriate, provided that such
delegation is consistent with maintaining an exemption from the short-swing
profit liability provisions of Section 16 of the 1934 Act.
12.2 POWER OF PLAN ADMINISTRATOR. Except as otherwise expressly provided in
this Plan, the Committee shall have full power and authority, within the limits
provided by this Plan:
(a) to interpret this Plan, resolve ambiguities that arise under the
Plan and make equitable adjustment for any mistakes or errors made in the
administration of this Plan;
(b) to determine all questions arising in the administration of this
Plan, including the power to determine the rights of Directors and their
Beneficiaries;
(c) to adopt such rules and regulations as it may deem reasonably
necessary for the proper and efficient administration of this Plan
consistent with its purposes;
(d) to enforce this Plan in accordance with its terms and any rules and
regulations adopted by the Committee;
(e) to determine the period or periods of time during which Stock
Options may be exercised or become exercisable, the Option Price and the
duration of such Stock Options, and other matters to be determined by the
Committee in connection with specific Stock Option grants and Stock Option
Agreements as specified under this Plan;
(f) to determine the period or periods of time during which the
Restricted Stock may vest, 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; and
(g) to do all other acts which in its judgment are necessary or
desirable for the proper and effective administration of this Plan.
SECTION XIII -- MISCELLANEOUS
13.1 EXPENSES. Expenses of administering the Plan, will be borne by the
Company and Participating Companies.
13.2 AMENDMENTS. The Board may amend the Plan at any time in its sole
discretion, provided that:
(a) Any such amendment will be effective at such date as the Board may
determine;
(b) No amendment shall reduce the value of a Deferring Director's
Phantom Stock Accounts as of the date the Board adopts the amendment, but an
amendment may change the manner in which Plan distributions or earnings or
losses on Phantom Stock Accounts are determined;
(c) No such action may, without the approval of the shareholders of the
Company, materially increase (other than by reason of an adjustment pursuant
to Section 13.4 hereof) the aggregate number of shares of Stock, Option
Stock and Restricted Stock in the Stock Pool that may be granted pursuant to
this Plan; and
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(d) No action of the Board or Committee shall alter or impair any Stock
Option or Restricted Stock previously granted or awarded under this Plan
without the consent of such affected Optionee or Restricted Stockholder.
13.3 PLAN TERMINATION. The Board may terminate this Plan at any time;
however, no termination shall alter or impair any Stock Option or Restricted
Stock previously granted or awarded under this Plan without the consent of such
affected Optionee or Restricted Shareholder, nor shall any termination reduce
the value of the Deferring Director's Phantom Stock Accounts as of the date the
Board terminates the Plan.
13.4 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 Stock, Option Stock and
Restricted Stock in the Stock Pool;
(b) in the Option Price and the number of shares of Option Stock that
may be purchased pursuant to an outstanding Stock Option granted hereunder;
and
(c) in the number of units of Phantom Stock held in Phantom Stock
Accounts maintained under this Plan; and
(d) with respect to other rights and matters determined on a per share
basis under this Plan or any associated Stock Option Agreement or Restricted
Stock Agreement.
(e) 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 Stock Options, Restricted Stock and Phantom 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.
13.5 NOTICES. Notices, reports and statements to be given, made or delivered
to a Director will be deemed duly given, made or delivered, when addressed to
the Director, and delivered by first class mail, to such Director's last known
residence or business address. All notices required to be given by a Director
will be given on a form provided for the purpose and will be deemed received
when delivered to the Committee, care of the Company's Senior Vice President of
Human Resources at 211 S. Rose, Kalamazoo, MI, 49007.
13.6 APPLICABLE LAW. This Plan shall be governed by the law of the State of
Michigan, to the extent not preempted by federal law.
13.7 PLAN BINDING UPON SUCCESSORS. This Plan shall be binding upon and inure
to the benefit of the Company, the Participating Companies, Directors and their
respective successors, assigns, personal representatives, heirs, legatees and
beneficiaries.
Approved by the Board of Directors on February 21, 1996.
Amended and restated by the Board of Directors on February 19, 1997.
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APPENDIX B
FIRST OF AMERICA BANK CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
AND
CONSOLIDATED FINANCIAL STATEMENTS
<PAGE> 49
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
1996 Highlights........................................... B-2
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
a $22 billion bank holding company which has $15 billion in loans and $18
billion in deposits and provides commercial and retail banking in Michigan,
Illinois, Indiana and Florida. The corporation also provides trust, insurance
and other financial services, managing over $20 billion in trust and mutual fund
assets, and engages in mortgage origination in North Carolina and Arizona. Based
on total assets, First of America is ranked 32nd among banking companies in the
United States.
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following financial review discusses the performance of First of
America, on a consolidated basis, for the three years ended December 31, 1996,
and should be read in conjunction with the consolidated financial statements and
notes thereto.
MERGERS AND ACQUISITIONS
Table I below and Note 2 of the Notes to Consolidated Financial Statements,
included later in this document, summarize First of America's business
combinations for the past three years.
BUSINESS COMBINATIONS TABLE I
($ in thousands)
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
1996 1995 1994
- --------------------------------------------------------------------------------------------------------------
Assets Assets Assets
Affiliate Acquired Affiliate Acquired Affiliate Acquired
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Huttenlochers Kerns New England Trust Presidential Holding
Norvell, Inc.......... $3,994 Company................. $1,576 Corporation............. $ 256,352
------
Underwriting F & C Bancshares,
Consultants, Inc. .... 1,255 Inc. ................. 379,791
First Park Ridge
Corp. ................ 327,391
West Suburban Financial LGF Bancorp, Inc........ 412,336
Corporation........... 12
------
Goldome Federal
Branches(36).......... 376,858
----------
$3,994 $2,843 $1,752,728
- --------------------------------------------------------------------------------------------------------------
</TABLE>
On February 12, 1996, First of America acquired Huttenlochers Kerns Norvell,
Inc., an insurance agency located in southeast Michigan. This acquisition
provides further opportunity to enhance this revenue source which increased $3.5
million for 1996 over 1995.
1996 HIGHLIGHTS
Net income for 1996 was $256.9 million, up 8.5 percent compared with the
$236.7 million earned in 1995, and earnings per share were $4.16 versus $3.73.
The current year's results reflected the impact of the Federal Deposit Insurance
Corporation's one-time assessment fee of $14.0 million (net of tax), or $0.22
per share, to recapitalize the Savings Association Insurance Fund, gains from
branch sales of $17.0 million (net of tax), and one-time charges of $7.3 million
(net of tax) associated with severance and various write-downs. For 1995, the
results included restructuring charges of $8.6 million (net of tax) and gains
from branch office sales of $10.6 million (net of tax).
Return on average assets was 1.16 percent for 1996 compared with 1.00
percent for 1995 and 0.98 percent for 1994. Return on average equity was up for
the year-over-year comparison, 14.39 percent compared with 13.89 percent. Return
on average equity was 14.44 percent in 1994.
Asset quality improved from the solid levels reported in 1995 and 1994.
Nonperforming assets were 0.52 percent of total assets, lower than the 0.63
percent and 0.57 percent reported at year-end 1995 and 1994, respectively. Net
charge-offs as a percent of average loans for 1996 was 0.53 percent, higher than
the 0.47 percent and 0.39 percent, respectively, for 1995 and 1994. The increase
in the ratio from 1995 to 1996 was primarily due to a decreasing loan portfolio,
which resulted from a planned balance sheet restructuring; the increase from
1994 to 1995 was the result of the higher charge-offs experienced industry-wide
in consumer loan portfolios. The allowance for loan losses as a percent of total
loans did increase, however, to 1.68 percent at year-end 1996 compared with 1.50
percent at year-end 1995, as the provision for loan loss expense covered net
charge-offs by 114 percent and total loans were $1.0 billion lower. The
allowance as a percent of total loans was 1.36 percent at December 31, 1994.
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Total assets were $22.1 billion at December 31, 1996, decreasing 6.5 percent
from the $23.6 billion reported at December 31, 1995, as a result of targeted
balance sheet restructuring efforts. Higher priced deposits and selected loan
portfolios with narrower net interest spreads were reduced and greater emphasis
was placed on loans and deposits meeting specific targeted returns. Total assets
were $24.6 billion at December 31, 1994. The 1994 to 1995 decrease can also be
attributed to the restructuring of the balance sheet and to the June 1995
securitization of $500 million in credit card receivables. Total loans decreased
6.4 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 moderate growth during
1996, up 3.8 percent from 1995.
Total shareholders' equity remained level with a year ago at $1.8 billion
even with the 3.6 million shares repurchased in 1996. Book value per share
increased to $29.83 at December 31, 1996 compared with $28.89 and $25.12 for
year-ends 1995 and 1994. Discussion of an additional repurchase program is
presented in the Capital Strength section later in this document. The total
risk-based capital ratio of 13.19 percent at year-end 1996 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 1996, the Board of Directors increased the cash dividend per
common share by 6.8 percent to $1.88 annually. This increase indicated the
Board's continued confidence in First of America's profitability and represents
the fourteenth year in a row that the dividend was increased. One indicator of
the Registrant's continuing progress is that First of America's stock reached
its highest closing price ever, $60.75, on November 29, 1996, and closed at
$60.125 on December 31, 1996 up 35.5 percent from 1995.
In November 1996, several organizational changes were announced, to be
completed in 1997, which are designed to continue the Registrant's efforts
towards a delivery system that revolves around customers' needs and is organized
by business lines. The changes will further realign the company from a
geographic focus; devote more resources to sales incentives and sales training;
reduce costs for delivery of products and services; and improve prospects for
increased profitability. The financial impact of these changes was partially
recognized in the fourth quarter of 1996 as noted previously.
An additional change announced in November is the Registrant's planned
mid-1997 consolidation of its four affiliate banks into one operating unit as
permitted under legislation which provides for full interstate banking at that
time. This change will not take the company away from its community banking
roots, but rather will serve to strengthen its commitment to those communities.
For example, community and regional presidents will continue to be actively
involved in the communities they serve, but they will also have business line
responsibilities.
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SELECTED FINANCIAL DATA TABLE II
($ in thousands, except per share data)
<TABLE>
<CAPTION>
5 Year Year Ended December 31,
Compounded ----------------------------------------------------------------------------
Growth Rate 1996 1995 1994 1993 1992 1991
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS
Interest income................. 1.6% $ 1,663,554 1,796,524 1,600,877 1,510,966 1,596,127 1,537,861
Interest expense................ (0.7) 761,066 872,528 662,142 608,949 721,300 786,910
----------- ---------- ---------- ---------- ---------- ----------
Net interest income............. 3.7 902,488 923,996 938,735 902,017 874,827 750,951
Provision for loan losses....... 5.6 93,456 91,488 86,571 84,714 78,809 71,030
Total non-interest income....... 14.8 419,314 346,100 284,373 292,184 261,316 209,900
Total non-interest expense...... 4.9 845,003 815,271 813,418 763,528 796,348 665,732
Applicable income tax expense... 14.4 126,457 126,629 102,616 98,574 91,506 64,625
Extraordinary item, net of
tax........................... n/a -- -- -- -- (21,956) --
- ---------------------------------------------------------------------------------------------------------------------------
Net income...................... 10.0% $ 256,886 236,708 220,503 247,385 147,524 159,464
- ---------------------------------------------------------------------------------------------------------------------------
Net income applicable to common
stock......................... 12.3% $ 256,886 236,708 220,503 241,232 135,015 144,028
- ---------------------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE OF COMMON
STOCK
Primary......................... 9.1% $ 4.16 3.73 3.69 4.20 2.46 2.69
Fully diluted................... 9.1 4.16 3.73 3.69 4.14 2.46 2.69
Average common shares
outstanding ("000")........... 2.9 61,755 63,501 59,812 57,417 54,842 53,536
Cash dividends declared per
common share.................. 8.0 $ 1.82 1.72 1.64 1.55 1.34 1.24
Primary book value per common
share......................... 7.7 29.83 28.89 25.12 25.60 22.12 20.58
- ---------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET SUMMARY
ASSETS:
Cash and due from banks......... 3.8% $ 1,205,962 1,207,062 1,060,788 903,517 918,960 1,000,578
Federal funds sold, resale
agreements and time
deposits...................... (8.5) 163,400 269,737 55,271 74,909 175,030 254,333
Securities:
Held to maturity.............. n/a -- -- 3,112,876 1,856,623 3,489,626 4,261,360
Available for sale............ n/a 4,562,381 5,060,746 2,587,626 3,261,481 -- --
Held for sale................. n/a -- -- -- -- 1,137,420 --
Loans -- net of unearned
income........................ 2.6 15,056,006 16,076,942 16,834,858 14,394,155 13,756,017 13,228,027
Allowance for loan losses....... 7.7 (252,846) (241,182) (228,115) (188,664) (176,793) (174,882)
Other assets.................... 8.1 1,327,276 1,226,790 1,145,398 928,450 846,507 900,552
- ---------------------------------------------------------------------------------------------------------------------------
Total assets.................... 2.5% $22,062,179 23,600,095 24,568,702 21,230,471 20,146,767 19,469,968
- ---------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits........................ 0.2% $17,619,296 19,342,467 20,200,266 18,243,703 18,035,553 17,483,232
Short term borrowings........... 45.5 1,837,990 1,649,965 1,882,739 994,578 338,023 282,225
Long term debt.................. 14.9 521,124 490,315 681,236 254,193 254,051 260,398
Other liabilities............... 11.1 299,571 289,367 225,573 214,560 183,649 176,745
Total shareholders' equity...... 7.1 1,784,198 1,827,981 1,578,888 1,523,437 1,335,491 1,267,368
- ---------------------------------------------------------------------------------------------------------------------------
Total liabilities and equity.... 2.5% $22,062,179 23,600,095 24,568,702 21,230,471 20,146,767 19,469,968
- ---------------------------------------------------------------------------------------------------------------------------
FINANCIAL RATIOS
Return on average total
equity........................ 14.39% 13.89 14.44 17.50 11.38 13.07
Return on average assets........ 1.16 1.00 0.98 1.20 0.75 0.95
Net interest margin (a)......... 4.53 4.28 4.58 4.86 4.98 5.07
Total shareholders' equity to
assets at year-end............ 8.09 7.75 6.43 7.18 6.63 6.51
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
(a) Fully taxable equivalent based on a marginal federal income tax rate of 35%
for 1996, 1995, 1994 and 1993, and 34% for prior years.
B-4
<PAGE> 53
INCOME ANALYSIS
NET INTEREST INCOME. Net interest income on a fully taxable equivalent (FTE)
basis was $920.0 million, down 2.1 percent from $940.0 million in 1995. The
higher net interest margin for 1996, 4.53 percent versus 4.28 percent, more than
offset a 7.5 percent decrease in average earning assets. First of America
completed the securitization of $500 million in credit card receivables during
mid-year 1995, shifting revenue from interest income to non-interest fee
revenue. If 1995 net interest income was restated for the impact of the
securitization, 1996's net interest income would have been level with last
year's. For 1995 compared with 1994, net interest income FTE decreased 2.0
percent primarily due to the impact of the credit card securitization.
Table III presents a summary of the changes in net interest income resulting
from changes in volumes and rates for 1996 and 1995. Net interest income,
average balance sheet amounts, and the corresponding yields and costs for the
years 1992 through 1996 are shown in Table IV.
Total interest income FTE declined 7.3 percent in 1996. As illustrated in
Table III, the decrease resulted mainly from a lower volume of earning assets.
On the other hand, interest expense was down 12.8 percent as a result of lower
rates on interest-bearing liabilities and a $1.7 billion decrease in average
interest bearing liabilities. The combination of these changes resulted in the
2.1 percent decrease in net interest income FTE.
VOLUME/RATE ANALYSIS TABLE III
($ in thousands)
<TABLE>
<CAPTION>
1996 Change From 1995 Due To 1995 Change From 1994 Due To
- -----------------------------------------------------------------------------------------------------------
Volume Rate Total Volume Rate Total
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME:
Loans (FTE)......................... $ (95,181) (13,930) (109,111) 119,442 77,146 196,588
Taxable securities.................. (43,999) 11,697 (32,302) (12,571) 13,618 1,047
Tax exempt securities (FTE)......... 5,999 (591) 5,408 (7,188) 750 (6,438)
Money market investments............ 3,591 947 4,538 1,482 2,021 3,503
- -----------------------------------------------------------------------------------------------------------
Total interest income (FTE)......... $(129,590) (1,877) (131,467) 101,165 93,535 194,700
- -----------------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Interest bearing deposits........... $ (55,743) (23,423) (79,166) 16,197 141,030 157,227
Short term borrowings............... (11,837) (8,859) (20,696) 16,754 23,541 40,295
Long term debt...................... (13,408) 1,808 (11,600) 9,717 3,148 12,865
- -----------------------------------------------------------------------------------------------------------
Total interest expense.............. $ (80,988) (30,474) (111,462) 42,668 167,719 210,387
- -----------------------------------------------------------------------------------------------------------
Change in net interest income....... $ (48,602) 28,597 (20,005) 58,497 (74,184) (15,687)
- -----------------------------------------------------------------------------------------------------------
</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> 54
- --------------------------------------------------------------------------------
AVERAGE BALANCES/NET INTEREST INCOME/AVERAGE RATES TABLE IV
($ in thousands)
<TABLE>
<CAPTION>
Year Ended December 31, 1996 1995 1994
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average
Interest Rate Interest Rate Interest
Average Income/ Earned/ Average Income/ Earned/ Average Income/
Balance Expense Paid Balance Expense Paid Balance Expense
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments........ $ 168,182 10,390 6.18% $ 108,480 5,852 5.39% $ 72,736 2,349
Investment securities:
U.S. Treasury, federal agencies
and other...................... 4,387,256 271,843 6.20 5,103,380 304,145 5.96 5,319,354 303,098
State and municipal
securities(1).................. 294,728 24,266 8.23 222,055 18,858 8.49 306,946 25,296
Total loans(1)(2)............... 15,463,335 1,374,598 8.89 16,532,752 1,483,709 8.97 15,172,618 1,287,121
----------- --------- ----------- --------- ----------- ---------
Total earnings assets/total
interest income (1)............ 20,313,501 1,681,097 8.28 21,966,667 1,812,564 8.25 20,871,654 1,617,864
----------- --------- ----------- --------- ----------- ---------
Less allowance for loan
losses......................... 249,833 234,933 206,703
Cash and due from banks......... 932,239 919,598 892,959
Other assets.................... 1,198,433 1,100,940 992,857
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................... $22,194,340 $23,752,272 $22,550,767
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)..... $ 3,843,700 80,490 2.09% 3,444,077 59,342 1.72% $ 3,948,604 59,476
Money market savings
accounts(3).................... 3,898,886 142,811 3.66 4,254,533 166,906 3.92 3,551,445 110,220
Time deposits................... 7,739,404 422,694 5.46 9,105,938 498,913 5.48 8,849,576 398,239
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing
deposits....................... 15,481,990 645,995 4.17 16,804,548 725,161 4.32 16,349,625 567,935
Short term borrowings........... 1,443,047 79,988 5.54 1,647,634 100,684 6.11 1,325,584 60,389
Long term debt.................. 445,329 35,083 7.87 616,357 46,683 7.57 485,494 33,818
----------- --------- ----------- --------- ----------- ---------
Total interest-bearing liabili-
ties/total interest expense.... 17,370,366 761,066 4.38 19,068,539 872,528 4.58 18,160,703 662,142
----------- --------- ----------- --------- ----------- ---------
Demand deposits................. 2,790,118 2,710,566 2,665,183
Other liabilities............... 248,448 269,073 197,330
Non-redeemable
preferred/preference stock..... -- -- --
Common shareholders' equity..... 1,785,408 1,704,094 1,527,551
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................... $22,194,340 $23,752,272 $22,550,767
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income/earning
assets......................... 8.28% 8.25%
Interest expense/earning
assets......................... 3.75 3.97
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets......................... 4.53% 4.28%
- ---------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Year Ended December 31, 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------------------
Average Average Average
Rate Interest Rate Interest Rate
Earned/ Average Income/ Earned/ Average Income/ Earned/
Paid Balance Expense Paid Balance Expense Paid
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
ASSETS:
Money market investments........ 3.23% $ 93,662 2,854 3.05% $ 233,757 9,090 3.89%
Investment securities:
U.S. Treasury, federal agencies
and other...................... 5.70 4,537,814 262,871 5.79 3,898,195 274,048 7.03
State and municipal
securities(1).................. 8.24 530,407 42,605 8.03 493,785 46,369 9.39
Total loans(1)(2)............... 8.48 13,875,584 1,225,736 8.83 13,435,991 1,291,724 9.61
----------- --------- ----------- ---------
Total earnings assets/total
interest income (1)............ 7.75 19,037,467 1,534,066 8.06 18,061,728 1,621,231 8.98
----------- --------- ----------- ---------
Less allowance for loan
losses......................... 182,594 176,595
Cash and due from banks......... 839,506 818,279
Other assets.................... 850,783 870,879
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................... $20,545,162 $19,574,291
- ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND EQUITY:
Deposits:
Savings and NOW accounts(3)..... 1.51% $ 3,980,815 82,664 2.08% $ 2,820,091 86,568 3.07%
Money market savings
accounts(3).................... 3.10 3,009,796 78,738 2.62 3,972,004 128,820 3.24
Time deposits................... 4.50 8,638,044 409,097 4.74 8,520,485 476,215 5.59
----------- --------- ----------- ---------
Total interest-bearing
deposits....................... 3.47 15,628,655 570,499 3.65 15,312,580 691,603 4.52
Short term borrowings........... 4.56 575,074 18,546 3.22 216,352 8,104 3.75
Long term debt.................. 6.97 272,297 19,904 7.31 248,032 21,593 8.71
----------- --------- ----------- ---------
Total interest-bearing liabili-
ties/total interest expense.... 3.65 16,476,026 608,949 3.70 15,776,964 721,300 4.57
----------- --------- ----------- ---------
Demand deposits................. 2,463,534 2,301,768
Other liabilities............... 191,922 198,633
Non-redeemable
preferred/preference stock..... 74,586 140,952
Common shareholders' equity..... 1,339,094 1,155,974
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................... $20,545,162 $19,574,291
- ---------------------------------------------------------------------------------------------------------------------------------
Interest income/earning
assets......................... 7.75% 8.06% 8.98%
Interest expense/earning
assets......................... 3.17 3.20 4.00
- ---------------------------------------------------------------------------------------------------------------------------------
Net interest margin/earning
assets......................... 4.58% 4.86% 4.98%
- ---------------------------------------------------------------------------------------------------------------------------------
</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 1996, 1995, 1994 and 1993,
and 34% for 1992.
(2) Non-accrual loans are included in average loan balances.
(3) In 1996, 1995, 1994 and 1993, money market checking accounts are included in
"Savings and NOW accounts"; in 1992, they are included in "Money market savings
accounts."
B-6
<PAGE> 55
NET INTEREST MARGIN. The net interest margin was 4.53 percent in 1996,
higher than the 4.28 percent reported in 1995, as a result of pricing strategies
implemented to improve the interest spread of certain loan products to achieve
the corporation's targeted return on equity and on improving the mix within
deposits and borrowings. The balance sheet restructuring completed in 1996
helped increase the net interest margin as less profitable earning assets and
deposits were sharply reduced, and targeted, more profitable loan portfolios and
deposit products increased. Especially affected were investments, which declined
by 9.9 percent and certificates of deposits, which were lower by 20.6 percent.
The net interest margin improved steadily throughout 1996, reaching 4.64
percent in the fourth quarter as a result of the actions taken. If 1995's net
interest margin was adjusted for the impact of the June 1995 credit card
securitization, the increase year over year would have been 32 basis points, as
the credit card securitization shifted interest income to non-interest income.
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 1996, the provision for loan losses was
increased 2.2 percent to $93.5 million from $91.5 million in 1995 to adequately
cover net charge-offs and the higher risk of loss being experienced in the
credit card and installment loan portfolios. The 1994 provision was $86.6
million. The 114 percent coverage of net charge-offs by the provision for loan
losses, the decrease in the loan portfolio due to the balance sheet
restructuring, and the 1995 securitization of $500 million in credit card
receivables contributed to the higher allowance as a percent of total loans
ratio which was 1.68 percent, up from 1.50 percent at December 31, 1995 and 1.36
percent at December 31, 1994.
As a percent of average assets, the 1996 provision was 0.42 percent compared
with the 0.39 percent and 0.38 percent reported for 1995 and 1994, respectively.
Additional information on the provision for loan losses, net charge-offs and
nonperforming assets is provided in Tables IX and XI under the caption,"Credit
Risk Profile," presented later in this discussion.
NON-INTEREST REVENUE. Non-interest revenue of $419.3 million was up 21.2
percent over 1995. Excluding branch sale gains from both 1996 and 1995, total
non-interest revenue would have increased 18.1 percent over 1995. Non-interest
revenue totaled $346.1 million in 1995 and $284.4 million in 1994. Branch sale
gains of $16.3 million and $17.6 million in net servicing fees from the credit
card securitization were the primary reasons for the higher level of
non-interest revenue in 1995 compared with 1994. Table V presents the trends in
the major components of non-interest revenue from 1992 to 1996.
B-7
<PAGE> 56
NON-INTEREST REVENUE AND NON-INTEREST EXPENSE TABLE V
($ in thousands)
<TABLE>
<CAPTION>
Change
1996/1995
- ----------------------------------------------------------------------------------------------------------------------
1996 1995 1994 1993 1992 Amount Percent
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST REVENUE
Service charges on deposits..................... $112,516 100,281 89,164 84,648 79,522 12,235 12.2%
Trust and financial services revenue............ 114,024 94,179 81,717 77,290 68,850 19,845 21.1
Investment securities transaction............... (515) 62 5,349 16,753 14,993 (577) nm
Other operating revenue......................... 193,289 151,578 108,143 113,493 97,951 41,711 27.5
- ------------------------------------------------------------------------------------------------------------
Total non-interest revenue...................... $419,314 346,100 284,373 292,184 261,316 73,214 21.2
- ----------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Personnel....................................... $454,170 430,977 430,563 403,119 410,854 23,193 5.4%
Occupancy, net.................................. 64,871 64,108 60,471 55,093 57,286 763 1.2
Equipment....................................... 58,462 59,322 56,111 53,376 63,134 (860) (1.4)
Data processing................................. 19,182 18,825 17,524 14,963 10,380 357 1.9
Amortization of intangibles..................... 23,355 21,146 16,577 8,902 38,336 2,209 10.4
FDIC premiums................................... 28,685 28,373 42,055 39,680 38,711 312 1.1
Other operating expense......................... 196,278 192,520 190,117 188,395 177,647 3,758 2.0
- ------------------------------------------------------------------------------------------------------------
Total non-interest expense...................... $845,003 815,271 813,418 763,528 796,348 29,732 3.6
- ----------------------------------------------------------------------------------------------------------------------
Non-interest revenue as a percent of
average assets................................ 1.89% 1.46 1.26 1.42 1.33
Non-interest expense as a percent of
average assets................................ 3.81 3.43 3.61 3.72 4.07
Burden ratio.................................... 1.92 1.97 2.35 2.30 2.74
Efficiency ratio................................ 63.09 63.39 65.59 62.72 68.58
Efficiency ratio, excluding FDIC premiums....... 60.95 61.18 62.20 59.46 65.24
- ----------------------------------------------------------------------------------------------------------------------
</TABLE>
Service charges on deposit accounts remained a significant component of
non-interest revenue in 1996. New fee structures and a slightly higher volume of
non-interest transaction deposits accounted for the 12.2 percent increase over
1995.
In total, trust and financial services revenue was the largest component of
non-interest revenue for 1996, increasing 21.1 percent over a year ago.
Traditional trust fees increased 6.5 percent as assets under management
increased 28.8 percent. Other financial services fees, generated by cash
management, investment management, brokerage, securities trading and
underwriting along with insurance services, increased 55.5 percent, benefiting
from the sales and services strategies implemented in partnership with the
branch employees. Total revenue from the sale of Parkstone and other mutual
funds and annuities was $14.0 million compared with $9.6 million in 1995.
Insurance revenue for 1996 was $5.1 million compared to $1.6 million in 1995
reflecting the Registrant's expanding commitment to this product line.
Net losses on the sales of investment securities totaled $0.5 million
compared with gains of $0.1 million in 1995 and $5.3 million in 1994. 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, 1996, the amortized
cost of Available for Sale securities totaled $4.5 billion and had a
corresponding market value of $4.6 billion compared to $5.0 billion and $5.1
billion, respectively, for 1995. The changes in the relative market value of
Available for Sale Securities resulted in an adjustment which decreased
shareholders' equity $17.5 million for 1996.
Bank card revenue totaled $73.9 million, up 22.4 percent over the $60.4
million earned in 1995. The 1995 total included $17.6 million in net fees from
the June 1995 credit card securitization while 1996 included $39.3 million of
securitization fees. Annualizing these 1995 net fees, bank card revenue would
have decreased in 1996 due to higher net charge-offs in the securitized
portfolio. The securitization shifted revenue from interest income to fee
revenue
B-8
<PAGE> 57
but had minimal impact on net income; its benefit was that the funds it provided
allowed the company to reduce short-term borrowings, effectively lowering
interest expense. Bank card revenue totaled $43.2 million in 1994. The managed
credit card portfolio, which includes the $843 million in receivables remaining
on the balance sheet and the securitized receivables, was $1.3 billion at
December 31, 1996, level with a year ago.
Mortgage banking revenue of $28.5 million decreased 9.5 percent from the
$31.5 million for 1995. The main reasons for the decrease were a $1.1 million
increase in amortization of originated mortgage servicing rights and a $1.3
million decrease in mortgage appraisal revenue.
Other operating revenue increased 52.4 percent over 1995. The largest
component of this category, gains on branch sales, was $29.7 million for 1996
compared to $16.3 million for 1995. The review of branch offices to determine
their fit with the company's strategies is an ongoing activity which was
intensified during the internal restructuring effort. Also included in this
total were nonaffiliate corporate services at $15.1 million, up 42.1 percent;
letter of credit fees at $6.4 million, up 93.8 percent; and the increase in cash
surrender value of life insurance at $9.2 million.
NON-INTEREST EXPENSE. As detailed in Table V, non-interest expense was
$845.0 million, up 3.6 percent from 1995. Non-interest expense for 1996 included
$22.0 million for the FDIC one-time assessment and $11.5 million for severance
and writedowns. If one-time charges are excluded from both years (1995 expense
included $13.2 million of restructuring charges) 1996 non-interest expense would
have increased only 1.2 percent over 1995. Non-interest expense was 3.43 percent
of average assets for 1995 and 3.61 percent for 1994.
Total personnel cost was $454.2 million in 1996 compared with $431.0 million
in 1995 and $430.6 million in 1994. Excluding severance charges, personnel cost
increased 6.6 percent as higher incentives for improved sales performance more
than offset the reduction in total personnel. Total full time equivalent
employees (FTEs) were 12,148 at December 31, 1996, and included 200 employees
who received notification that their positions were being eliminated as part of
the company's ongoing restructuring process. In addition, approximately 400
employees are expected to be notified by the end of the first quarter of 1997.
Total FTEs were 12,690 at December 31, 1995 and 14,500 in August 1994 when the
restructuring efforts began.
Two ratios which measure internal efficiencies are the number of FTEs per
one million dollars of average assets and net income per FTE. For 1996, there
were 0.56 FTEs per one million dollars of average assets compared with 0.53 a
year ago, and $21,146 of net income per FTE versus $18,653 a year ago. These
ratios were 0.56 and $16,570 for 1994.
Net occupancy and equipment costs were $123.3 million for 1996 and remained
level with 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 $196.3 million in 1996, up 2.0 percent
from 1995's total of $192.5 million. As a percent of average assets, other
operating expense was 0.88 percent compared with 0.81 percent in 1995 and 0.84
percent in 1994. The 1996 ratio increased as a combined result of the increase
in other operating expense and the decrease in average assets during 1996.
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. In 1996, the efficiency ratio was 63.09 percent down slightly
compared with 63.39 percent a year ago.
The burden ratio measures the relationship of non-interest income and
expense to average assets. The burden ratio has improved over the five year
period presented in Table V. The five basis point improvement in the 1996 burden
ratio compared with 1995 was a result of non-interest income increasing at a
faster rate than non-interest expense.
INCOME TAX EXPENSE. Income tax expense was $126.5 million in 1996 compared
with $126.6 million in 1995 and $102.6 million in 1994. A summary of significant
tax components is provided in Note 18 of the Notes to Consolidated Financial
Statements included later in this document.
B-9
<PAGE> 58
PRO FORMA RESULTS -- CASH EARNINGS
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 three years would have been
within the 17 to 18 percent range. Also earnings per share and return on assets
would have been higher than reported. The book value per share, while lower than
the reported $29.83 for year-end 1996, would be the equivalent of a reported
tangible book value per share. In fact, the tier I leverage ratio, the strictest
regulatory capital ratio, remains unchanged under these assumptions since it
already excludes intangibles from its computation.
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
<S> <C> <C> <C>
Net income.................................................. $276,762 255,131 235,093
Earnings per share.......................................... 4.48 4.02 3.93
Book value per share (year end)............................. 26.46 25.30 21.10
Return on average assets.................................... 1.26% 1.09 1.05
Return on total equity...................................... 17.65 17.43 17.77
Efficiency ratio............................................ 61.35 61.75 64.26
Tier one leverage ratio..................................... 7.15 6.70 5.81
</TABLE>
B-10
<PAGE> 59
LINE OF BUSINESS FINANCIAL PERFORMANCE TABLE VI
($ in thousands)
<TABLE>
<CAPTION>
Trust & Corporate
For The Year Ended Community Bank Mortgage Financial Investments Consolidated
December 31, 1996 Banking Card Lending Services & Funding Results
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
INCOME STATEMENT
Net interest income (FTE)......... $765,817 82,041 65,436 6,720 22 920,036
Provision for loan losses......... 47,279 45,927 250 -- -- 93,456
Non-interest revenue.............. 160,350 75,885 29,048 114,169 8,808 388,260
Non-interest expense.............. 579,079 59,641 49,354 83,133 19,394 790,601
Corporate support................. 14,562 1,500 1,241 2,091 (19,394) --
Income tax expense (FTE).......... 97,394 17,365 14,900 12,177 3,016 144,852
----------------------------------------------------------------------
Income before goodwill and
one-time gains and charges...... $187,853 33,493 28,739 23,488 5,814 279,387
-------------------------------------------------------
Gains from branch sales; severance
and other one time charges (net
of tax)......................... (4,206)
Goodwill (net of tax)............. (18,295)
--------
Net income........................ $256,886
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Profit margin (pre-tax)........... 30.80% 32.20 46.19 29.50 -- 29.93
Efficiency ratio.................. 64.10 38.71 53.55 70.50 -- 63.09
Return on equity.................. 15.17 28.58 13.65 33.59 -- 14.39
- ----------------------------------------------------------------------------------------------------------
For the Year Ended
December 31, 1995
- ----------------------------------------------------------------------------------------------------------
INCOME STATEMENT
Net interest income (FTE)......... $791,534 98,345 62,795 5,120 (17,602) 940,192
Provision for loan losses......... 43,460 48,748 (261) -- (459) 91,488
Non-interest revenue.............. 140,210 61,862 32,370 94,625 749 329,816
Non-interest expense.............. 585,395 58,379 54,005 66,955 16,165 780,899
Corporate support................. 12,374 1,234 1,142 1,415 (16,165) --
Income tax expense (FTE).......... 105,526 18,833 14,631 11,396 (5,955) 144,431
- ----------------------------------------------------------------------------------------------------------
Income before goodwill and
one-time gains and charges...... $184,989 33,013 25,648 19,979 (10,439) 253,190
-------------------------------------------------------
Gains from branch sales; severance
and other one-time charges (net
of tax)......................... 1,965
Goodwill (net of tax)............. (18,447)
--------
Net income........................ $236,708
- ----------------------------------------------------------------------------------------------------------
PERFORMANCE RATIOS
Profit margin (pre-tax)........... 31.18% 32.36 42.33 31.46 -- 29.50
Efficiency ratio.................. 64.16 37.21 57.95 68.54 -- 63.39
Return on equity.................. 14.53 29.06 10.38 41.79 -- 13.89
- ----------------------------------------------------------------------------------------------------------
</TABLE>
B-11
<PAGE> 60
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 information systems accordingly. As a result, First of America
currently measures the individual performance of four business lines --
community banking, bank card, mortgage lending and trust and financial services
- -- as well as the performance of certain product lines within those businesses.
A fifth category, corporate investments and funding, includes activities that
are not directly attributable to 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 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. Table VI
presents summarized income statements and performance ratios for 1996 and 1995
for the four business lines identified above. The results for 1995 have been
restated utilizing the revised methodology developed in 1996.
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. This business line reported income before goodwill and one-time charges
of $187.9 million for 1996 compared to $185.0 million for 1995. Return on equity
increased to 15.17 percent in 1996 from 14.53 percent in 1995. Investment in
Florida's physical franchise, advertising and other developmental activities
affected community banking's 1995 results; however, progress continues to be
made on re-mixing the Florida franchise's customer base, changing its product
offerings, and updating its delivery systems.
BANK CARD. Bank card is responsible for managing and servicing First of
America's $1.5 billion managed portfolio of both 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
33 groups and offers a FirstAir card. The revolving portfolio remained
relatively level with 1995 as national promotions were not emphasized during
1996. In 1997, promotional emphasis will continue to target regional markets.
This business line continues to be a strong performer as net income for 1996
was $33.5 million and $33.0 million for 1995. The efficiency ratio was 38.71
percent and the return on allocated equity was 28.58 percent for 1996 compared
to 37.21 percent and 29.06 percent, respectively, for 1995. Credit quality
improved from 1995 and is reflected in the provision for loan losses of $45.9
million for 1996, down from $48.7 million reported last year.
MORTGAGE LENDING. Mortgage lending originates all residential mortgages
across First of America's four community banking states and in stand alone
origination offices in Arizona and North Carolina. The loans are originated both
for portfolio retention and sale to the secondary market. Mortgage lending also
provides servicing for First of America's entire portfolio and a $3.6 billion
portfolio for external investors. Since mortgage lending 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 lending's net income.
Mortgage lending earned the lowest return on equity of the four business
lines in 1996 and 1995. Its results can fluctuate substantially from period to
period since origination activity is rate-sensitive, and gains on loan sales
vary directly with the volume of originations. During the year, $1.2 billion of
mortgages were sold into the secondary market resulting in gains on the sale of
mortgages of $20.2 million compared with $18.2 million in 1995. Mortgage
lending's net income for 1996 was $28.7 million compared with $25.6 million in
1995.
B-12
<PAGE> 61
TRUST AND FINANCIAL SERVICES. Trust and financial services provides
traditional trust services to individuals and institutions, as well as
investment management,brokerage as well as trading and underwriting services. It
also manages First of America's proprietary mutual funds, The Parkstone Group of
Funds, along with insurance services and annuity products.
This business line earned the highest return on allocated equity at 33.59
percent for 1996, down from 41.79 percent for 1995. 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
was $23.5 million for 1996, up from $20.0 million for 1995, primarily from
increased customer investment activity and the steadily increasing market value
of its managed assets upon which fees are assessed. Its managed assets totaled
$20.1 billion at year-end 1996 and $15.6 billion at year-end 1995.
The business line's efficiency ratio was 70.50 percent in 1996 and 68.54
percent in 1995. Revenue growth in 1996 has largely been in lower profit margin
products such as brokerage services and mutual fund sales while the increase in
non-interest expense was primarily due to higher incentive compensation and the
costs added by insurance agency acquisitions.
CORPORATE INVESTMENTS AND FUNDING. The corporate investments and funding
category includes activities relating to the management of the corporation's
liquidity needs. This includes the management of the corporation's investment
securities and borrowing portfolios, the net effect of funds transfer pricing,
eliminations of intercompany transactions, and long term benefits funding. The
$16.3 million change in income before goodwill and one-time items was mainly due
to a $9.2 million increase in the cash surrender value of life insurance for
1996 and the net effect of funds transfer pricing and intercompany eliminations.
Non-interest expense for the corporate support function was allocated from this
area to the four primary lines of business based on direct expenses.
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 1996, consumer installment and revolving loans totaled 25.1 percent of
the total portfolio, one-to-four family residential mortgages and home equity
loans accounted for 30.8 percent, commercial loans totaled 18.1 percent, and
commercial mortgages totaled 26.0 percent. First of America does not have any
concentrations of credit risk to any specific borrower or within any geographic
area. The total loan portfolio, as presented in Table VII, was $15.1 billion at
year-end 1996, down 6.4 percent from $16.1 billion a year ago.
B-13
<PAGE> 62
COMPONENTS OF THE LOAN PORTFOLIO TABLE VII
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Consumer.................................. $ 3,774,803 4,504,255 5,799,025 5,062,173 4,288,431
Commercial, financial and agricultural.... 2,722,676 2,589,038 2,344,969 2,148,663 2,170,715
Real estate -- construction............... 597,726 514,612 438,067 252,839 300,954
Real estate -- mortgage................... 7,960,801 8,469,037 8,252,797 6,930,480 6,995,917
- -----------------------------------------------------------------------------------------------------------------
Total loans............................... $15,056,006 16,076,942 16,834,858 14,394,155 13,756,017
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
CONSUMER LOANS. First of America's consumer loan portfolio, which includes
indirect and direct installment loans, credit cards and other revolving loans,
declined 16.2 percent from 1995's level. The managed credit card portfolio at
$1.3 billion remained level with 1995. First of America offers its credit card
products in all fifty states; the largest portion of the portfolio, 58.6
percent, was to customers in its four operating states. As a percent of average
loans, the net charge-offs for the managed portfolio were 4.31 percent in 1996
compared with 3.23 percent in 1995.
The consumer installment portfolio was $2.8 billion at December 31, 1996,
down 21.5 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. Net charge-offs as a percent of average consumer
installment loans were 1.12 percent in 1996 and 0.91 percent in 1995. Management
decreased the provision in 1996 due to the improved loan quality being observed
within the portfolio.
RESIDENTIAL MORTGAGE LOANS. At December 31, 1996, residential mortgage loans
totaled $4.6 billion compared with $5.2 billion at year-end 1995. Originations
of residential mortgage loans during 1996 were $1.5 billion compared with $1.6
billion in 1995. The average loan size in the balance sheet portfolio was
$58,400 and the loans in portfolio were originated within First of America's
four operating states as well as stand alone origination offices in other
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 0.02 percent in 1996 and 0.01 percent in 1995.
At December 31, 1996, residential mortgage loans held for sale totaled
$108.4 million with a market value of $110.0 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 $64.9 million.
Mandatory commitments to deliver mortgage loans to investors, at prevailing
market rates, totaled $109.3 million as of December 31, 1996.
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 $62,800 for commercial loans and $259,400 for commercial
mortgages, allowing for a more diverse customer base and limiting 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 1996. This portfolio grew 3.7
percent to $6.6 billion compared with $6.4 billion at year-end 1995. Total
non-performing commercial and commercial mortgage loans as a percent of
outstandings decreased to 1.03 percent from 1.38 percent a year ago, and net
charge-offs as a percent of average loans was 0.09, constant with 1995.
B-14
<PAGE> 63
MATURITY AND RATE SENSITIVITY OF SELECTED LOANS TABLE VIII
($ in thousands)
<TABLE>
<CAPTION>
One year One year to After
December 31, 1996 or less five years five years Total
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Commercial, financial and agricultural.................. $1,529,033 745,829 109,055 2,383,917
Commercial tax-exempt................................... 54,551 125,297 158,912 338,760
Real estate construction................................ 279,770 229,500 88,456 597,726
- ----------------------------------------------------------------------------------------------------------------
Total................................................... $1,863,354 1,100,626 356,423 3,320,403
- ----------------------------------------------------------------------------------------------------------------
TOTAL LOANS ABOVE DUE AFTER ONE YEAR:
With predetermined interest rate........................ $ 491,217 93,866 585,083
With floating or adjustable interest rates.............. 609,409 262,557 871,966
- ----------------------------------------------------------------------------------------------------------------
Total................................................... $1,100,626 356,423 1,457,049
- ----------------------------------------------------------------------------------------------------------------
</TABLE>
ASSET QUALITY. Non-performing assets, including nonaccrual loans,
renegotiated loans and other real estate owned, totaled $114.8 million or 0.52
percent of total assets. Non-performing assets were 0.63 percent and 0.57
percent of total assets at year-end 1995 and 1994, respectively. Total
non-performing loans, other real estate owned and other loans of concern for the
past five years are detailed in Table IX.
RISK ELEMENTS IN THE LOAN PORTFOLIO TABLE IX
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- ----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans....................................... $ 84,185 104,174 96,814 121,186 126,619
Restructured loans...................................... 6,414 12,327 4,852 10,879 20,669
Other real estate owned................................. 24,190 31,103 38,662 50,595 48,699
- ----------------------------------------------------------------------------------------------------------------
Non-performing assets................................. 114,789 147,604 140,328 182,660 195,987
Past due loans 90 days or more (excluding the above two
categories)........................................... 26,726 28,124 18,208 23,462 20,887
Other loans of concern.................................. 30,541 17,660 31,653 53,206 37,663
- ----------------------------------------------------------------------------------------------------------------
Total................................................... $172,056 193,388 190,189 259,328 254,537
- ----------------------------------------------------------------------------------------------------------------
</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 $30.5
million at year-end 1996, an increase from 1995's year-end total, but below the
previous three years. While management has identified these loans as requiring
additional monitoring, they do not necessarily represent future nonperforming
loans.
The allowance for loan losses is determined by management taking into
consideration 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 1996 was 279.09
percent compared with 207.02 percent at year-end 1995 and 224.38 percent at
year-end 1994. It is management's judgment that the level of the allowance is
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.
As of December 31, 1996 and 1995, respectively, First of America identified
$68.7 million and $88.6 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 -- Recognition and Disclosures" (FAS 114). At
year-end 1996, the allowance for impaired loan losses was
B-15
<PAGE> 64
$13.7 million compared to $17.6 million at year-end 1995. The 1995 adoption of
FAS 114 does not significantly impact the comparability of the allowance related
tables included in this report.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES TABLE X
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- ------------------------------------------------------------------------------------------------------------------------------
% 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.... $ 34,827 1.28% $ 37,133 1.43% $ 33,543 1.43% $ 39,231 1.83% $ 43,466 2.00%
Real estate........... 38,611 0.46 46,712 0.52 55,721 0.68 55,661 0.81 54,873 0.76
Consumer.............. 95,219 2.52 103,498 2.30 76,235 1.31 69,633 1.38 52,847 1.23
Unallocated........... 84,189 0.56 53,839 0.33 62,616 0.37 24,139 0.17 25,607 0.19
- ------------------------------------------------------------------------------------------------------------------------
Total................. $252,846 $241,182 $228,115 $188,664 $176,793
- ------------------------------------------------------------------------------------------------------------------------
Allowance to total
loans............... 1.68% 1.50 1.36 1.31 1.29
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Allowance as a percent of year-end loans outstanding by type. Unallocated
ratio is the unallocated portfolio allowance as a percent of total loans at
year-end.
SUMMARY OF LOAN LOSS EXPERIENCE TABLE XI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR LOAN LOSSES:
Balance at beginning of period............ $ 241,182 228,115 188,664 176,793 174,882
Provision charged against income.......... 93,456 91,488 86,571 84,714 78,809
Allowance for loan losses of
acquired/(sold) banks................... -- -- 11,420 50 (372)
RECOVERIES:
Commercial, financial and agricultural.... 5,087 5,757 7,277 8,692 7,215
Real estate -- construction............... -- 54 51 -- --
Real estate -- mortgage................... 4,166 3,896 2,404 2,615 2,112
Consumer loans............................ 52,996 47,231 28,402 24,556 24,313
----------- ---------- ---------- ---------- ----------
Total recoveries.......................... 62,249 56,938 38,134 35,863 33,640
----------- ---------- ---------- ---------- ----------
CHARGE-OFFS:
Commercial, financial and agricultural.... 8,964 7,007 13,621 19,764 22,558
Real estate -- construction............... -- 395 80 -- --
Real estate -- mortgage................... 7,248 7,777 8,825 10,539 10,588
Consumer loans............................ 127,829 120,180 74,148 78,453 77,020
----------- ---------- ---------- ---------- ----------
Total charge-offs......................... 144,041 135,359 96,674 108,756 110,166
----------- ---------- ---------- ---------- ----------
Net charge-offs........................... 81,792 78,421 58,540 72,893 76,526
- -----------------------------------------------------------------------------------------------------------------
Balance at end of period.................. $ 252,846 241,182 228,115 188,664 176,793
- -----------------------------------------------------------------------------------------------------------------
Average loans (net of unearned income).... $15,463,335 16,532,752 15,172,618 13,875,584 13,435,991
- -----------------------------------------------------------------------------------------------------------------
Earnings coverage of net losses........... 5.83x 5.80 7.00 5.91 4.44
Allowance to total end of period loans.... 1.68% 1.50 1.36 1.31 1.29
Net losses to end of period allowances.... 32.35 32.51 25.66 38.64 43.29
Recoveries to total charge-offs........... 43.22 42.06 39.45 32.98 30.54
Provision to average loans................ 0.60 0.55 0.57 0.61 0.59
Net charge-offs to average loans.......... 0.53 0.47 0.39 0.53 0.57
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
B-16
<PAGE> 65
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 95.7 percent at year-end 1996 and
95.5 percent at year-end 1995. First of America does not issue negotiated CD's
in the national money markets, and has established a policy limit of ten percent
of assets to provide a guideline for assisting in the prudent management of the
corporations's purchased funds position. The majority of negotiated CD's and
purchased funds originate from the Registrant's core deposit customer base,
including downstream correspondents.
The average deposit balances outstanding and the rates paid on those
deposits for the three years ended December 31, 1996, are presented in Table
XII. The maturity distribution of time deposits of $100,000 or more at year-end
1996 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, 1994 and by the Second Amendment dated February 15, 1996
(collectively, the Credit Agreement). The Credit Agreement allows First of
America to borrow up to $350 million on a standby revolving credit basis on an
uncommitted competitive advance basis. The proceeds of all borrowings made
pursuant to the Credit Agreement will be used to provide working capital or for
general corporate purposes. At December 31, 1995 and 1996, there was no
outstanding balance under the Credit Agreement.
During 1995 and 1996, First of America's Section 20 subsidiary, First of
America Securities, Inc., entered into three uncommitted secured broker loan
guidance facilities to finance the purchase of securities for resale. At
December 31, 1996, there was $54.0 million outstanding and $120.0 million
available on these agreements. There was no outstanding balance and $80.0
million available at December 31, 1995.
In June 1995, First of America securitized $500 million in credit card
receivables. This transaction was an effective balance sheet management 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 are used for general operating purposes by the issuing
banks. Total outstanding for all bank notes at December 31, 1996 was $534.0
million, of which $55.0 million was included in long term debt.
B-17
<PAGE> 66
DEPOSITS TABLE XII
($ in thousands)
<TABLE>
<CAPTION>
1996 1995 1994
Average Average Average
- ------------------------------------------------------------------------------------------------------------
Balance Rate Balance Rate Balance Rate
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Non-interest bearing.......................... $ 2,790,118 -- $ 2,710,566 -- $ 2,665,183 --
Savings and NOW accounts...................... 3,843,700 2.09% 3,444,077 1.72% 3,948,604 1.51%
Money market savings.......................... 3,898,886 3.66 4,254,533 3.92 3,551,445 3.10
Time.......................................... 7,739,404 5.46 9,105,938 5.48 8,849,576 4.50
- ------------------------------------------------------------------------------------------------------------
Total......................................... $18,272,108 $19,515,114 $19,014,808
- ------------------------------------------------------------------------------------------------------------
</TABLE>
MATURITY DISTRIBUTION OF TIME DEPOSITS OF $100,000 OR MORE TABLE XIII
($ in thousands)
<TABLE>
<CAPTION>
Three Three Six
months months to months to After
or less six months one year one year Total
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Certificates of deposit.......................... $688,010 247,284 134,361 147,660 1,217,315
Other time deposits.............................. 45,532 5,930 9,407 44,433 105,302
- -----------------------------------------------------------------------------------------------------------------
Total............................................ $733,542 253,214 143,768 192,093 1,322,617
- -----------------------------------------------------------------------------------------------------------------
</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
quarter an interest rate sensitivity analysis is completed for each affiliate,
as well as the corporation as a whole, using an asset/liability management
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 at each banking affiliate 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 interest
rate risk management.
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 counterparty 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, 1996, totaling $80.0 million in notional amounts versus $105.5 million at
December 31, 1995. This total included notional amounts of $50.0 million as a
hedge against the parent company's 8.50% Subordinated Notes Due February 1,
2004, and $30.0 million against various fixed rate bank notes.
The aggregate market value of interest rate swaps at year-end was a positive
$236 thousand. The full year 1996 impact from swap activity on net interest
income was a negative $0.2 million, the 1995 impact was a negative $4.0 million.
If interest rates increased one hundred basis points, First of America would
decrease net interest income $204 thousand over the next twelve months from its
current interest rate swap agreements. Note 20 of the Notes to Consolidated
Financial Statements included later in this document provides further detail on
First of America's interest rate swap agreements.
Interest rate sensitivity of assets and liabilities is represented in a Gap
report, Gap being the difference between rate sensitive assets and liabilities
and includes the impact of off-balance sheet interest rate swap and cap
agreements. Table XIV presents First of America's Gap position at December 31,
1996, for one year and shorter periods, and Table XV details the company's five
year Gap position. The Gap reports' reliability in measuring the risk to income
from a change in interest rates is tested through the use of simulation models.
At year-end 1996 simulation models showed that less than four percent of First
of America's annual net income was at risk if interest rates were to move up
B-18
<PAGE> 67
or down by one percent in a parallel fashion. However, changing economic
conditions affect results, therefore, the management of First of America's
interest rate sensitivity is an ongoing process. Management has determined that
the simulation models provide a more meaningful measurement of the company's
interest rate risk positions than the following Gap tables.
INTEREST RATE SENSITIVITY -- SHORT TERM TABLE XVI
($ in millions)
<TABLE>
<CAPTION>
0 to 30 0 to 60 0 to 90 0 to 180 0 to 365
December 31, 1996 Days Days Days Days Days
- --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS:
Other earning assets....................................... $ 237 237 237 237 237
Investment securities (1).................................. 182 281 376 702 1,229
Loans, net of unearned discount (2)........................ 5,233 5,695 6,519 7,603 9,336
- --------------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA).......................... $5,652 6,213 7,132 8,542 10,802
- --------------------------------------------------------------------------------------------------------------------
LIABILITIES: (3)
Money market type deposits................................. $4,288 4,288 4,288 4,288 4,288
Other core savings and time deposits....................... 1,007 1,832 2,627 3,592 4,675
Negotiated deposits........................................ 356 482 558 675 737
Borrowings................................................. 981 1,283 1,413 1,582 1,767
Interest rate swap agreements (3) ......................... -- 50 50 50 25
- --------------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)..................... $6,632 7,935 8,936 10,187 11,492
- --------------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)............................................ $ (980) (1,722) (1,804) (1,645) (690)
- --------------------------------------------------------------------------------------------------------------------
RSA divided by RSL......................................... 83.85% 93.99
GAP divided by total assets................................ (7.46) (3.13)
- --------------------------------------------------------------------------------------------------------------------
</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> 68
INTEREST RATE SENSITIVITY -- LONG TERM TABLE XV
($ in thousands)
<TABLE>
<CAPTION>
13 to 25 to 37 to 0 to 60
December 31, 1996 24 months 36 months 60 months months
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
ASSETS:
Other earning assets.............................. $ -- -- -- 237
Investment securities (1)......................... 951 662 988 3,830
Loans, net of unearned discount (2)............... 2,312 1,230 1,357 14,235
- ------------------------------------------------------------------------------------------------------------
Total rate sensitive assets (RSA)................. $3,263 1,892 2,345 18,302
- ------------------------------------------------------------------------------------------------------------
LIABILITIES: (3)
Money market type deposits........................ $ -- -- -- 4,288
Other core savings and time deposits.............. 3,421 1,954 1,660 11,710
Negotiated deposits............................... 10 2 -- 749
Borrowings........................................ 175 2 -- 1,944
Interest rate swap agreements (3)................. (25) -- -- --
- ------------------------------------------------------------------------------------------------------------
Total rate sensitive liabilities (RSL)............ $3,581 1,958 1,660 18,691
- ------------------------------------------------------------------------------------------------------------
GAP (RSA - RSL)................................... $ (318) (66) 685 (389)
- ------------------------------------------------------------------------------------------------------------
RSA divided by RSL................................ 97.92%
GAP divided by total assets....................... (1.77)
- ------------------------------------------------------------------------------------------------------------
</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, 1996, First of America's capital ratios exceeded
required regulatory minimums with a tier I risk based ratio of 9.76 percent, a
total risk based ratio of 13.19 percent and a tier I leverage ratio of 7.15
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, 1996,
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, and $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.
In January 1997, First of America privately placed $150 million of fixed
rate capital securities through First of America Capital Trust I, a newly formed
Delaware business trust, controlled by the Registrant. The 8.12% Capital
Securities of First of America Capital Trust I were priced at par. Cash
distributions are payable semi-annually on January 31 and July 31, beginning
July 31, 1997. The proceeds from the issuance will be used for general corporate
purposes and will further enhance the Registrant's strong capital position,
while reducing the cost of capital.
B-20
<PAGE> 69
RISK-BASED CAPITAL TABLE XVI
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TIER I CAPITAL:
Common shareholders' equity................................. $1,784,198 1,827,981 1,578,888
Less: Intangibles........................................... 202,336 227,303 252,979
Net unrealized gain (loss) on securities available for
sale.................................................... 8,438 25,939 (92,271)
Section 20 affiliate debt and equity...................... 11,826 12,500 --
- ----------------------------------------------------------------------------------------------------
Tier I capital.............................................. 1,561,598 1,562,239 1,418,180
- ----------------------------------------------------------------------------------------------------
TIER II CAPITAL:
Allowance for loan losses*.................................. 200,701 205,515 210,164
Qualifying long term debt................................... 360,000 360,000 361,867
Less: Section 20 affiliate debt and equity.................. 11,826 12,500 --
- ----------------------------------------------------------------------------------------------------
Tier II capital............................................. 548,875 553,015 572,031
- ----------------------------------------------------------------------------------------------------
Total capital............................................... $2,110,473 2,115,254 1,990,211
- ----------------------------------------------------------------------------------------------------
RISK-BASED CAPITAL RATIOS:
Tier I...................................................... 9.76% 9.52 8.44
Total....................................................... 13.19 12.89 11.85
Tier I leverage ratio....................................... 7.15 6.70 5.81
- ----------------------------------------------------------------------------------------------------
</TABLE>
* Limited to 1.25% of total risk-weighted assets.
TOTAL SHAREHOLDERS' EQUITY. First of America's total shareholders' equity at
year-end 1996 remained level with a year ago at $1.8 billion as the earnings
retention for 1996 was offset by the impact of the stock repurchased during the
year.
In addition to the repurchase of the 3.6 million common shares completed in
1996, the Board of Directors, in January 1997, authorized the repurchase of up
to two million additional shares of First of America common stock. Any shares
repurchased under this 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 and employee savings plan.
IN CONCLUSION
First of America's management currently expects continued improvement in the
net interest margin and return on assets ratios in 1997 and 1998. The return on
equity for 1997 should be between 15 percent and 16 percent and for 1998,
between 16 percent and 17 percent. In addition, the efficiency ratio is
currently anticipated to be below 60 percent by the end of 1998. Management
believes the benefits of the company's move to a single operating unit along
with a focus on business lines, the internal restructuring effort, and the
emphasis on pricing products by market and customer type provide the
fundamentals for the achievement of these goals.
The foregoing management statements of expectations for future return on
equity and efficiency ratios are forward-looking statements. The achievement of
these expectations is uncertain, as First of America's actual performance and
financial results may differ from those anticipated as a result of a variety of
factors, including but not limited to assumed rates of revenue growth, expense
reductions, changes in the economy, competition and the implementation of
internal business plans.
B-21
<PAGE> 70
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>
Richard F. Chormann Thomas W. Lambert
Richard F. Chormann Thomas W. Lambert
Chairman, President 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 1996.
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, 1996,
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> 71
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, 1996 and 1995
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, 1996. 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, 1996 and 1995,
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1996, in conformity with generally
accepted accounting principles.
KPMG PEAT MARWICK LLP
KPMG Peat Marwick LLP
Chicago, Illinois
January 14, 1997
B-23
<PAGE> 72
CONSOLIDATED BALANCE SHEETS
($ in thousands)
<TABLE>
<CAPTION>
December 31, 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks..................................... $ 1,205,962 1,207,062
Bank time deposits.......................................... -- 49,349
Federal funds sold and resale agreements.................... 163,400 220,388
Securities available for sale, amortized cost of $4,549,383
at December 31, 1996 and $5,020,954 at December 31,
1995...................................................... 4,562,381 5,060,746
Loans, net of unearned income:
Consumer.................................................. 3,774,803 4,504,255
Commercial, financial and agricultural.................... 2,722,676 2,589,038
Commercial real estate.................................... 3,918,248 3,812,001
Residential real estate................................... 4,531,868 5,070,369
Loans held for sale, market value of $109,955 for 1996 and
$104,132 for 1995....................................... 108,411 101,279
----------- ----------
Total loans............................................. 15,056,006 16,076,942
Less: Allowance for loan losses......................... 252,846 241,182
----------- ----------
Net loans............................................... 14,803,160 15,835,760
Premises and equipment, net................................. 433,408 465,498
Other assets................................................ 893,868 761,292
- --------------------------------------------------------------------------------------
TOTAL ASSETS................................................ $22,062,179 23,600,095
- --------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing...................................... $ 3,009,252 2,925,679
Interest bearing.......................................... 14,610,044 16,416,788
----------- ----------
Total deposits.......................................... 17,619,296 19,342,467
Securities sold under repurchase agreements................. 493,556 429,483
Other short term borrowings................................. 1,344,434 1,220,482
Long term debt.............................................. 521,124 490,315
Other liabilities........................................... 299,571 289,367
----------- ----------
Total liabilities....................................... 20,277,981 21,772,114
----------- ----------
SHAREHOLDERS' EQUITY
Common stock-$10 par value:
Authorized Outstanding
1996 100,000,000 59,813,234
1995 100,000,000 63,283,857....................... 598,132 632,839
Capital surplus............................................. 145,950 283,409
Net unrealized gain on securities available for sale, net of
tax expense of $4,561 for 1996 and of $13,853 for 1995.... 8,438 25,939
Retained earnings........................................... 1,031,678 885,794
----------- ----------
Total shareholders' equity.............................. 1,784,198 1,827,981
- --------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.................. $22,062,179 23,600,095
- --------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-24
<PAGE> 73
CONSOLIDATED STATEMENTS OF INCOME
($ in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME
Loans and fees on loans..................................... $1,366,083 1,473,210 1,277,950
Securities:
Taxable income............................................ 270,647 304,145 303,098
Tax exempt income......................................... 16,434 13,317 17,480
Federal funds sold and resale agreements.................... 8,804 4,651 2,229
Bank time deposits.......................................... 1,586 1,201 120
---------- ---------- ----------
Total interest income....................................... 1,663,554 1,796,524 1,600,877
---------- ---------- ----------
INTEREST EXPENSE
Deposits.................................................... 645,995 725,161 567,935
Short term borrowings....................................... 79,988 100,684 60,389
Long term debt.............................................. 35,083 46,683 33,818
---------- ---------- ----------
Total interest expense...................................... 761,066 872,528 662,142
---------- ---------- ----------
NET INTEREST INCOME......................................... 902,488 923,996 938,735
Less: Provision for loan losses............................. 93,456 91,488 86,571
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES......... 809,032 832,508 852,164
---------- ---------- ----------
NON-INTEREST REVENUE
Service charges on deposit accounts......................... 112,516 100,281 89,164
Trust and financial services revenue........................ 114,024 94,179 81,717
Investment securities transactions, net..................... (515) 62 5,349
Bank card revenue........................................... 73,900 60,449 43,216
Mortgage banking revenue.................................... 28,525 31,505 23,461
Other operating revenue..................................... 90,864 59,624 41,466
---------- ---------- ----------
Total non-interest revenue.................................. 419,314 346,100 284,373
---------- ---------- ----------
NON-INTEREST EXPENSE
Personnel................................................... 454,170 430,977 430,563
Occupancy, net.............................................. 64,871 64,108 60,471
Equipment................................................... 58,462 59,322 56,111
Outside data processing..................................... 19,182 18,825 17,524
Amortization of intangibles................................. 23,355 21,146 16,577
Other operating expenses.................................... 224,963 220,893 232,172
---------- ---------- ----------
Total non-interest expense.................................. 845,003 815,271 813,418
---------- ---------- ----------
Income before income taxes.................................. 383,343 363,337 323,119
Income taxes................................................ 126,457 126,629 102,616
- ----------------------------------------------------------------------------------------------------------
NET INCOME.................................................. $ 256,886 236,708 220,503
- ----------------------------------------------------------------------------------------------------------
Common and common equivalent earnings per share............. $ 4.16 3.73 3.69
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-25
<PAGE> 74
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
($ in thousands except per share data)
<TABLE>
<CAPTION>
Net Unrealized
Gain (Loss) on
Common Capital Securities Retained
Stock Surplus Available for Sale Earnings Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1994.................................... $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 on Common stock -- $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 on Common stock -- $1.72 per
share...................................................... (108,704) (108,704)
-------- -------- -------- -------- ---------
BALANCE, DECEMBER 31, 1995.................................. 632,839 283,409 25,939 885,794 1,827,981
Net Income.................................................. 256,886 256,886
Issuance of stock:
Acquisition of subsidiaries................................ 920 2,968 3,888
Stock Options Exercised.................................... 673 (1,821) (1,148)
Other...................................................... 204 204
Repurchases................................................. (36,300) (138,810) (175,110)
Change in market value adjustment of securities available
for sale, net of tax benefit of $9,292..................... (17,501) (17,501)
Cash dividends declared on Common stock -- $1.82 per
share...................................................... (111,002) (111,002)
- -------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 1996.................................. $598,132 145,950 8,438 1,031,678 1,784,198
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-26
<PAGE> 75
CONSOLIDATED STATEMENTS OF CASH FLOWS
($ in thousands)
<TABLE>
<CAPTION>
Year ended December 31, 1996 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income.................................................. $ 256,886 236,708 220,503
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 47,040 48,263 46,295
Provision for loan losses................................. 93,456 91,488 86,571
Provision for deferred taxes.............................. (155) (7,372) (4,974)
Amortization of intangibles............................... 23,355 21,146 16,577
(Gain) loss on sale of securities available for sale...... 514 (3,707) (5,349)
(Gain) loss on sale of mortgage loans held for sale....... (20,235) (19,627) (11,697)
(Gain) loss on sale of other assets....................... (28,829) (16,577) 625
Proceeds from the sales of mortgage loans held for sale... 1,215,172 959,721 953,310
Originations of mortgage loans held for sale, net......... (1,202,069) (1,011,177) (605,953)
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income
receivable.............................................. 37,560 (81,195) (4,031)
(Increase) decrease in other assets....................... (81,475) (233,389) 42,044
Increase (decrease) in accrued expenses and other
liabilities............................................. 18,808 38,068 1,510
----------- ---------- ----------
Net cash from operating activities...................... 360,028 22,350 735,431
----------- ---------- ----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the maturities of investment securities (held
to maturity).............................................. -- 368,738 448,395
Purchases of investment securities (held to maturity)....... -- (191,325) (1,718,714)
Proceeds from the sale of securities available for sale..... 1,065,313 785,239 1,776,724
Proceeds from the maturities of securities available for
sale...................................................... 1,107,359 518,927 843,109
Purchases of securities available for sale.................. (1,702,437) (698,163) (1,649,902)
Proceeds from the securitization of loans................... -- 498,588 --
Net other (increase) decrease in loans and leases........... 946,276 251,990 (2,039,577)
Premises and equipment purchased............................ (46,768) (63,485) (68,993)
Proceeds from the sale of premises and equipment............ 60,886 42,466 3,500
(Acquisition)sale of affiliates, net of cash acquired....... 944 (4,369) 352,131
----------- ---------- ----------
Net cash flows used in investing activities............. 1,431,573 1,508,606 (2,053,327)
----------- ---------- ----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net increase (decrease) in short term deposits.............. 43,387 (164,820) 504,409
Net (decrease) in time deposits............................. (1,766,558) (692,979) (97,744)
Net increase (decrease) in short term borrowings............ 188,025 (232,774) 861,310
Proceeds from issuance of long term debt.................... 104,924 25,004 738,701
Repayments of long term debt................................ (74,115) (213,470) (311,658)
Net proceeds/(cost) from issuance of common stock........... (969) 2,105 460
Dividends paid.............................................. (110,810) (107,429) (96,670)
Payments for purchase and retirement of common stock........ (176,585) -- (123,373)
Other, net.................................................. -- (319) (268)
----------- ---------- ----------
Net cash provided by financing activities............... (1,792,701) (1,384,682) 1,475,167
----------- ---------- ----------
Net increase(decrease) in cash and cash equivalents......... (1,100) 146,274 157,271
Cash and cash equivalents at beginning of year.............. 1,207,062 1,060,788 903,517
- -------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT YEAR END....................... $ 1,205,962 1,207,062 1,060,788
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
B-27
<PAGE> 76
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 604 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 underwriting, insurance
products, 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:
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. All securities owned by First of America as of December 31,
1996, are classified as Securities Available for Sale. 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 mainly of fixed rate and variable rate
residential mortgage loans with maturities of fifteen to thirty years. Such
loans are recorded at the lower of aggregate cost or estimated fair value.
ALLOWANCE FOR LOAN LOSSES:
Losses on loans are charged to the allowance for loan losses. The allowance
is increased by recoveries of principal and accrued 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,
B-28
<PAGE> 77
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.
In accordance with Financial Accounting Standards Board Statement No. 114,
"Accounting by Creditors for Impairment of a Loan," and as amended by Statement
No. 118, "Accounting by Creditors for Impairment of a Loan -- Income Recognition
and Disclosures" First of America maintains a separate allowance for loan losses
for impaired loans as defined in the statement.
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.
MORTGAGE SERVICING RIGHTS:
First of America recognizes 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, the fair value of the Mortgage Servicing Rights
(MSRs) 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 MSRs are amortized in proportion to and over
the period of the estimated net servicing income.
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.
B-29
<PAGE> 78
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.
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 net of direct origination costs related to credit card loans
are included in other assets and are amortized to non-interest income over a
twelve month period.
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. 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.
DERIVATIVE INSTRUMENTS:
For each category of derivative financial instruments, an entity is required
to disclose the following: 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 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 assets or liabilities. When the swap becomes uncovered during the
swap agreement period, the swap is immediately marked-to-market with a
corresponding effect on current earnings.
STOCK OPTION PLANS:
As of December 31, 1996, First of America adopted the disclosure
requirements of Financial Accounting Standards Board Statement No. 123,
"Accounting for Stock-Based Compensation." First of America applies APB Opinion
25 and related interpretations in accounting for its stock option plans.
Accordingly, no compensation cost has been recognized for its plans. Further
disclosures are presented in Note 13: Stock Option Plans.
B-30
<PAGE> 79
RECENT ACCOUNTING PRONOUNCEMENT:
The Financial Accounting Standards Board has issued Statement No. 125,
"Accounting for Transfers and Servicing of Financial Assets and Extinguishment
of Liabilities" which is effective, in part, for transactions occurring after
December 31, 1996. This statement was adopted by First of America on January 1,
1997. It is not expected that this statement will have a material effect on the
financial condition or results of operation.
NOTE 2: BUSINESS COMBINATIONS
Information relating to mergers and acquisitions for the three year period
ended December 31, 1996 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>
Huttenlochers Kerns Norvell, Inc.
(Michigan)........................... Feb. 12. 1996 $ 3,912,000 92,053 -- $1,612,000
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
- ----------------------------------------------------------------------------------------------------------------
</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.
Goodwill, the cost over the fair value of assets acquired, is amortized on a
basis which matches the periods estimated to be benefitted. Goodwill is reviewed
annually, per Financial Accounting Standards Board Statement No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
Be Disposed Of," for permanent impairment using a discounted cash flow analysis.
At December 31, 1996, First of America recognized a $1.6 million charge to
earnings, net of tax, for goodwill impairment connected to the closing of 8
branches. Goodwill, which is included in other assets in the Consolidated
Balance Sheets, amounted to $201,631,000 at December 31, 1996 and $226,979,000
at December 31, 1995.
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 its subsidiary banks. Cash
balances restricted from usage due to these requirements were $289,899,000 and
$359,319,000 at December 31, 1996 and 1995, respectively.
B-31
<PAGE> 80
NOTE 4: CASH FLOW
For the purpose of reporting cash flows, cash and cash equivalents include
only cash and due from banks. The following schedule presents noncash investing
activities for the years 1996, 1995 and 1994.
<TABLE>
<CAPTION>
Fair Value of
Noncash Assets Liabilities Common
($ in thousands) Acquired Assumed Stock Issued Net Cash Paid
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PURCHASE OF AFFILIATES
1996
Huttenlochers Kerns Norvell, Inc. ........... $ 5,094 2,126 3,912 (944)
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)
- ---------------------------------------------------------------------------------------------------------------------
</TABLE>
The following schedule details supplemental disclosures for the cash flow
statements:
<TABLE>
<CAPTION>
Assets
Transferred
Loans to Securities Total Total Income
($ in thousands) Securitized Available for Sale Interest Paid Taxes Paid
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
1996........................................ $ -- -- 788,875 120,643
1995........................................ 503,976 2,851,746 864,519 92,338
1994........................................ 38,838 -- 641,886 115,193
- ------------------------------------------------------------------------------------------------------------------------
</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.
NOTE 5: SECURITIES
The amortized cost and estimated market value of Securities Available for
Sale at December 31, 1996 and 1995 follow.
<TABLE>
<CAPTION>
1996 1995
- -------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Amortized Market Average Amortized Market Average
($ in thousands) Cost Value Maturity Cost Value Maturity
- -------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
U.S. government and agency
securities........................... $3,483,720 3,494,016 2.6 yrs $4,068,386 4,098,741 2.4 yrs.
State and municipal securities......... 398,041 403,354 8.8 248,947 258,707 6.1
Collateralized mortgage obligations.... 486,945 484,333 1.8 579,788 579,441 2.5
Other securities....................... 180,677 180,678 5.4 123,833 123,857 2.1
- -------------------------------------------------------------------------------------------------------------------
Total.................................. $4,549,383 4,562,381 $5,020,954 5,060,746
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
B-32
<PAGE> 81
The following table details the gross unrealized gains and losses on
Securities Available for Sale at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
1996 1995
- -----------------------------------------------------------------------------------------------------------------
Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized
($ in thousands) Gains Losses Gains Losses
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
U.S. government and agency securities........... $10,296 -- 30,355 --
State and municipal securities.................. 5,314 -- 9,760 --
Collateralized mortgage obligations............. -- (2,613) -- 347
Other securities................................ 1 -- 24 --
- -----------------------------------------------------------------------------------------------------------------
Total........................................... $15,611 (2,613) 40,139 347
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
Except as indicated below, total securities of no individual state,
political subdivision or other issuer exceeded 10% of shareholders' equity at
December 31, 1996. At December 31, 1996 and 1995, the book value of securities
issued by the State of Michigan and all of its political subdivisions totaled
approximately $145,917,000 and $126,225,000, respectively, with a market value
of approximately $146,961,000 and $130,570,000, respectively. The securities at
December 31, 1996, 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 $1,569,685,000 at
December 31, 1996, and $1,516,639,000 at December 31, 1995, were pledged to
secure public deposits, exercise trust powers and for other purposes required or
permitted by law.
B-33
<PAGE> 82
SECURITIES AVAILABLE FOR SALE
MATURITY DISTRIBUTION AND PORTFOLIO YIELDS
($ in millions)
<TABLE>
<CAPTION>
December 31, 1996 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..... $111.6 111.5 5.73% $548.2 541.7 6.30% $ -- -- --%
U.S. agency securities......... 13.2 13.2 6.55 333.1 335.4 5.97 774.3 773.2 6.35
State and municipal
securities*................... 69.1 68.9 7.73 50.3 49.2 9.45 45.9 45.7 7.99
Collateralized mortgage
obligations................... 0.2 0.2 5.95 -- -- -- -- -- --
Other securities............... 106.8 106.8 7.03 34.1 34.1 8.07 11.9 11.9 7.09
- -----------------------------------------------------------------------------------------------------------------------
Total.......................... $300.9 300.6 6.69% $965.7 960.4 6.41% $832.1 830.8 6.45%
- -----------------------------------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................ 100.10% 100.55 100.16
- -----------------------------------------------------------------------------------------------------------------------
<CAPTION>
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..... $ -- -- --% $ 659.8 653.2 6.20%
U.S. agency securities......... 1,713.6 1,708.8 6.75 2,834.2 2,830.6 6.55
State and municipal
securities*................... 238.1 234.2 8.22 403.4 398.0 8.26
Collateralized mortgage
obligations................... 484.1 486.7 6.48 484.3 486.9 6.48
Other securities............... 27.9 27.9 4.70 180.7 180.7 6.87
- ---------------------------------------------------------------------------------------------
Total.......................... $2,463.7 2,457.6 6.81% $4,562.4 4,549.4 6.65%
- ---------------------------------------------------------------------------------------------
Market value as a percent of
amortized cost................ 100.24 100.29
- ---------------------------------------------------------------------------------------------
</TABLE>
* Yields on state and political obligations have been adjusted to a taxable
equivalent basis using a 35% tax rate. Yields are calculated on the basis of
cost and weighted for the scheduled maturity and dollar amount of each issue.
B-34
<PAGE> 83
NOTE 6: RISK ELEMENTS IN THE LOAN PORTFOLIO AND OTHER REAL ESTATE OWNED
Assets earning at less than normal interest rates include (1) non-accrual
loans, (2) restructured loans (loans for which the interest rate or principal
balance has been reduced because of a borrower's financial difficulty) and (3)
other real estate owned which has been acquired in lieu of loan balances due.
Information concerning these assets, loans past due 90 days or more and other
loans of concern (loans where known information about possible credit problems
of borrowers causes management concern about the ability of such borrowers to
comply with the present loan terms) at December 31, 1996 and 1995 follows.
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
BALANCES OUTSTANDING:
Non-accrual loans........................................... $ 84,185 104,174
Restructured loans.......................................... 6,414 12,327
Past due 90 days or more.................................... 26,726 28,124
Other loans of concern...................................... 30,541 17,660
Other real estate owned (included in other assets).......... 24,190 31,103
- --------------------------------------------------------------------------------
Total....................................................... $172,056 193,388
- --------------------------------------------------------------------------------
</TABLE>
Interest income of $6,481,000 and $3,052,000 during 1996 and 1995,
respectively, was recognized as income on non-accrual and restructured loans.
Had these loans been performing under the original contract terms, an additional
$7,732,000 and $10,090,000 of interest would have been reflected in interest
income during 1996 and 1995, respectively.
First of America does not have any concentrations of credit risk to any
specific borrower or within any geographic area.
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 creditworthiness 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 1996 totaled less than 5 percent of
total shareholders' equity at year-end 1996. 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,
1996 only First of America Community Development Corporation had any borrowings
outstanding in the amount of $985,000. In conformance with First of America's
corporate policy and applicable law, such extensions of credit to subsidiaries
are made in accordance with sound banking practices and on non-preferential
terms and rates.
In the opinion of management, the amount and nature of these loans to
related parties and subsidiaries do not materially affect the financial
condition of First of America.
B-35
<PAGE> 84
NOTE 8: ALLOWANCE FOR LOAN LOSSES
An analysis of the transactions in the allowance for loan losses for 1996,
1995 and 1994 follows.
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, beginning of year.................................. $ 241,182 228,115 188,664
Additions: Provision charged against income................. 93,456 91,488 86,571
Allowance of acquired banks, net................. -- -- 11,420
Recoveries....................................... 62,249 56,938 38,134
- --------------------------------------------------------------------------------------------
396,887 376,541 324,789
Less: Loans charged off..................................... (144,041) (135,359) (96,674)
- --------------------------------------------------------------------------------------------
Balance, end of year........................................ $ 252,846 241,182 228,115
- --------------------------------------------------------------------------------------------
</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, 1996 and 1995, respectively, the recorded investment in
loans considered to be impaired under Statement No. 114 as amended by Statement
No. 118 was $68.7 million and $88.6 million, with an average recorded investment
in impaired loans during 1996 and 1995 of approximately $80.3 million and $81.9
million, respectively. Included in the impaired loans total as of the same
year-end dates were $29.6 and $42.6 million of impaired loans for which the
related specific allowance for loan losses were $13.7 million and $17.6 million,
respectively. The remaining $39.1 million and $46.0 million of impaired loans
did not require a specific allowance for loan losses due to the net realizable
value of loan collateral, guarantees and other factors.
NOTE 9: PREMISES AND EQUIPMENT
A summary of premises and equipment at December 31, 1996 and 1995 follows.
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
Land........................................................ $ 79,713 78,326
Buildings and leasehold improvements........................ 444,805 446,721
Equipment................................................... 269,099 363,241
Capital leases.............................................. 3,587 24,115
-------- -------
797,204 912,403
Less:
Accumulated depreciation and amortization................... 363,796 446,905
- --------------------------------------------------------------------------------
Total....................................................... $433,408 465,498
- --------------------------------------------------------------------------------
</TABLE>
First of America and certain of its subsidiaries have capital and operating
leases for premises and equipment under agreements expiring at various dates
through 2034. These leases, in general, provide for renewal options and options
to purchase certain premises at fair values, and require the payment of property
taxes, insurance premiums and maintenance costs. Total rental expense for all
operating leases was $16,364,000 in 1996, $17,554,000 in 1995, and $16,100,000
in 1994.
B-36
<PAGE> 85
The future minimum payments by year, and in the aggregate, under capital
leases and noncancelable operating leases with initial or remaining terms of one
year or more consisted of the following at December 31, 1996.
<TABLE>
<CAPTION>
($ in thousands) Capital Leases Operating Leases
- -----------------------------------------------------------------------------------------------------
<S> <C> <C>
1997........................................................ $ 386 15,919
1998........................................................ 377 12,949
1999........................................................ 322 10,312
2000........................................................ 307 8,283
2001........................................................ 286 5,441
Thereafter.................................................. 3,524 28,834
------- -------
Total minimum lease payments................................ 5,202 81,738
Amounts representing interest............................... (3,174) --
- -----------------------------------------------------------------------------------------------------
Present value of net minimum lease payments................. $ 2,028 81,738
- -----------------------------------------------------------------------------------------------------
</TABLE>
NOTE 10: LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
In accordance with Financial Accounting Standards Board Statement No. 121,
in 1996, First of America recorded an impairment on long-lived assets to be
disposed of totaling $4.3 million. The assets to be disposed of include current
or former bank premises. It is expected that the impaired assets will be
disposed of in 1997.
The carrying value of the assets at December 31, 1996, is $6.8 million. Fair
value was determined based on a combination of independent appraisals, brokers'
opinions, and offers to purchase. Management does not currently anticipate that
the ultimate disposal of the assets in 1997 will have a material effect on the
financial position, results of operations or liquidity of First of America.
NOTE 11: LONG TERM DEBT
Information relating to long term debt at December 31, 1996 and 1995
follows.
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<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
8.50% subordinated notes due February 1, 2004............... 150,000 150,000
Revolving credit agreement.................................. -- --
6.35% subordinated debenture due December 31, 2007.......... 10,000 10,000
Capital lease obligations (Note 9).......................... 923 19,970
-------- -------
360,923 383,081
SUBSIDIARIES:
Bank notes, with interest rates ranging from 5.70% to 5.75%,
due through February 20, 1998............................. 54,992 104,971
Broker loan facilities...................................... 54,000 --
8.30% FHLB borrowing payable August, 1996................... -- 820
5.57% FHLB borrowing payable May 21, 1998................... 50,000 --
Mortgages and land contracts, payable in installments
through 1999 with interest rates ranging from 4.75% to
10.25%.................................................... 107 218
Capital lease obligations (Note 9).......................... 1,102 1,225
- --------------------------------------------------------------------------------
TOTAL LONG TERM DEBT........................................ $521,124 490,315
- --------------------------------------------------------------------------------
</TABLE>
First of America has 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
B-37
<PAGE> 86
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.
During 1995 and 1996, First of America's Section 20 subsidiary, First of
America Securities, Inc., entered into three uncommitted secured broker loan
guidance facilities to finance the purchase of securities for resale. At
December 31, 1996, there was $54.0 million outstanding and $120.0 million
available on these agreements. There was no outstanding balance and $80.0
million available at December 31, 1995.
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 $1,352,490,000. The indebtedness of subsidiary banks is
subordinated to the claims of their depositors and certain other creditors.
Management has determined that First of America is in compliance with all of its
loan covenants.
Maturities of outstanding indebtedness at December 31, 1996 follow.
<TABLE>
<CAPTION>
Total Principal
($ in thousands) Amount Due
- -------------------------------------------------------------------------------
<S> <C>
Year ending December 31,
1997........................................................ $ 84,160
1998........................................................ 75,174
1999........................................................ 131
2000........................................................ 127
2001........................................................ 92
Thereafter.................................................. 361,440
- -------------------------------------------------------------------------------
Total....................................................... $521,124
- -------------------------------------------------------------------------------
</TABLE>
NOTE 12: PREFERRED STOCK
First of America has reserved 500,000 shares of preferred stock for issuance
as Series A Junior Participating Preferred Stock ("Series A Preferred") upon the
exercise of certain preferred stock purchase rights (each a "Right") issued to
holders of and in tandem with shares of First of America Common Stock. The
rights are not currently exercisable.
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 on common stock. The rights
of the Series A Preferred are protected by customary antidilution provisions.
NOTE 13: STOCK OPTION PLANS
First of America maintains two stock option plans: the First of America Bank
Corporation Restated 1987 Stock Option Plan (the 1987 Plan) and the First of
America Bank Corporation Stock Compensation Plan (the 1996 Plan). The 1996 Plan
was approved at the Annual Shareholders meeting on April 17, 1996. The aggregate
number of shares of First of America Common Stock that may be issued, pursuant
to the exercise of options and restricted stock granted under the 1996 Plan,
will not exceed 3,000,000 shares. The 1987 Plan only provides for non-qualified
options.
B-38
<PAGE> 87
Eligible participants may be granted incentive stock options, non-qualified
stock options or restricted stock under the 1996 Plan. The Nominating and
Compensation Committee has full and final authority in its discretion to
determine all matters relating to awards under each of the Plans. None of the
members of the Nominating and Compensation Committee are eligible to participate
in either of the Plans.
As of the 1996 Plan's effective date, February 21, 1996, no further options
will be granted under the 1987 Plan, although options previously granted will
continue in effect until they are exercised, are forfeited or expire. The
options granted under the 1987 Plan are exercisable during a ten year period and
vest over a three year period, beginning on the date granted and were granted at
prices not less than the fair market value on the date of grant.
The options granted under the 1996 Plan, at fair market value, will vest one
third upon the attainment of each of three market price targets. The options
have a ten year term and may be exercised on or after October 29, 1997.
A summary of the status of First of America's stock option transactions
under the Plans as of December 31, 1996, 1995 and 1994, and the changes during
the years ended on those dates is presented below:
<TABLE>
<CAPTION>
1996 1995 1994
- -----------------------------------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Options (number of shares in thousands): Shares Price Shares Price Shares Price
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of year............. 1,456 $32.13 1,247 $28.34 954 $27.25
Granted*..................................... 506 54.47 325 43.25 296 33.00
Converted options from acquisition........... -- 0.00 -- 0.00 25 11.30
Exercised.................................... (195) 28.79 (102) 20.72 (23) 19.86
Forfeited.................................... (10) 40.88 (14) 35.29 (5) 35.93
----- ----- -----
Outstanding at end of year................... 1,757 38.88 1,456 32.13 1,247 28.34
- -----------------------------------------------------------------------------------------------------------
Exercisable at year end...................... 1,003 925 779
- -----------------------------------------------------------------------------------------------------------
Weighted-average exercise price of options
granted during the year.................... $54.47 43.25 33.00
- -----------------------------------------------------------------------------------------------------------
Weighted-average fair value of options
granted during the year.................... $11.18 7.88 7.34
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* All options granted during 1996, represent nonqualified stock options under
the Plan.
Under the 1996 Plan, First of America issued and had outstanding 62,000
shares of restricted stock as of December 31, 1996.
As of December 31, 1996, First of America adopted the disclosure provisions
of Financial Accounting Standards Board Statement No. 123, "Accounting for
Stock-Based Compensation." Accordingly, the Company is required to disclose pro
forma net income and earnings per share both for 1996 and 1995 as if
compensation expense relative to the fair value of options granted had been
included in earnings. The fair value of each option grant was estimated using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1996, 1995 and 1994, respectively: a seven year expected life for all
years; expected volatility of 21.3 percent, 22.2 percent and 22.9 percent,
respectively; risk-free interest rates of 6.2 percent, 7.5 percent and 7.5
percent; and expected dividend yields of 8.0 percent, 8.4 percent and 8.7
percent. Had compensation cost for the Company's option plans been
B-39
<PAGE> 88
determined and recorded consistent with FASB Statement No. 123, the Company's
net income and earnings per share would have been reduced to the pro forma
amounts indicated in the following table:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
- ---------------------------------------------------------------------------------
<S> <C> <C>
NET INCOME
As reported................................................. $256,886 236,708
Pro forma................................................... 255,249 236,197
- ---------------------------------------------------------------------------------
EARNINGS PER SHARE
As reported................................................. $4.16 3.73
Pro forma................................................... 4.13 3.72
- ---------------------------------------------------------------------------------
</TABLE>
The following table summarizes information about fixed stock options
outstanding at December 31, 1996:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------
Options Outstanding Options Exercisable
------------------------------------------------------------------------------------------------
Range Number Weighted-Avg. Number
of Outstanding Remaining Weighted-Avg. Exercisable Weighted-Avg.
Prices at 12/31/96 Contractual Life Exercise Price at 12/31/96 Exercise Price
------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$11.30 32 1.0 $11.30 32 $11.30
16.00 to 28.00 417,975 3.6 22.09 417,975 22.09
32.00 to 43.25 833,185 7.8 37.84 581,855 36.80
54.44 to 57.25 505,850 9.9 54.47 3,150 57.25
--------- ---------
1,757,042 7.4 38.88 1,003,012 28.79
------------------------------------------------------------------------------------------------
</TABLE>
NOTE 14: DIVIDENDS FROM BANKING SUBSIDIARIES
Dividends paid to First of America by its bank subsidiaries amounted to
$357,800,000 in 1996, $337,407,000 in 1995 and $173,350,000 in 1994. Banking
regulations limit the amount of dividends that First of America's banking
subsidiaries can declare during 1997 to the 1997 net profits, as defined in the
Federal Reserve Act, plus retained net profits for 1996 and 1995. In recent
years, First of America requested and obtained regulatory approval to exceed
banking regulation limits for certain subsidiary banks, based largely on the
well capitalized position of those banks. As a result, the retained net profits
for 1996 and 1995 were a negative $111 million. Under the FDIC Improvement Act
of 1993, there are strong incentives to maintaining a bank's capital at the
"well capitalized" level.
NOTE 15: CAPITAL ADEQUACY
First of America Bank Corporation and its banking subsidiaries are subject
to various regulatory capital requirements administered by the federal banking
agencies. Failure to meet minimum capital requirements can initiate certain
mandatory, and possibly additional discretionary, actions by regulators that, if
undertaken, could have a direct material effect on First of America's financial
statements. Under capital adequacy guidelines and the regulatory framework for
prompt corrective action, First of America must meet specific capital guidelines
that involve quantitative measures of the banks' assets, liabilities, and
certain off-balance sheet items as calculated under regulatory accounting
practices. The banks' capital amounts and classification are also subject to
qualitative judgements by the regulators about components, risk weightings, and
other factors. Management believes that as of December 31, 1996, First of
America met all capital adequacy requirements to which it is subject.
Risk-based capital guidelines for bank holding companies and banks adopted
by the federal banking agencies were fully phased in at the end of 1992. The
minimum ratio of qualifying total capital to risk-weighted assets, (including
certain off-balance sheet items, such as standby letters of credit) under the
fully phased-in guidelines is 8 percent. At least half of the total capital must
be comprised of common stock, retained earnings, noncumulative perpetual
preferred stock, minority interests, and, for bank holding companies, a limited
amount of qualifying cumulative perpetual preferred stock, less goodwill and
certain other intangibles ("Tier 1 capital"). The remainder ("Tier 2 capital")
may consist of other preferred stock, certain other instruments, and limited
amounts of subordinated debt and reserves for credit losses. In addition, the
federal banking agencies have established minimum
B-40
<PAGE> 89
leverage ratio (Tier 1 capital to total average assets less goodwill and certain
other intangibles) guidelines for bank holding companies and banks. These
guidelines provide for a minimum leverage ratio of 3 percent for bank holding
companies and banks that meet certain specified criteria, including that they
have the highest supervisory rating. All other banking organizations are
required to maintain a leverage ratio of 3 percent plus an additional cushion of
at least 100 to 200 basis points. Failure to meet applicable capital guidelines
could subject a bank to a variety of enforcement remedies available to the
federal regulatory authorities. Under the prompt corrective action provisions of
the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"),
the scope and degree of regulatory intervention is linked to the level of
capital and the supervisory rating of the institution. Prompt corrective action
can include limitations on the ability to pay dividends, the issuance of a
directive to increase capital, the termination of deposit insurance by the FDlC,
and (in severe cases) the appointment of a conservator or receiver.
As of December 31, 1996, the most recent notification from the Federal
Reserve categorized First of America as well capitalized under the regulatory
framework for prompt corrective action. There are no conditions or events since
that notification that management believes have changed First of America's
category.
The following table summarizes First of America Bank Corporation's and its
significant subsidiaries' actual capital and the capital that would be required
to maintain ratios indicated as of December 31, 1996 and 1995:
<TABLE>
<CAPTION>
To Be Well
Capitalized Under
For Capital Prompt Corrective
Actual Adequacy Purposes Action Provisions
- ------------------------------------------------------------------------------------------------------------------
Minimum Minimum
Capital Ratio Capital Ratio Capital Ratio
($ in thousands) Amount % Required % Required %
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1996:
Total Capital (to Risk-Weighted Assets):
First of America Bank Corporation.......... $2,110,473 13.19 $1,280,315 8.00 $1,600,394 10.00
First of America Bank-Michigan, N.A........ 1,079,110 11.36 759,091 8.00 948,864 10.00
First of America Bank-Illinois, N.A........ 498,106 10.68 373,090 8.00 466,363 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First of America Bank Corporation.......... 1,561,598 9.76 640,157 4.00 960,236 6.00
First of America Bank-Michigan, N.A........ 960,124 10.11 379,546 4.00 569,319 6.00
First of America Bank-Illinois, N.A........ 439,531 9.43 186,545 4.00 279,818 6.00
Tier 1 Leverage Ratio:
First of America Bank Corporation.......... 1,561,598 7.15 872,836 4.00 1,091,044 5.00
First of America Bank-Michigan, N.A........ 960,124 7.43 517,374 4.00 646,717 5.00
First of America Bank-Illinois, N.A........ 439,531 6.77 259,838 4.00 324,797 5.00
- ------------------------------------------------------------------------------------------------------------------
As of December 31, 1995:
Total Capital (to Risk-Weighted Assets):
First of America Bank Corporation.......... $2,115,254 12.89 $1,312,439 8.00 $1,640,549 10.00
First of America Bank-Michigan, N.A........ 1,044,830 11.29 740,051 8.00 925,064 10.00
First of America Bank-Illinois, N.A........ 569,208 11.27 404,041 8.00 505,051 10.00
Tier 1 Capital (to Risk-Weighted Assets):
First of America Bank Corporation.......... 1,562,239 9.52 656,220 4.00 934,329 6.00
First of America Bank-Michigan, N.A........ 928,242 10.04 370,026 4.00 555,038 6.00
First of America Bank-Illinois, N.A........ 506,077 10.02 202,020 4.00 303,031 6.00
Tier 1 Leverage Ratio:
First of America Bank Corporation.......... 1,562,239 6.70 932,812 4.00 1,166,015 5.00
First of America Bank-Michigan, N.A........ 928,242 7.00 530,642 4.00 663,303 5.00
First of America Bank-Illinois, N.A........ 506,077 7.11 284,657 4.00 355,822 5.00
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
B-41
<PAGE> 90
NOTE 16: EMPLOYEE PENSION PLAN
First of America and its subsidiaries have a defined benefit pension plan
that covers substantially all of its salaried employees. Benefits are based on
years of service and the employee's compensation.
Pension costs for the years 1996 and 1995 were calculated based on Financial
Accounting Standards Board Statement No. 87 "Employers' Accounting for
Pensions." Pension costs for the years ended December 31, 1996, 1995, and 1994
equaled $2,794,000, $3,980,000 and $8,073,000, respectively.
The following table presents the plan's funded status and amounts recognized
in the consolidated balance sheets at December 31, 1996 and 1995.
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ACTUARIAL PRESENT VALUE OF BENEFIT OBLIGATIONS:
Accumulated benefit obligation, including vested benefits
of $303,786 for 1996 and $304,707 for 1995.............. $312,448 312,916
- --------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date... $376,764 379,131
Plan assets at fair value, primarily listed stocks and U.S.
Bonds..................................................... 513,864 438,752
-------- -------
Projected benefit obligation less than plan assets.......... 137,100 59,621
Unrecognized net (gain)/loss................................ (97,131) (33,192)
Unrecognized prior service cost............................. 18,832 21,367
Unrecognized net assets being recognized over 15 years...... (11,966) (13,953)
-------- -------
Prepaid pension............................................. $ 46,835 33,843
- --------------------------------------------------------------------------------
NET PENSION COST INCLUDED THE FOLLOWING COMPONENTS:
Service cost................................................ $ 15,868 11,426
Interest cost on projected benefit obligation............... 26,555 24,689
Actual return on plan assets................................ (75,333) (86,421)
Net amortization and deferral............................... 35,884 54,286
- --------------------------------------------------------------------------------
Net periodic pension cost................................... $ 2,974 3,980
- --------------------------------------------------------------------------------
</TABLE>
First of America's weighted-average discount rate was 7.75 percent at
December 31, 1996 and 7.50 percent at December 31, 1995. The rate of increase in
future compensation levels used in determining the actuarial present value of
the projected benefit obligation was 5.75 percent at year-end 1996 and 5.50
percent at year-end 1995. The expected long term rate of return on assets was
9.50 percent at December 31, 1996 and 1995. The assumed rates in place at each
year-end are used to determine the net periodic pension cost for the following
year.
B-42
<PAGE> 91
NOTE 17: OTHER POSTRETIREMENT BENEFITS
First of America and its subsidiaries have a Retiree Medical Plan which
provides a portion of retiree medical care premiums. First of America's level of
contribution is based on an age and service formula.
The following table presents the plan's funded status reconciled with
amounts recognized in First of America's Consolidated Balance Sheets for
December 31, 1996 and 1995:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
ACCUMULATED POSTRETIREMENT BENEFIT OBLIGATION:
Retirees.................................................... $(16,883) (17,932)
Fully eligible active plan participants..................... (6,801) (7,065)
Other active plan participants.............................. (10,151) (8,901)
-------- -------
(33,835) (33,898)
Plan assets at fair value................................... -- --
-------- -------
Accumulated postretirement benefit obligation in excess of
plan assets............................................... (33,835) (33,898)
Unrecognized prior service cost............................. (3,901) (4,700)
Unrecognized net (gain) loss................................ (1,306) (857)
- --------------------------------------------------------------------------------
Accrued postretirement benefit cost included in other
liabilities............................................... $(39,042) (39,455)
- --------------------------------------------------------------------------------
NET PERIOD POSTRETIREMENT BENEFIT COST FOR 1996 AND 1995
INCLUDE THE FOLLOWING COMPONENTS:
- --------------------------------------------------------------------------------
Service cost................................................ $ 977 1,092
Interest cost............................................... 2,517 2,992
Net amortization and deferral............................... (798) (524)
- --------------------------------------------------------------------------------
Net periodic postretirement benefit cost.................... $ 2,696 3,560
- --------------------------------------------------------------------------------
</TABLE>
For measurement purposes of the accrued postretirement benefit cost included
in other liabilities, 9.52 percent and 10.03 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, 1996 and 1995, respectively; the 1996 rate was further
assumed to decline evenly to 6.00 percent by 2004. The weighted-average discount
rate used in determining the accumulated postretirement benefit obligation was
7.75 percent at December 31, 1996 and 7.50 percent at December 31, 1995. To
determine First of America's net periodic postretirement benefit cost for 1996
and 1995, a weighted average discount rate of 7.50 percent and 8.00 percent,
respectively, and the health care trend rate of 10.03 percent and 10.36 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, 1996 by
2.80 percent and the aggregate of the service and interest cost components of
the net periodic postretirement benefit cost for the year ended December 31,
1996 by 2.10 percent.
B-43
<PAGE> 92
NOTE 18: INCOME TAXES
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Current:
U.S. Federal.............................................. $121,497 125,611 103,124
State and local........................................... 7,194 8,390 5,186
- ------------------------------------------------------------------------------------------
128,691 134,001 108,310
- ------------------------------------------------------------------------------------------
Deferred:
U.S. Federal.............................................. (2,943) (6,861) 95
State and local........................................... 709 (511) (5,789)
- ------------------------------------------------------------------------------------------
(2,234) (7,372) (5,694)
- ------------------------------------------------------------------------------------------
Income taxes attributable to income from continuing
operations................................................ 126,457 126,629 102,616
Shareholders' equity, for market value adjustments on
investment securities available for sale.................. (9,292) 28,885 (32,296)
- ------------------------------------------------------------------------------------------
Total income taxes.......................................... $117,165 155,514 70,320
- ------------------------------------------------------------------------------------------
</TABLE>
As a result of the following, income tax expense attributable to income from
continuing operations differed from the "expected" amounts computed by applying
the U.S. federal income tax rate of 35 percent to pretax income from operations:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Computed "expected" tax expense............................. $134,170 127,168 113,092
Increase (reduction) in income taxes resulting from:
Tax exempt municipal obligations income................... (10,615) (9,277) (9,904)
Other, net*............................................... 2,902 8,738 (572)
- ------------------------------------------------------------------------------------------
Income taxes attributable to income from continuing
operations................................................ $126,457 126,629 102,616
- ------------------------------------------------------------------------------------------
</TABLE>
* Other, net contains no single item that exceeds five percent of the amount
calculated by multiplying income before income taxes time 35 percent (the
current federal statutory rate).
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1996 and
1995 are presented below:
<TABLE>
<CAPTION>
December 31,
- --------------------------------------------------------------------------------
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------
<S> <C> <C>
DEFERRED TAX ASSETS:
Allowances for loan losses.................................. $ 88,496 83,846
Deferred compensation....................................... 9,141 8,135
Deferred loan fees.......................................... 7,974 9,392
Other....................................................... 19,049 25,109
-------- -------
Total gross deferred tax assets............................. 124,660 126,482
-------- -------
DEFERRED TAX LIABILITIES:
Premise and equipment, due to differences in depreciation... (8,605) (10,969)
Market value adjustment on securities available for sale.... (4,561) (13,853)
Tax loan loss reserve to be recaptured...................... (5,894) (11,698)
Other....................................................... (14,632) (10,520)
-------- -------
Total gross deferred liabilities............................ (33,692) (47,040)
- --------------------------------------------------------------------------------
Net deferred tax asset...................................... $ 90,968 79,442
- --------------------------------------------------------------------------------
</TABLE>
B-44
<PAGE> 93
NOTE 19: EARNINGS PER SHARE CALCULATION
The weighted average number of shares used in the determination of earnings
per share were:
<TABLE>
<CAPTION>
1996 1995 1994
- ------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common and common equivalents............................... 61,775,353 63,500,784 59,811,568
- ------------------------------------------------------------------------------------------------------
</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, 412,585 in 1996, 279,856
in 1995 and 281,498 in 1994.
On December 31, 1996 and 1995, there were 59,813,234 and 63,283,857 common
shares outstanding, respectively. For the same dates, a maximum of 100,000,000
shares of $10 par value common stock was authorized.
NOTE 20: COMMITMENTS AND CONTINGENT LIABILITIES
First of America and its subsidiaries are routinely engaged in litigation,
both as plaintiff and defendant, which is incident to their business, and in
certain proceedings, claims or counter-claims have been asserted against the
Registrant's subsidiaries. Management, after consultation with legal counsel,
does not currently anticipate that the ultimate liability, if any, arising out
of such litigation and threats of litigation will have a material effect on the
financial position, results of operations or liquidity of the Registrant.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK:
In First of America's normal course of business, there are various
conditional obligations outstanding which are not reflected in the financial
statements. These financial instruments include commitments to extend credit,
standby letters of credit, commercial letters of credit, when issued securities,
securities lent and commitments to purchase foreign currency.
First of America's exposure to credit loss in the event of nonperformance by
other parties to the financial instruments with off-balance sheet risk is
represented by the contractual notional amount of these instruments. First of
America uses the same credit policies in making these commitments and
conditional obligations as it does for on-balance sheet instruments.
Unless noted otherwise, First of America does not require collateral or
other security to support financial instruments with off-balance sheet credit
risk.
A summary of the contract or notional amounts of these financial instruments
at December 31, is as follows:
<TABLE>
<CAPTION>
($ in thousands) 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C>
Commitments on unused credit card lines..................... $ 8,115,335 8,686,390
Other commitments to extend credit.......................... 3,410,017 2,930,624
Mortgages sold with recourse................................ 61,986 79,952
Mortgage loan sale commitments.............................. 133,727 125,000
Standby letters of credit................................... 584,408 366,829
Commercial letters of credit................................ 5,345 5,280
Foreign exchange contracts.................................. 6,685 17,248
Interest rate swaps......................................... 80,000 105,507
- --------------------------------------------------------------------------------------
Total....................................................... $12,397,503 12,316,830
- --------------------------------------------------------------------------------------
</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 amount included in the preceding table does not necessarily represent
future cash requirements. At December 31, 1996, other commitments to extend
credit were comprised of $2,382,028,000 in unused commercial loan commitments,
$474,357,000 in commitments to fund commercial real estate, construction and
land development of which
B-45
<PAGE> 94
$466,189,000 was secured by real estate, and $553,632,000 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 $59.3 million
at December 31, 1996 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, 1995, First of America had interest rate swaps with a total
notional value of $105.5 million of which $8.5 million was a hedge against
certain certificates of deposit, $75.0 million as a hedge against long term debt
with the remainder as a hedge against certain other deposits and borrowings.
Although the notional amounts are often used to express the volume of these
transactions, the amounts potentially subject to credit risk are much smaller.
The company minimizes this risk by performing normal credit reviews of its
counterparties and collateralizing its exposure when it exceeds a predetermined
limit. The following table outlines First of America's interest rate caps and
interest rate swaps at December 31, 1996.
INTEREST RATE SWAPS AND INTEREST RATE CAPS
($ in thousands)
<TABLE>
<CAPTION>
Net Interest
Weighted Income
Fair Average Average Average Impact
Notional Market Maturity Rate Received Rate Paid --------------
Hedged Asset/Liability Amount Value (Mos.) Variable/Fixed Variable/Fixed 1996 1995
- -------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps:
Rising Rate CDs........... $ -- -- -- --% --% $-- (1,158)
Market Rate CDs*.......... -- -- -- -- -- (65) (808)
FHLB advance.............. -- -- -- -- -- -- 25
FirstRate Fund deposits... -- -- -- -- -- (41) (9)
Bank notes................ 30,000 602 7.4 5.80/ 5.51/ (17) 24
fixed variable
Long term debt............ 50,000 (366) 13.0 5.60/ 5.60/ (47) (894)
fixed variable
Interest rate caps.......... -- -- -- -- -- -- (1,150)
- -------------------------------------------------------------------------------------------------------------
Total....................... $80,000 236 10.9 (170) (3,970)
- -------------------------------------------------------------------------------------------------------------
</TABLE>
* This represents a basis swap.
At December 31, 1996, there were no deferred losses included in other assets
from the termination of interest rate swaps. Additionally, during 1996, no
losses were recognized in earnings related to interest rate swaps which were
marked-to-market.
B-46
<PAGE> 95
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, 1996 and 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 necessarily represent the
underlying value of these instruments.
For purposes of this disclosure, estimated fair value of financial
instruments with short-term maturities is assumed to equal the recorded book
value. These financial instruments include cash and short term investments,
accrued interest receivable and payable and short term borrowings. Estimated
fair value for other financial instruments were determined as follows:
SECURITIES:
Fair values for Available for Sale securities were based on quoted market
prices. If a quoted market price was not available, fair value was estimated
using quoted market prices for similar securities.
LOANS RECEIVABLE:
For variable rate loans that reprice frequently and for which there has been
no significant change in credit risk, fair values equal carrying values. The
fair values for fixed rate loans were based on estimates using discounted cash
flow analyses and current interest rates being offered for loans with similar
terms to borrowers of similar credit quality.
LOANS HELD FOR SALE:
Fair value for loans held for sale were based on quoted market prices. If a
quoted market price was not available, fair value was estimated using market
prices for similar assets.
DEPOSIT LIABILITIES:
The fair values disclosed for demand deposits with no stated maturity (e.g.,
interest and non-interest checking, passbook savings and certain types of money
market accounts) were, by definition, equal to the amount payable on demand at
the reporting date. The carrying amounts for variable rate, fixed-term money
market accounts and certificates of deposits with less than twelve months
maturities approximate their fair values at the reporting date. Fair values for
fixed-rate certificates of deposit with maturities greater than twelve months
are estimated using a discounted cash flow calculation that applied interest
rates being offered on the same or similar certificates at the reporting date to
a schedule of aggregated expected maturities on the certificates of deposits.
LONG TERM BORROWINGS:
Fair values for First of America's long term debt (other than deposits) was
estimated based on the quoted market prices for the same or similar issues or on
the current rates offered to the company for debt with 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.
B-47
<PAGE> 96
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, 1996
and 1995 were as follows:
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
- ------------------------------------------------------------------------------------------------------------------
Recorded Estimated Recorded Estimated
($ in millions) Book Value Fair Value Book Value Fair Value
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
FINANCIAL ASSETS:
Securities, Available for Sale................ $ 4,562 4,562 5,061 5,061
Loans, net.................................... 14,695 14,682 15,734 15,825
Loans held for sale........................... 108 110 101 104
FINANCIAL LIABILITIES:
Deposits*..................................... (17,619) (17,635) (19,342) (19,422)
Long term borrowings.......................... (521) (542) (490) (520)
Off-balance sheet commitments................. -- 23 -- 18
- ------------------------------------------------------------------------------------------------------------------
</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> 97
NOTE 22: CONDENSED FINANCIAL INFORMATION -- PARENT COMPANY ONLY
The balance sheets for December 31, 1996 and 1995, and the statements of
income and statements of cash flows for the three years ended December 31, 1996
follow.
<TABLE>
<CAPTION>
December 31,
- ------------------------------------------------------------------------------------
($ in thousands) 1996 1995
- ------------------------------------------------------------------------------------
<S> <C> <C>
BALANCE SHEETS
ASSETS
Cash and interest bearing deposits held by subsidiary
banks..................................................... $ 213,026 209,532
Investment in subsidiaries.................................. 1,825,862 1,918,540
Other assets................................................ 196,009 170,613
- ------------------------------------------------------------------------------------
Total assets................................................ $2,234,897 2,298,685
- ------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
Accounts payable and other liabilities...................... $ 90,699 87,623
Long term debt.............................................. 360,000 383,081
---------- ---------
Total liabilities........................................... 450,699 470,704
---------- ---------
SHAREHOLDERS' EQUITY
Common stock................................................ 598,132 632,839
Surplus..................................................... 145,950 283,409
Net unrealized gain on securities available for sale, net of
tax expense of $4,561 for 1996 and $13,853 for 1995....... 8,438 25,939
Retained earnings........................................... 1,031,678 885,794
---------- ---------
Total shareholders' equity.................................. 1,784,198 1,827,981
- ------------------------------------------------------------------------------------
Total liabilities and shareholders' equity.................. $2,234,897 2,298,685
- ------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
Year Ended December 31,
- ------------------------------------------------------------------------------------------
($ in thousands) 1996 1995 1994
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF INCOME
INCOME
Dividends from subsidiaries................................. $360,800 337,407 175,350
Interest and other income................................... 361,985 339,863 262,615
-------- ------- -------
Total operating income...................................... 722,785 677,270 437,965
-------- ------- -------
EXPENSES
Interest on borrowed money.................................. 30,638 33,600 27,793
Salaries and employee benefits.............................. 180,682 159,461 151,766
Amortization of intangibles................................. 5,577 5,692 5,974
Other operating expenses.................................... 197,433 199,162 139,853
-------- ------- -------
Total operating expenses.................................... 414,330 397,915 325,386
-------- ------- -------
Income before income taxes and undistributed earnings of
subsidiaries.............................................. 308,455 279,355 112,579
Applicable income tax benefit............................... 18,150 19,291 22,609
-------- ------- -------
Net income before equity in undistributed earnings (losses)
of subsidiaries........................................... 326,605 298,646 135,188
Equity in undistributed earnings (losses) of subsidiaries... (69,719) (61,938) 85,315
- ------------------------------------------------------------------------------------------
Net income.................................................. $256,886 236,708 220,503
- ------------------------------------------------------------------------------------------
</TABLE>
B-49
<PAGE> 98
<TABLE>
<CAPTION>
($ in thousands) 1996 1995 1994
- ---------------------------------------------------------------------------------------------
<S> <C> <C> <C>
STATEMENTS OF CASH FLOW
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................................. $ 256,886 236,708 220,503
Adjustment to reconcile net income to net cash provided by
operating activities...................................... 69,084 113,558 (13,723)
--------- -------- --------
Net cash from operating activities.......................... 325,970 350,266 206,780
--------- -------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Premises and equipment purchased............................ (12,215) (33,157) (24,845)
Proceeds from sale of premises & equipment.................. 5,467 8,444 4,974
(Acquisition)/sale of affiliates............................ -- -- --
Capital infusions, net of redemptions....................... (5,461) (31,797) (112,850)
--------- -------- --------
Net cash used in investing activities....................... (12,209) (56,510) (132,721)
--------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of long term debt.................... -- -- 438,000
Repayment of long term debt................................. (23,081) (33,339) (261,195)
Proceeds from issuance of common stock...................... (1,148) 2,105 460
Repurchase of common stock.................................. (175,228) -- (123,373)
Dividends paid.............................................. (110,810) (107,429) (96,670)
Other, net.................................................. -- (319) (268)
--------- -------- --------
Net cash provided by financing activities................... (310,267) (138,982) (43,046)
--------- -------- --------
Net increase in cash........................................ 3,494 154,774 31,013
Cash at beginning of year................................... 209,532 54,758 23,745
- ---------------------------------------------------------------------------------------------
Cash at year end............................................ $ 213,026 209,532 54,758
- ---------------------------------------------------------------------------------------------
</TABLE>
B-50
<PAGE> 99
SUPPLEMENTAL INFORMATION (Unaudited)
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
STOCK DATA
Book value per common share:
Primary................................... $ 29.83 28.89 25.12 25.60 22.12
Fully Diluted............................. 29.83 28.89 25.12 25.60 22.49
Common shares outstanding:
Weighted average.......................... 61,775,353 63,500,784 59,811,568 57,416,771 54,841,762
Year end.................................. 59,813,234 63,283,857 62,849,209 59,520,710 57,014,244
Market price of Common Stock:
High...................................... $ 60.750 46.125 40.125 42.875 37.875
Low....................................... 41.375 29.500 29.750 36.500 29.000
Year end.................................. 60.125 44.375 30.000 39.250 37.875
Number of shares traded (in thousands).... 22,841 19,427 18,313 13,708 14,284
Price earnings ratio*..................... 14.5x 11.9 8.1 9.3 15.4
Dividend yield (at year end).............. 3.13% 3.97 5.60 4.08 3.70
Dividend payout ratio..................... 43.03 45.58 43.90 35.71 53.25
NON-FINANCIAL DATA
Number of common shareholders*............ 30,200 31,300 30,900 28,400 23,800
Number of banking subsidiaries*........... 4 4 8 20 23
Number of banking offices*................ 604 613 630 572 551
Number of employees (FTE)*................ 12,148 12,690 13,307 13,330 12,940
Number of automated teller machines*...... 721 675 647 546 498
RETURN ON EQUITY AND ASSETS
Return on average total assets............ 1.16% 1.00 0.98% 1.20 0.75
Return on average common shareholders'
equity.................................. 14.39 13.89 14.44 18.01 11.67
Return on average total shareholders'
equity.................................. 14.39 13.89 14.44 17.50 11.38
Average common shareholders' equity as a
percent of total average assets......... 8.04 7.17 6.77 6.52 5.91
Average shareholders' total equity as a
percent of total average assets......... 8.04 7.17 6.77 6.88 6.63
- -----------------------------------------------------------------------------------------------------------
</TABLE>
* Prior years numbers not restated.
B-51
<PAGE> 100
QUARTERLY INFORMATION (Unaudited)
($ in millions except per share data)
<TABLE>
<CAPTION>
1996 Quarters 1995 Quarters
<S> <C> <C> <C> <C> <C> <C> <C> <C>
- -----------------------------------------------------------------------------------------------------------------
<CAPTION>
Fourth Third Second First Fourth Third Second First
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF EARNINGS
Total interest income................ $409.0 412.1 415.4 427.0 437.5 442.0 460.6 456.4
Total interest expense............... 183.8 186.6 190.1 200.6 210.6 217.4 226.3 218.3
- -----------------------------------------------------------------------------------------------------------------
Net interest income.................. 225.2 225.5 225.3 226.4 226.9 224.6 234.3 238.1
Provision for loan losses............ 23.6 21.9 23.2 24.6 27.7 21.4 22.0 20.5
- -----------------------------------------------------------------------------------------------------------------
Net interest income after
provision.......................... 201.6 203.6 202.1 201.8 199.2 203.2 212.3 217.6
- -----------------------------------------------------------------------------------------------------------------
Non-interest income:
Service charges on deposit
accounts........................... 29.7 29.0 27.6 26.1 25.6 25.3 25.1 24.3
Trust income......................... 29.5 28.1 29.1 27.4 24.8 24.4 23.3 21.7
Investment securities transactions... 0.3 (0.1) (0.5) (0.3) 1.0 0.5 0.1 (1.5)
Other operating income............... 70.7 42.0 39.8 41.0 49.4 42.0 35.0 25.1
- -----------------------------------------------------------------------------------------------------------------
Total non-interest income............ 130.2 99.0 96.0 94.2 100.8 92.2 83.5 69.6
- -----------------------------------------------------------------------------------------------------------------
Non-interest expense:
Salaries and wages................... 97.0 96.5 93.6 90.5 85.9 86.3 90.9 93.2
Employee benefits.................... 19.9 17.6 18.2 20.8 16.2 16.4 19.9 22.2
- -----------------------------------------------------------------------------------------------------------------
Total personnel costs................ 116.9 114.1 111.8 111.3 102.1 102.7 110.8 115.4
Occupancy, net....................... 16.1 16.6 15.3 16.8 16.9 15.8 15.1 16.3
Equipment............................ 14.6 14.8 14.3 14.7 15.2 14.9 14.5 14.7
Data processing...................... 5.4 4.6 4.5 4.7 4.8 4.5 4.7 4.8
Amortization of intangibles.......... 7.6 5.3 5.2 5.2 5.3 5.3 5.4 5.3
Other operating expenses............. 47.8 72.5 52.2 52.8 54.1 50.1 58.5 58.1
- -----------------------------------------------------------------------------------------------------------------
Total non-interest expense........... 208.4 227.9 203.3 205.5 198.4 193.3 209.0 214.6
- -----------------------------------------------------------------------------------------------------------------
Income before income tax............. 123.4 74.7 94.8 90.5 101.6 102.1 86.8 72.6
Applicable income tax expense........ 39.4 23.7 32.5 30.9 35.6 35.4 30.3 25.3
- -----------------------------------------------------------------------------------------------------------------
Net income........................... $84.0 51.0 62.3 59.6 66.0 66.7 56.5 47.3
- -----------------------------------------------------------------------------------------------------------------
EARNINGS PER SHARE DATA
Earnings per common share............ $1.38 0.84 1.00 0.94 1.04 1.05 0.89 0.75
Common stock cash dividend paid...... 0.47 0.44 0.44 0.44 0.44 0.42 0.42 0.42
Market price of Common Stock:
High................................. 60.750 53.375 47.750 46.500 46.125 45.250 38.000 34.250
Low.................................. 51.625 43.625 43.750 41.375 41.750 36.375 33.125 29.500
Period-end........................... 60.125 52.625 44.750 46.375 44.375 42.875 37.125 33.625
- -----------------------------------------------------------------------------------------------------------------
</TABLE>
B-52
<PAGE> 101
Directors
Jon E. Barfield
Chairman and Chief Executive Officer
Bartech, Inc., Livonia, Michigan
John W. Brown
Chairman, President and
Chief Executive Officer
Stryker Corporation, Kalamazoo, Michigan
Richard F. Chormann
Chairman, President and Chief Executive Officer
First of America Bank Corporation
Kalamazoo, Michigan
Joseph J. Fitzsimmons
Retired
Ann Arbor, Michigan
Joel N. Goldberg
Retired
Pontiac, Michigan
Clifford L. Greenwalt
President and Chief Executive Officer
CIPSCO, Incorporated
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
President
Mayhood/Mertz, Inc., Okemos, Michigan
Daniel R. Smith
Retired
Kalamazoo, Michigan
Ley S. Smith
Executive Vice President
Pharmacia & Upjohn, Inc.
Kalamazoo, Michigan
James S. Ware
Retired
Kalamazoo, Michigan
Executive Officers
Richard F. Chormann
Chairman, President and
Chief Executive 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
Richard R. Spears
President and Chief Operating Officer,
First of America Bank - Michigan, N.A.
Richard V. Washburn
Senior Vice President
and Secretary
recycle logo
<PAGE> 102
FIRST OF AMERICA BANK CORPORATION
211 South Rose Street
Kalamazoo, Michigan 49007 PROXY
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 16, 1997 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 the full power of substitution, to represent
the undersigned at the Annual Meeting of Shareholders of FOA to be held at
the Fetzer Business Development Center, Western Michigan University, Wilbur
Street and Marion Avenue, Kalamazoo, Michigan on April 16, 1997 at 9:00 a.m.,
local time, and at any adjournment of said meeting, and at the meeting 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 an increase in the number of shares of
Authorized Common Stock of First of America Bank Corporation to 200,000,000
from 100,000,000, FOR approval of the First of America Bank Corporation
Directors 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
<PAGE> 103
<TABLE>
<S><C>
- ------------------------------------------------------------------------------------------------------------------------------------
| 1. ELECTION OF DIRECTORS
| Nominees: Jon E. Barfield, Richard F. Chormann, Joel N. Goldberg and James S. Ware.
| / / FOR all Nominees / / WITHHELD as to all Nominees
| FOR, except vote withheld from the following nominee(s):
| / / _______________________________________________________________________________
|
| 2. APPROVAL OF AN INCREASE IN THE NUMBER OF SHARES OF AUTHORIZED COMMON STOCK OF FIRST OF
| AMERICA BANK CORPORATION TO 200,000,000 FROM 100,000,000.
| / / FOR / / AGAINST / / ABSTAIN
|
| 3. APPROVAL OF THE FIRST OF AMERICA BANK CORPORATION DIRECTORS STOCK COMPENSATION PLAN.
| / / FOR / / AGAINST / / ABSTAIN
|
| 4. RATIFICATION OF THE SELECTION OF KPMG PEAT MARWICK LLP AS INDEPENDENT AUDITORS FOR FOA.
| / / FOR / / AGAINST / / ABSTAIN
|
| The undersigned hereby acknowledges receipt of a Notice of Annual Meeting
| of Shareholders of FOA called for April 16, 1997 and a Proxy Statement for
| the Annual Meeting prior to the signing of this proxy.
|
| Dated: _______________________________ , 1997
| ____________________________________________
| ____________________________________________
|
| 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>
