<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 or 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
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DATE OF REPORT: SEPTEMBER 30, 1997
---------------
HUNTINGTON BANCSHARES INCORPORATED
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
---------------
Maryland 0-2525 31-0724920
(State or other (Commission File No.) (IRS Employer
jurisdiction of incorporation) Identification Number)
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Huntington Center
41 South High Street
Columbus, Ohio 43287
(614) 480-8300
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER
INCLUDING AREA CODE OF REGISTRANT'S
PRINCIPAL EXECUTIVE OFFICES)
---------------
N/A
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 5. OTHER INFORMATION.
As previously reported by Huntington Bancshares Incorporated, a
Maryland corporation and a registered bank holding company ("Huntington"), on
its Current Report on Form 8-K filed with the Securities and Exchange Commission
on October 15, 1997, First Michigan Bank Corporation, a Michigan corporation and
a registered bank holding company ("First Michigan"), was merged (the "Merger")
into Huntington on September 30, 1997, pursuant to the terms of an Agreement and
Plan of Merger and a Supplemental Agreement (collectively, the "Merger
Agreements"). As a result of the Merger, each outstanding share of First
Michigan's common stock, $1.00 par value ("First Michigan Common"), was
converted into 1.155 shares of Huntington's common stock, without par value
("Huntington Common"). Cash was paid for fractional shares. Approximately 32.2
million Huntington Common shares were issued in the Merger. In addition, each
outstanding First Michigan stock option was converted into an option to acquire
Huntington Common, with the number of Huntington Common shares subject to such
option equal to the number of First Michigan shares subject to the First
Michigan stock option multiplied by 1.155, rounded to the nearest whole share.
The Merger was accounted for as a pooling of interests under generally accepted
accounting principles.
In accordance with Item 7 of Form 8-K, Huntington is submitting with
this filing the required historical financial information of First Michigan.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a)(i) The following audited consolidated financial statements of First
Michigan required by Item 7(a) of Form 8-K are incorporated
herein by reference to Exhibit 99(c) filed herewith:
Consolidated Statement of Income for the year ended December
31, 1996;
Consolidated Balance Sheet as of December 31, 1996;
Consolidated Statement of Cash Flows for the year ended
December 31, 1996;
Consolidated Statement of Shareholders' Equity for the year
ended December 31, 1996;
Notes to Consolidated Financial Statements
Independent Auditors Report - BDO Seidman LLP
The information presented in Exhibit 99(c) with respect to the
years ended December 31, 1995 and 1994 is not incorporated herein
by reference.
(ii) The following unaudited consolidated financial statements of First
Michigan required by Item 7(a) of Form 8-K are incorporated herein
by reference to Exhibit 99(d) filed herewith:
2
<PAGE> 3
Consolidated Balance Sheet as of June 30, 1997*;
Consolidated Statement of Income for the three and six months
ended June 30, 1997 and 1996;
Consolidated Statement of Cash Flows for the six months ended
June 30, 1997 and 1996;
Notes to Consolidated Financial Statements.
*The information presented in the Consolidated Balance Sheet as of
December 31, 1996 and June 30, 1996 is not incorporated herein by
reference.
(b) Pro Forma Financial
The pro forma financial information required by Item 7(b) of Form
8-K was incorporated by reference into Huntington's initial
Current Report on Form 8-K filed with the Securities and Exchange
Commission on October 15, 1997.
(c) Exhibits.
* 2(a) Agreement and Plan of Merger, dated May 5, 1997, between
Huntington Bancshares Incorporated and First Michigan Bank
Corporation -- previously filed as Exhibit A to the Joint Proxy
Statement/Prospectus, dated July 11, 1997, filed with the
Securities and Exchange Commission pursuant to 424(b)(3), and
incorporated herein by reference.
* 2(b) Supplemental Agreement, dated May 5, 1997, between Huntington
Bancshares Incorporated and First Michigan Bank Corporation --
previously filed as Exhibit B to the Joint Proxy
Statement/Prospectus, dated July 11, 1997, filed with the
Securities and Exchange Commission pursuant to 424(b)(3), and
incorporated herein by reference.
* 2(c) Warrant Purchase Agreement, dated May 5, 1997, between
Huntington Bancshares Incorporated and First Michigan Bank
Corporation -- previously filed as Exhibit 2(c) to Current Report
on Form 8-K, filed with the Securities and Exchange Commission on
May 7, 1997, and incorporated herein by reference.
* 2(d) Warrant to Purchase 5,268,716 shares of First Michigan Bank
Corporation common stock, dated May 5, 1997 -- previously filed as
Exhibit 2(d) to Current Report on Form 8-K, filed with the
Securities and Exchange Commission on May 7, 1997, and
incorporated herein by reference.
* 2(e) Agreement Not to Exercise Share Appreciation Rights, dated
May 5, 1997, executed by certain executives of First Michigan Bank
Corporation -- previously filed as Exhibit 2(e) to Registration
Statement on Form S-4 (Registration No. 333-30313), filed with the
3
<PAGE> 4
Securities and Exchange Commission on June 27, 1997, and
incorporated herein by reference.
* 99(a) News Release, dated September 30, 1997, relating to the merger of
First Michigan Bank Corporation with and into Huntington
Bancshares Incorporated -- previously filed as Exhibit 99(a) to
Current Report on Form 8-K, filed with the Securities and Exchange
Commission on October 15, 1997, and incorporated herein by
reference.
* 99(b) News Release, dated October 14, 1997, relating to Huntington's
earnings for the third quarter and nine months ended September 30,
1997 -- previously filed as Exhibit 99(b) to Current Report on
Form 8-K, filed with the Securities and Exchange commission on
October 15, 1997, and incorporated herein by reference.
99(c) Consolidated Financial Statements of First Michigan Bank
Corporation and Report of BDO Seidman, LLP.
99(d) Unaudited Financial Statements of First Michigan Bank Corporation.
- --------------
* Previously filed.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
HUNTINGTON BANCSHARES INCORPORATED
Date: October 22, 1997 By: /s/ Gerald R. Williams
------------------------------
Gerald R. Williams
Executive Vice President
4
<PAGE> 1
Exhibit 99(c)
<TABLE>
<CAPTION>
Consolidated Statements of Income
(Dollars in Thousands, Except for Per Share Data)
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Interest Income
Loans and fees on loans ............... $ 221,856 $ 202,395 $ 156,755
Securities:
Taxable ............................... 32,244 29,376 28,128
Tax-exempt ............................ 12,899 13,824 14,307
Other ................................. 2,472 3,002 1,051
Total interest income ................. 269,471 248,597 200,241
Interest Expense
Deposits .............................. 121,172 113,037 77,957
Other borrowed funds .................. 6,911 5,793 4,395
Long-term debt ........................ 1,008 697 857
Total interest expense ................ 129,091 119,527 83,209
Net Interest Income ................... 140,380 129,070 117,032
Provision for loan losses ............. 11,321 7,991 6,670
Net interest income after
provision for loan losses ........... 129,059 121,079 110,362
Non-Interest Income
Service charges on deposits ........... 14,239 12,792 11,939
Trust and investment management
fees ................................ 8,228 7,250 6,829
Mortgage banking revenue .............. 6,351 4,017 3,847
Other operating ....................... 9,003 6,758 7,144
Net realized securities gains
(losses) ............................. (84) 324 (297)
Total non-interest income ............. 37,737 31,141 29,462
Non-Interest Expense
Salaries and employee benefit ......... 59,348 55,157 50,153
Occupancy ............................. 7,132 6,561 6,013
Equipment ............................. 7,187 6,062 5,757
FDIC insurance ........................ 29 2,918 5,180
Other operating ....................... 34,653 30,886 28,218
Total non-interest expense ............ 108,349 101,584 95,321
Income Before Income Taxes ............ 58,447 50,636 44,503
Income taxes .......................... 16,279 13,324 10,776
Net Income ............................ $ 42,168 $ 37,312 $ 33,727
Net Income Per Share .................. $ 1.57 $ 1.40 $ 1.27
Average Shares Outstanding
(in thousands) ...................... 26,779 26,652 26,643
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 2
<TABLE>
<CAPTION>
Consolidated Balance Sheets
(Dollars in Thousands)
December 31,
1996 1995
<S> <C> <C>
Assets
Cash and due from banks ...................... $ 155,725 $ 128,168
Federal funds sold ........................... 12,950 117,100
Total cash and cash equivalent ............... 168,675 245,268
Interest bearing deposits with banks ......... 1,713 5,361
Securities:
Available-for-sale ........................... 465,460 329,688
Held-to-maturity (market values
of $293,595 and $362,788) ................... 284,691 349,227
Total securities ............................. 750,151 678,915
Loans ........................................ 2,499,038 2,216,947
Allowance for loan losses .................... (31,720) (28,031)
Net loans .................................... 2,467,318 2,188,916
Net premises and equipment ................... 68,667 68,551
Other assets ................................. 63,909 53,728
Total assets ................................. $ 3,520,433 $ 3,240,739
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing demand .................. $ 361,692 $ 337,370
Interest bearing:
Savings and NOW accounts ..................... 1,011,153 893,732
Time ......................................... 1,643,124 1,582,589
Total deposits ............................... 3,015,969 2,813,691
Other borrowed funds ......................... 163,220 134,323
Other liabilities ............................ 37,563 33,219
Long-term debt ............................... 29,537 5,678
Total liabilities ............................ 3,246,289 2,986,911
Shareholders' equity:
Preferred stock - no par value;
1,000,000 shares authorized,
none outstanding ........................... -- --
Common stock - $1 par value;
50,000,000 shares authorized;
issued and outstanding:
26,304,157 and 18,848,338 .................. 26,304 18,848
Surplus ...................................... 163,828 146,930
Retained earnings ............................ 83,374 86,232
Securities valuation, net of tax ............. 638 1,818
Total shareholders' equity ................... 274,144 253,828
Total liabilities and
shareholders' equity ....................... $ 3,520,433 $ 3,240,739
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 3
Consolidated Statements of Cash Flows
(Dollars in Thousands)
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income ................................ $ 42,168 $ 37,312 $ 33,727
Adjustments to reconcile
net income to net cash
provided by operating activities:
Provision for loan losses ................. 11,321 7,991 6,670
Origination of loans held
for sale in secondary market ............. (218,158) (169,861) (140,356)
Proceeds from sale of loans
in secondary market ...................... 219,540 171,135 141,499
Gain on sale of loans ..................... (1,382) (1,274) (1,143)
Capitalization of mortgage
servicing rights ......................... (1,865) -- --
Net realized securities (gains)
losses ................................... 84 (324) 297
Provision for depreciation,
amortization and accretion ............... 6,265 7,725 8,234
Deferred income taxes ..................... (874) (853) 58
Net increase in interest
receivable ............................... (763) (1,519) (3,850)
Net increase (decrease)
in interest payable ...................... (166) 3,964 1,799
Other-net ................................. 2,343 4,353 (402)
Total adjustments ......................... 16,345 21,337 12,806
Net cash provided by
operating activities ..................... 58,513 58,649 46,533
Cash Flows From Investing Activities
Net (increase) decrease in interest bearing
deposits with banks ....................... 3,648 (1,395) (1,183)
Purchase of securities
available-for-sale ...................... (260,713) (104,623) (52,427)
Proceeds from sales of
securities available-for-sale ............ 27,906 6,240 16,097
Proceeds from maturities and
prepayments of securities
available-for-sale ....................... 96,254 29,961 17,357
Purchase of securities
held-to-maturity ......................... (15,247) (6,451) (132,336)
Proceeds from maturities and
prepayments of securities
held-to-maturity ......................... 80,418 131,671 143,575
Net increase in loans ..................... (288,893) (262,497) (287,190)
Purchase of premises and
equipment and other assets ............... (13,723) (11,314) (12,616)
Net cash used in investing act ............ (370,350) (218,408) (308,723)
Cash Flows From Financing Activities
Net increase in non-interest
bearing demand and savings and
NOW account deposits ..................... 133,908 19,315 19,205
Net increase in time deposits ............. 40,258 306,437 227,659
Deposits from branch acquisitions ......... 28,112 -- --
Net increase (decrease) in
other borrowed funds ..................... 53,897 (38,456) 56,666
Repayment of long-term debt ............... (1,141) (2,384) (1,833)
Cash dividends and fractional
shares ................................... (16,073) (13,386) (10,846)
Proceeds from issuance of
common stock ............................. 5,538 4,278 3,854
Common stock repurchased .................. (9,255) (1,911) (6,311)
Net cash provided by
financing activities ..................... 235,244 273,893 288,394
Increase (Decrease) In Cash
and Cash Equivalents ..................... (76,593) 114,134 26,204
Cash and Cash Equivalents,
At Beginning of Year ..................... 245,268 131,134 104,930
Cash and Cash Equivalents,
At End of Year ........................... $ 168,675 $ 245,268 $ 131,134
Supplemental Cash Flow Information
Interest paid ............................. $ 129,257 $ 115,563 $ 81,410
Income taxes paid ......................... 17,836 12,559 10,638
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 4
Consolidated Statements of Shareholders' Equity
(Dollars in Thousands)
<TABLE>
<CAPTION>
Securities
Common Retained Valuation,
Stock Surplus Earnings Net of Tax
<S> <C> <C> <C> <C>
Balance, January 1, 1994,
as previously reported ............. $ 16,493 $ 108,154 $ 77,728 $ 1,853
Adjustment to record acquisition
of subsidiary on pooling-of-
interests basis .................... 541 2,951 693 --
Balance, January 1, 1994, as adjusted 17,034 111,105 78,421 1,853
Net income .......................... -- -- 33,727 --
Cash dividends - $.47 per share ..... -- -- (11,488) --
Cash dividends paid by
subsidiary prior to
acquisition ........................ -- -- (142) --
Stock issued under terms of
dividend reinvestment and
employee stock purchase plans ...... 125 2,597 -- --
Stock issued upon
exercise of stock options .......... 101 1,233 -- --
Stock issued in payment
of 5% stock dividend, at
market ............................. 853 15,676 (16,579) --
Common stock repurchased ............ (277) (6,034) -- --
Effect of stock issued by
subsidiary under terms of
employee stock ownership plan
prior to acquisition ............... -- 34 -- --
Net unrealized loss on
available-for-sale securities ....... -- -- -- (4,788)
Balance, December 31, 1994 .......... 17,836 124,611 83,939 (2,935)
Net income .......................... -- -- 37,312 --
Cash dividends - $.55 per
share .............................. -- -- (14,021) --
Stock issued under terms
of dividend reinvestment
and employee stock purchase
plans .............................. 152 3,524 -- --
Stock issued upon exercise
of stock options ................... 41 466 -- --
Stock issued under terms
of directors' current
stock purchase plan ................. 4 91 -- --
Stock issued in payment of
5% stock dividend,
at market .......................... 893 20,071 (20,998) --
Common stock repurchased ............ (78) (1,833) -- --
Net unrealized gain
on available-for-sale
securities ......................... -- -- -- 4,753
Balance, December 31, 1995 .......... 18,848 146,930 86,232 1,818
Net income .......................... -- -- 42,168 --
Cash dividends - $.65
per share .......................... -- -- (16,906) --
Stock issued under
terms of dividend
reinvestment and employee
stock purchase plans ............... 179 4,357 -- --
Stock issued upon exercise
of stock options ................... 93 840 -- --
Stock issued under terms
of directors' current
stock purchase plan ................ 3 88 -- --
Stock issued in payment of
5% stock dividend,
at market .......................... 944 27,105 (28,095) --
Four-for-three common
stock split ........................ 6,564 (6,564) (25) --
Common stock repurchased ............ (327) (8,928) -- --
Net unrealized loss on
available-for-sale
securities ......................... -- -- -- (1,180)
Balance, December 31, 1996 .......... $ 26,304 $ 163,828 $ 83,374 $ 638
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 5
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1. Summary of Significant Accounting Policies
Organization and Nature of Operations
First Michigan Bank Corporation (FMB) is a bank holding company with 14
subsidiary community banks engaged in the business of commercial banking (the
Banks). FMB has four non-bank subsidiaries providing trust, brokerage, credit
and title insurance services to customers of the Banks.
The Banks are engaged in the business of general commercial, retail and
mortgage banking. The Banks offer a variety of deposit products including
checking accounts, savings accounts, time deposits and short-term deposits. The
Banks conduct lending activities in the residential and commercial mortgage
markets, in the general commercial market and in the consumer installment
marketplace. These financial services and products are delivered through a
network of full-service branches, specialized offices, automatic teller machines
and various electronic delivery channels.
The principal markets for the Banks' financial services are the Michigan
communities in which each of the banks is located and the areas immediately
surrounding these communities. The Banks serve these markets through 90 branch
offices in or near these communities.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of FMB and its
subsidiaries. Upon consolidation, all significant intercompany accounts and
transactions have been eliminated. Goodwill is being amortized over periods up
to 20 years.
In March 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of."
SFAS No. 121 requires that long-lived assets and certain identifiable
intangibles held and used by an entity be reviewed for impairment and reported
at the lower of carrying amount or fair value, less cost to sell, whenever
events or changes in circumstances indicate that the carrying amount of an asset
may not be recoverable.
Management periodically reviews goodwill and other long-lived assets for
impairment based upon the projected, undiscounted net cash flows of the
subsidiaries to which the goodwill relates or the long-lived assets belong. FMB
has not experienced any impairment of its goodwill and long-lived assets.
In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities." The Statement
provides consistent standards for distinguishing transfers of financial assets
that are sales from transfers that are borrowings and for derecognition of
liabilities that have been extinguished. This Statement also requires that
liabilities and derivatives incurred or obtained as part of a transfer be
measured initially at fair value. SFAS No. 125 also amends SFAS No. 122
(discussed under "Mortgage Banking Operations") to provide further guidance on
measurement of servicing rights relating to assets transferred. The Statement is
effective for transfers, servicing or extinguishments occurring after December
31, 1996, except for certain provisions which are effective after December 31,
1997. Adoption of the accounting provisions of this standard is not expected to
have a material effect upon FMB's financial condition or results of operations.
Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities at the date of the
financial statements and the reported revenues and expenses during the reporting
period. The amount of those assets actually realized and liabilities actually
settled in future periods could differ from those estimates. The differences, if
any, would be reflected in the reported amounts of revenues and expenses in
future periods.
Cash and Cash Equivalents
For the purposes of reporting cash flows, cash equivalents include amounts due
from banks and federal funds sold. Generally, federal funds are purchased and
sold for one-day periods.
Securities
Management has identified as "available-for-sale" certain securities which may
be sold in the future to meet FMB's investment objectives of quality, liquidity
and yield and to avoid significant market value deterioration. Securities
available-for-sale are adjusted to fair market value each reporting period with
unrealized gains and losses reported as a separate component of shareholders'
equity, net of tax. Securities held-to-maturity are stated at cost adjusted for
amortization of premium and accretion of discount. The adjusted cost of the
specific security sold is used to compute gain or loss on all securities
transactions.
Loans and Allowance for Loan Losses
Loans are stated at their principal balance outstanding, net of unearned income.
The allowance for loan losses is maintained at a level considered by management
to be adequate to absorb possible future loan losses inherent in
<PAGE> 6
the current portfolio. Management's assessment of the adequacy of the allowance
is based upon type and volume of the loan portfolio, past loan loss experience,
existing and anticipated economic conditions, and other factors which deserve
current recognition in estimating possible future loan losses.
A portion of the total allowance for loan losses is related to impaired
loans. A loan is impaired when it is probable that the creditor will be unable
to collect all principal and interest amounts due according to the contracted
terms of the loan agreement. FMB considers loans that have been placed on
non-accrual status or which have been renegotiated in a troubled debt
restructuring to be impaired. The allowance for loan losses for an impaired loan
is recorded at the amount by which the outstanding recorded principal balance
exceeds the fair value of the collateral on the impaired loan. For a loan that
is not collateral-dependent, the allowance for loan losses is recorded at the
amount by which the outstanding recorded principal balance exceeds the current
best estimate of the future cash flows on the loan, discounted at the loan's
effective interest rate. FMB adopted the accounting provisions for impaired
loans prospectively as of January 1, 1995. Accordingly, the required disclosures
are presented for 1995 and 1996 only.
Net Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed by the straight-line method for financial reporting
purposes. Accelerated depreciation methods are used for income tax purposes.
Other Real Estate
Other real estate, which is included in other assets, is comprised of properties
in the possession of the subsidiary banks which are generally acquired through
foreclosure proceedings or deed in lieu of foreclosure. These properties are
held for sale and are carried at the lower of the amount of the related loan or
the fair market value of the property minus estimated costs to sell the property
(net realizable value). Losses which may result from the acquisition of such
properties are charged against the allowance for loan losses. Losses in net
realizable value during the holding period are expensed immediately, while gains
are recognized in other operating income only upon disposition.
Employee Benefit Plans
FMB has a noncontributory pension plan for the benefit of all full-time
employees and part-time employees working more than 1,000 hours per year.
Benefits under the plan are based on the employee's years of service and
compensation during the five consecutive highest paid plan years of the last ten
plan years preceding retirement. FMB's funding policy is to contribute an
actuarially-determined amount that can be deducted for federal income tax
purposes.
FMB also sponsors a defined contribution 401(k) plan for the benefit of all
employees over 21 years old. For those employees who work 1,000 or more hours
per year, FMB matches employee contributions at levels that management
determines to be appropriate.
FMB acts as a self-insurer for employees' medical, dental and accident
insurance whereby it assumes limited liabilities with the excess liability
assumed by underwriters. Claims for active employees are charged to operations
during the year in which they occur.
FMB has a postretirement benefit plan that provides medical and dental
coverage between the ages of 60 and 65 to any full-time employee who elects
early retirement after 10 or more years of service. The plan contains the same
cost-sharing features of deductibles and copayments that are contained in the
medical and dental insurance plans provided to active employees. Partial funding
of the plan is accomplished through monthly contributions to a self-insurance
trust fund which was established to cover the medical and dental benefits of
both retirees and active participants. The monthly contribution to the
self-insurance trust fund for each retiree is equivalent to the amount
contributed each month for an active participant.
Mortgage Banking Operations
FMB originates mortgage loans which it sells into the secondary market. Closed
mortgage loans are held for sale generally less than 15 days, and book value
approximates market value. FMB retains the servicing rights when it sells the
mortgage loans. Servicing income is recognized in other non-interest income when
received and expenses are recognized in operating expenses when incurred.
On January 1, 1996, FMB prospectively adopted the accounting provisions for
mortgage servicing rights promulgated by SFAS No. 122, "Accounting for Mortgage
Servicing Rights," which is an amendment to SFAS No. 65, "Accounting for Certain
Mortgage Banking Activities." SFAS No. 122 amends SFAS No. 65 to require that an
asset be recognized for the rights to service mortgage loans including those
rights that are created by the origination of mortgage loans which are sold or
securitized with the servicing rights retained by the originator. The amount of
the asset for these originated mortgage servicing rights (OMSR) is determined
based upon the relative fair value of the underlying mortgage loans without the
OMSR and the OMSR itself. Recognition of these assets results in an increase in
the gains recognized upon the sale of the underlying loans. The OMSR assets are
being amortized in proportion to and over the life of the estimated net future
servicing income. FMB
<PAGE> 7
stratifies the mortgage loans sold by sale date, term and interest rate for
purposes of applying SFAS No. 122 both for the origination valuation of the OMSR
and for evaluating the remaining book value of the OMSR assets for impairment.
Any impairment is recognized as a separate valuation allowance for each impaired
stratum. Due to the prospective adoption of these accounting provisions, the
required disclosures are presented for 1996 only. The overall impact of adoption
was not material to FMB's results of operations for the year.
Stock Options
FMB applies the intrinsic value method of accounting promulgated under
Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to
Employees," and related interpretations for its fixed-price, stock option plan.
Accordingly, no compensation cost is recognized as a result of options awarded
to employees under the plan.
SFAS No. 123, "Accounting for Stock-Based Compensation," which became
effective January 1, 1996, establishes a fair value method of accounting for all
stock-based compensation, but it allows companies to continue to account for
stock options granted to employees under the intrinsic value method in
accordance with APB Opinion 25. Companies electing to maintain their accounting
for employee stock compensation under APB Opinion 25 are required to provide pro
forma net income and earnings per share disclosures, determined as if the
company had applied the fair value accounting method under SFAS No. 123. FMB has
elected to continue to account for its stock option plans in accordance with APB
Opinion 25 and, accordingly, has provided the supplemental disclosures for 1995
and 1996 that are required by this new accounting standard.
Interest Income and Fees on Loans
Interest on loans is accrued based upon the principal balance outstanding. The
recognition of interest income is discontinued when, in the opinion of
management, there is sufficient doubt that the borrower will be able to meet the
scheduled repayments. When the accrual of interest is discontinued, the balance
of interest accrued but not collected is eliminated from income.
For impaired loans that are on non-accrual status, cash payments received
are generally applied to reduce the outstanding recorded principal balance of
the loans. However, all or a portion of a cash payment received on a non-accrual
loan may be recognized as interest income to the extent allowed by the loan
contract, provided that the borrower's financial condition or the underlying
collateral on the loan support the collection in full of the remaining
outstanding recorded principal balance of the loan. For an impaired loan that
has been renegotiated in a troubled debt restructuring, interest income is
recognized on an accrual basis according to the modified contractual terms so
long as the restructured loan continues to perform in accordance with the
modified contractual terms.
For loans with an initial term exceeding one year, loan origination and
commitment fees and related lending costs are deferred, and the net amount is
amortized as an adjustment of the related loan's yield over its original term.
The net unamortized amount related to a loan that is subsequently sold is
recognized currently as other operating income. For loans with an initial term
of one year or less, the effect of the deferral of loan fees and costs is
immaterial to the operations of FMB.
Interest Rate Swap Agreements
Interest rate swap agreements are derivative financial instruments entered into
for the purpose of hedging short-term interest sensitivity positions against the
impact of changes in interest rates. The interest rate differential to be paid
or received is recognized in interest income over the life of the agreements.
Advertising Costs
All advertising costs incurred are expensed in the period in which they are
incurred.
Income Taxes
FMB and its subsidiaries file a consolidated federal income tax return. The
parent company and its subsidiaries each report current income tax expense as
allocated under a consolidated tax sharing agreement. Deferred tax assets and
liabilities are computed by each member of the consolidated group based on the
difference between the financial statement and income tax basis of assets and
liabilities using enacted tax rates. The reversal of these temporary differences
will result in taxable or deductible amounts in future years when the related
asset or liability is recovered or settled within each entity.
Trust Assets and Income
Property, other than cash deposits, held by subsidiary banks in fiduciary or
agency capacities for their customers is not included in the accompanying
consolidated balance sheets since such property is not an asset of FMB. Trust
income is reported on an accrual basis.
Income Per Share
Income per share is computed based on the average number of shares outstanding
during each period including the assumed exercise of dilutive stock options, and
is retroactively adjusted for stock dividends and splits.
<PAGE> 8
Note 2. Acquisitions
On April 15, 1996, FMB acquired Arcadia Financial Corporation (Arcadia) and its
wholly-owned subsidiary, which was subsequently renamed FMB-Arcadia Bank. The
acquisition was effected through the exchange of 1.648 shares of FMB common
stock (653,749 shares in total) for each outstanding share of Arcadia. The
acquisition was accounted for as a pooling-of-interests. Accordingly, the
accompanying consolidated financial statements have been restated to include the
balances and results of operations of Arcadia prior to the acquisition.
Separate pro forma results of operations of the combined entities for the
periods prior to their respective acquisition dates are as follows (dollars in
thousands, except for per share data):
<TABLE>
<CAPTION>
Year ended
Three months ended December 31,
March 31, 1996 1995 1994
(unaudited) (unaudited) (unaudited)
Total interest income and non-interest income:
<S> <C> <C> <C>
FMB ................. $ 70,958 $270,651 $222,489
Arcadia ............. 2,436 9,087 7,214
Combined ............ $ 73,394 $279,738 $229,703
Net income:
FMB ................. $ 9,215 $ 35,910 $ 32,380
Arcadia ............. 364 1,402 1,347
Combined ............ $ 9,579 $ 37,312 $ 33,727
Net income per share:
FMB ................. $ 0.36 $ 1.39 $ 1.25
Combined ............ 0.36 1.40 1.26
</TABLE>
Note 3. Securities
The amortized cost and carrying value, which is estimated market value, of
securities available-for-sale are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Gross Gross Gross Gross
Amortized Unrealized Unrealized Carrying Amortized Unrealized Unrealized Carrying
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies ... $346,264 $ 1,436 $ 1,217 $346,483 $232,745 $ 1,910 $ 512 $234,143
Obligations of states
and political subdivisions .. 32,575 899 109 33,365 28,895 1,426 9 30,312
Corporate securities ......... -- -- -- -- 500 -- -- 500
Mortgage-backed securities ... 73,419 391 418 73,392 57,016 420 439 56,997
Equity securities ............ 12,220 -- -- 12,220 7,736 -- -- 7,736
Total ........................ $464,478 $ 2,726 $ 1,744 $465,460 $326,892 $ 3,756 $ 960 $329,688
</TABLE>
The carrying value and estimated market value of securities held-to-maturity are
as follows (dollars in thousands):
<TABLE>
December 31, 1996 December 31, 1995
Gross Gross Estimated Gross Gross Estimated
Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market
Value Gains Losses Value Value Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury securities and
obligations of U.S. government
corporations and agencies .... $ 48,864 $ 181 $ 110 $ 48,935 $ 81,793 $ 610 $ 144 $ 82,259
Obligations of states
and political subdivisions .. 173,170 8,935 392 181,713 178,034 12,462 98 190,398
Corporate securities ......... 118 1 -- 119 2,530 23 -- 2,553
Mortgage-backed securities ... 62,539 466 177 62,828 86,870 931 225 87,576
Total ........................ $284,691 $ 9,583 $ 679 $293,595 $349,227 $ 14,026 $ 467 $362,786
</TABLE>
<PAGE> 9
As permitted by the transition provisions in the guide to implementation of
SFAS No. 115 issued by the FASB in November 1995, FMB transferred securities
with an amortized cost of $110,674,000 from the held-to-maturity to the
available-for-sale category on December 27, 1995. The net unrealized gain on the
securities transferred amounted to $421,000.
As of December 31, 1996, all holdings of debt securities were of investment
grade with over 95% of the holdings rated A or better by either Moody's or
Standard and Poor's. Securities not rated by a nationally recognized
organization represent smaller local issues which in management's opinion, if
rated, would qualify as A or better. Securities with a carrying value of
$171,380,000 at December 31, 1996 were pledged for various purposes as required
or permitted by law.
The carrying value and estimated market value of debt securities, by
contractual maturity, are shown in the table below. Expected maturities will
differ from contractual maturities because borrowers may have the right to call
or prepay obligations with or without call or prepayment penalties. For the
purposes of this table, the maturities of mortgage-backed securities have been
determined using weighted-average expected lives, taking into account
anticipated future prepayments. Maturities of investments in debt securities as
of December 31, 1996 are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Available-for-sale Held-to-maturity
Estimated
Amortized Carrying Carrying Market
Cost Value Value Value
<S> <C> <C> <C> <C>
Due in one year or less .............. $124,785 $124,603 $ 83,011 $ 83,381
Due after one year through five years 301,597 302,587 137,689 143,063
Due after five years through ten years 22,596 22,717 60,751 63,837
Due after ten years .................. 3,280 3,333 3,240 3,314
Total debt securities ............. 452,258 453,240 $284,691 $293,595
Equity securities .................... 12,220 12,220 -- --
Total ............ $464,478 $465,460 -- --
</TABLE>
Proceeds from sales of securities during 1996, 1995 and 1994 were $27,906,000,
$6,240,000 and $16,097,000, respectively. Gross gains of $19,000, $339,000 and
$45,000 and gross losses of $103,000, $15,000 and $342,000 were realized on
those sales for 1996, 1995 and 1994, respectively.
Note 4. Loans
The composition of the loan portfolio is as follows (dollars in thousands):
<TABLE>
December 31,
1996 1995
<S> <C> <C>
Commercial, financial
and agricultural ... $ 667,200 $ 608,718
Real estate:
Commercial .... 521,283 474,887
Construction .. 225,043 155,872
Residential ... 637,991 548,869
Held-for-sale . 2,220 8,626
Consumer ............ 445,301 419,975
Total . $2,499,038 $2,216,947
</TABLE>
The Banks have granted loans to directors and executive officers of FMB and
its significant subsidiaries and to their associates. These related party loans
are made on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
unrelated persons and do not involve more than normal risk of collectibility.
The aggregate dollar amount of these loans was $28,295,000 and $31,797,000 at
December 31, 1996 and 1995, respectively. During 1996, $12,791,000 of new loans
were made, repayments amounted to $12,387,000 and changes in persons included,
decreased the aggregate loans to related parties by $3,906,000.
<PAGE> 10
Note 5. Allowance for Loan Losses
A summary of the activity in the allowance for loan losses is as follows
(dollars in thousands):
<TABLE>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Balance, at beginning of year . $ 28,031 $ 24,733 $ 21,288
Provision charged to operations 11,321 7,991 6,670
Loan losses ................... (9,918) (6,846) (5,370)
Loan loss recoveries .......... 2,286 2,153 2,145
Balance, at end of year ....... $ 31,720 $ 28,031 $ 24,733
</TABLE>
Information about FMB's impaired loans as of and for the year ended (dollars in
thousands):
<TABLE>
December 31,
1996 1995
<S> <C> <C>
Recorded balance of impaired loans, at end of year:
With related allowance for loan loss .............. $ 634 $1,683
With no related allowance for loan loss ........... 7,958 3,933
Total ............................................. $8,592 $5,616
Average balance of impaired loans for the year .... $8,108 $7,360
Allowance for loan loss related to impaired loans . $ 260 $ 609
Interest income on impaired loans:
Recorded on a cash basis .......................... $ 261 $ 67
Recorded on an accrual basis ...................... 276 169
Foregone due to impairment ........................ 1,063 801
</TABLE>
Note 6. Premises and Equipment
Premises and equipment consists of the following (dollars in thousands):
<TABLE>
December 31,
1996 1995
<S> <C> <C>
Land and improvements .... $ 17,164 $ 15,967
Building and improvements 47,654 47,869
Furniture and equipment .. 48,989 44,672
Total .................... 113,807 108,508
Accumulated depreciation . (45,140) (39,957)
Net premises and equipment $ 68,667 $ 68,551
</TABLE>
Note 7. Mortgage Loan Servicing
Mortgage loans serviced for others are not included in the accompanying
consolidated balance sheets. The total unpaid principal balance of mortgage
loans serviced for others was $815,367,834 and $709,385,980 at December 31, 1996
and 1995, respectively. Custodial escrow balances maintained in connection with
the foregoing loan servicing are included in demand deposits and amounted to
$942,060 and $1,189,389 at December 31, 1996 and 1995, respectively.
Beginning January 1, 1996, FMB began to account for the rights to service
mortgage loans that the Banks have originated and sold to others under SFAS No.
122. A summary of the activity relating to mortgage servicing rights is as
follows (dollars in thousands):
<TABLE>
December 31, 1996
<S> <C>
Book value, at beginning of year ............... $ --
Originated mortgage servicing rights capitalized 1,934
Amortization of mortgage servicing rights ...... (158)
Book value, at end of year ..................... 1,776
Impairment valuation allowance ................. (69)
Carrying value, at end of year ................. $ 1,707
</TABLE>
<PAGE> 11
Note 8. Other Borrowed Funds
Other borrowed funds consist of the following (dollars in thousands):
<TABLE>
December 31,
1996 1995
Short-term borrowings:
<S> <C> <C>
Securities sold under
agreements to repurchase .................... $ 78,543 $108,110
Other ........................................ 5,009 12,713
Total short-term borrowings .................. 83,552 120,823
Federal Home Loan Bank advances .............. 79,668 13,500
Total ........................................ $163,220 $134,323
</TABLE>
FMB's only significant category of short-term borrowings during the year is
securities sold under agreements to repurchase, of which over 95% are one-day
retail repurchase agreements. The securities underlying all of these repurchase
agreements remain under FMB's control for the duration of the agreement. The
amounts and interest rates for this category for the applicable periods are as
follows (dollars in thousands):
<TABLE>
1996 1995 1994
End of period:
<S> <C> <C> <C>
Balance ..................... $ 78,543 $108,110 $122,758
Weighted average
interest rate .............. 4.14% 3.47% 3.51%
Daily average:
Balance ..................... $ 98,904 $110,216 $109,029
Interest rate ............... 3.82% 3.84% 2.88%
Maximum amount
outstanding at
any month-end .............. $119,419 $114,630 $122,758
</TABLE>
At both December 31, 1995 and 1994, other short-term borrowings included
$10,000,000 that had been advanced under a line of credit and standby loan
agreement with another financial institution. Advances on the agreement bore
interest at seven-tenths of a percent over the daily federal funds rate. This
replaces the previous $10,000,000 line of credit. All amounts advanced on the
loan agreement were converted to a term note as of August 15, 1996, which is
recorded as long-term debt. Various of the Banks have obtained advances from the
Federal Home Loan Bank of which they are members. The advances are secured by
blanket collateral agreements covering certain unpledged assets of the
respective bank. Federal Home Loan Bank advances for all of the Banks consist of
the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
Weighted- Weighted-
Average Average
Total Interest Total Interest
Year of Maturity Outstanding Rate Outstanding Rate
<S> <C> <C> <C> <C>
1997 $27,500 5.65% $ 4,000 5.82%
1998 47,500 5.77 8,500 5.63
1999 -- -- -- --
2000 773 5.86 1,000 5.86
2001 1,000 6.36 -- --
After 2001 2,895 6.58 -- --
Total $79,668 5.77% $13,500 5.70%
</TABLE>
<PAGE> 12
Note 9. Long-Term Debt
Long-term debt consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Term note .................................... $25,000 $ --
10% Subordinated debentures .................. 4,537 4,537
Other ........................................ -- 1,141
Total ........................................ $29,537 $ 5,678
</TABLE>
The term note is payable to another financial institution. The note bears
interest at seven-tenths of a percent over the daily federal funds rate and is
scheduled to mature on August 15, 2002. The term note is unsecured and provides
for various restrictions related to nonperforming loans, equity, regulatory
capital, total indebtedness and dividend payments. FMB is in compliance with all
requirements of the note as of December 31, 1996. The 10% subordinated
debentures are payable to former shareholders of Northwestern Bank Corporation.
Interest is payable semiannually on January 30 and July 30 of each year. The
debentures are scheduled to mature on May 31, 2001. The debentures may not be
called for redemption by FMB prior to May 31, 1998. FMB does not have any
long-term debt maturing until 2001, at which time $4,537,000 will become due.
Note 10. Shareholders' Equity
Common stock consists of 50,000,000 shares authorized, at $1 par value, of which
26,304,157 and 18,848,338 were outstanding at December 31, 1996 and 1995,
respectively. On June 13, 1996, the Board of Directors declared a four-for-three
stock split to shareholders of record on July 1, 1996, payable July 26, 1996.
There are 1,904,553 common shares reserved for issuance under the dividend
reinvestment, employee stock purchase and stock option plans, and the deferred
compensation, deferred stock and current stock purchase plan for non-employee
directors. Preferred stock consists of 1,000,000 shares authorized, at no par
value, none of which are issued. There are 120,000 shares reserved for issuance
under the Shareholder Protection Rights Plan (Plan) Under the Plan, one
preferred share right (Right) was distributed as a dividend on each outstanding
share of common stock. The Plan is designed to protect shareholders against
unsolicited attempts to acquire control of FMB in a manner that does not offer a
fair price to all shareholders. Each right will entitle shareholders to buy one
one-hundredth of a share of preferred stock from FMB at an exercise price of
$20.99. The Rights will be exercisable only if a person or group acquires 15
percent or more of the common stock. If any person or group does acquire 15
percent or more of FMB common stock, each Right will entitle its holder to
purchase, for the exercise price, shares of FMB's common stock having a market
value of twice the exercise price. Also, if any person or group acquires between
15 percent and 50 percent of FMB's common stock, the Board of Directors may
elect to exchange one share of FMB's common stock or one one-hundredth of a
share of preferred stock for each Right. FMB will be entitled to redeem the
Rights at one cent per Right at any time before a 15 percent position has been
acquired.
<PAGE> 13
Note 11. Stock Option Plan
At December 31, 1996, 1,069,326 shares of common stock were reserved for
issuance in connection with FMB's stock option plan. Options may be granted to
certain executives and key employees at the fair market value of the stock on
the date of grant. The plan provides that 100% of the shares become exercisable
one year following the date granted and expire 10 years following the grant
date.
The activity in FMB's stock option plan is as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
<S> <C> <C> <C> <C> <C> <C>
Outstanding,
at beginning of year 816,605 $10.75 721,834 $9.34 676,713 $7.80
Granted ............. 162,106 20.08 161,586 16.33 182,289 13.42
Exercised ........... (65,895) 10.15 (62,626) 8.62 (133,652) 7.09
Forfeited ........... (3,780) 20.00 (4,189) 16.33 (3,516) 9.74
Outstanding,
at end of year ..... 909,036 $12.42 816,605 $10.75 721,834 $9.34
Exercisable,
at end of year ..... 750,681 $10.80 659,109 $9.41 539,441 $7.96
</TABLE>
Stratification and additional detail regarding the options outstanding at
December 31, 1996 is as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
Excercise Number Weighted-Average Weighted-Average Number Weighted-Average
Price Range Outstanding Remaining Life Exercise Price Exercisable Exercise Price
<S> <C> <C> <C> <C> <C>
$4.49-$7.16 230,972 2.84 years $ 6.22 230,972 $ 6.22
$8.60-$13.24 358,179 6.10 years 11.29 358,179 11.29
$15.48-$23.25 319,885 8.48 years 18.15 161,530 16.25
</TABLE>
The weighted-average grant-date fair value of stock options granted to employees
during the year and the weighted-average significant assumptions used to
determine those fair values, using a modified Black-Sholes option pricing model,
and the pro forma effect on earnings of the fair value accounting for stock
options under SFAS No. 123 are as follows:
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995
<S> <C> <C>
Grant-date fair value per share ........... $ 5.01 $ 5.76
Significant assumptions (weighted-average):
Risk-free interest
rate at grant date ....................... 5.50% 7.79%
Expected stock price
volatility ............................... 22.01 23.64
Expected dividend payout .................. 3.00 2.90
Expected option life* ..................... 7.5 years 10.0 years
Net income (in thousands):
As reported ............................... $ 42,168 $ 37,312
Pro forma ................................. 41,375 36,405
Net income per share:
As reported ............................... $ 1.57 $ 1.40
Pro forma ................................. 1.55 1.37
</TABLE>
*The expected option life considers historical option exercise patterns and
future changes to those exercise patterns anticipated at the date of grant.
<PAGE> 14
Note 12. Income Taxes
Income tax components are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Income tax expense:
Current ................ $ 17,153 $ 14,177 $ 10,718
Deferred ............... (874) (853) 58
Total .................. $ 16,279 $ 13,324 $ 10,776
Income tax expense
(credit) included above
which relates to
security transactions . $ (30) $ 114 $ (105)
</TABLE>
The tax effect of temporary differences which give rise to a significant portion
of FMB's deferred tax assets (liabilities) are as follows (dollars in
thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995 1994
<S> <C> <C> <C>
Allowance for loan losses .. $ 10,963 $ 9,563 $ 8,318
Accumulated depreciation ... (3,755) (3,607) (3,146)
Net prepaid retirement plans (1,680) (1,709) (1,863)
Capitalized mortgage
servicing rights .......... (598) -- --
Deferred loan fees ......... (327) (394) (316)
Deferred compensation ...... 1,015 895 1,001
Available-for-sale
securities valuation ...... (344) (977) 1,554
Other ...................... 166 162 63
Net deferred tax assets
included in other assets .. $ 5,440 $ 3,933 $ 5,611
</TABLE>
The amounts shown for income tax expense on the consolidated statements of
income are less than amounts computed by applying the statutory federal income
tax rate to income before taxes. A reconciliation of such amounts is as follows
(dollars in thousands):
<TABLE>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
<CAPTION>
Income taxes at
statutory rate ......... $ 20,456 $ 17,723 $ 15,574
Tax-exempt interest
income ................. (4,477) (4,729) (4,918)
Goodwill amortization ... 103 103 103
Other ................... 197 227 17
Income tax expense ...... $ 16,279 $ 13,324 $ 10,776
Effective income tax rate 27.9% 26.3% 24.2%
Statutory income tax rate 35.0 35.0 35.0
</TABLE>
<PAGE> 15
Note 13. Employees' Benefit Plans
Net pension cost includes the following components (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Service cost ................. $ 1,750 $ 1,535 $ 1,558
Interest cost ................ 2,535 2,152 1,959
Return on plan assets ........ (2,828) (2,339) (2,260)
Net amortization and deferral 209 367 252
Net periodic pension cost .... $ 1,666 $ 1,715 $ 1,509
Major actuarial assumptions:
Weighted-average discount rate 7.75% 7.5% 7.5%
Rate of increase in future
compensation levels ......... 4.5 5.0 5.0
Expected long-term rate of
return on plan assets ....... 9.0 9.0 9.0
</TABLE>
The pension plan's funded status and amounts recognized in FMB's consolidated
balance sheets are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Accumulated benefit obligation,
including vested benefits of
$25,674,000 and $23,120,000,
respectively ........................ $ 27,412 $ 25,054
Projected benefit obligation
for service rendered to date ........ $ 33,562 $ 31,671
Plan assets at fair value,
primarily corporate and governmental
obligations and mutual funds ........ 36,806 32,046
Plan assets in excess of projected
benefit obligation .................. 3,244 375
Unrecognized prior service cost ...... (2,013) (2,152)
Unrecognized net loss ................ 5,776 7,630
Unrecognized net transition obligation 26 40
Prepaid pension cost included in other
assets ............................... $ 7,033 $ 5,893
</TABLE>
The matching contributions to FMB's defined contribution 401(k) plan amounted to
$933,000 for 1996, $769,000 for 1995 and $568,000 for 1994.
Net periodic postretirement benefit cost includes the following components
(dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Service cost ................. $ 144 $ 18 $ 114
Interest cost ................ 124 60 76
Return on plan assets ........ (2) (2) (2)
Net amortization and deferral 76 36 61
Net periodic postretirement
benefit cost ................ $ 342 $ 112 $ 249
Major actuarial assumptions:
Weighted-average discount rate 7.75% 7.5% 7.5%
Health care cost trend rate .. 10.0 10.5 12.5
</TABLE>
Changes to, and refinement of, the retirement age assumptions during 1995 and
1996 also had a significant impact on the net periodic postretirement benefit
cost from year to year.
<PAGE> 16
The postretirement benefit plan's funded status and amounts recognized in FMB's
consolidated balance sheet are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Accumulated postretirement
benefit obligation:
Retirees ........................... $ 238 $ 168
Fully eligible active
plan participants ................. 291 562
Other active plan participants ..... 1,301 115
Total .............................. 1,830 845
Plan assets at fair value,
primarily cash .................... (55) 26
Accumulated postretirement
benefit obligation in excess
of plan assets .................... 1,885 819
Unrecognized transition obligation . (838) (908)
Unrecognized gain (loss) ........... (345) 539
Accrued other postretirement benefit
cost included in other liabilities . $ 702 $ 450
</TABLE>
The health care cost trend rate is assumed to decrease 0.5% annually through the
year 1997 and 1.0% annually through the year 2002 to a rate of 5.0% and remain
at that level thereafter. The health care cost trend rate assumption has a
significant effect on the amounts reported. An increase of 1.0% each year in the
assumed health care cost trend rate would increase the accumulated
postretirement benefit obligation at December 31, 1996 by $388,000 and the
aggregate of the service and interest cost components of the net periodic
postretirement benefit cost for 1996 by $71,000.
Note 14. Data Processing Commitments
FMB is a party to an agreement with a service company under which the latter
furnishes data processing services and equipment to FMB and certain of its
subsidiaries. FMB is required to pay minimum charges under the agreement and
additional service fees depending on the volume of accounts. FMB furnishes the
facilities to house the service center and is responsible for utilities,
maintenance and other related costs. Total expense for services under this
agreement was $4,754,000 for 1996, $3,888,000 for 1995 and $3,503,000 for 1994,
including charges for data processing and professional services and amortization
of software costs. The remaining minimum charges are payable as follows (dollars
in thousands):
<TABLE>
<S> <C>
1997 $ 4,510
1998 4,446
1999 792
Total $ 9,748
</TABLE>
Note 15. Supplemental Income Statement Information
The components of other operating expenses that are detailed pursuant to various
reporting requirements are as follows (dollars in thousands):
<TABLE>
<CAPTION>
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Other operating expenses:
Printing and supplies ... $3,704 $3,279 $2,814
Computer processing ..... 4,604 4,197 3,768
Professional services ... 1,867 2,580 2,350
Advertising and promotion 2,500 2,486 2,250
</TABLE>
<PAGE> 17
Note 16. Financial Instruments with Off-Balance-Sheet Risk
FMB is party to financial instruments with off-balance-sheet risk, all of which
are entered into for purposes other than trading. These instruments are used in
the normal course of business to meet the financing needs of its customers and
reduce its own exposure to fluctuations in interest rates and include
commitments to extend credit, letters of credit, foreign exchange forward
contracts, interest rate forward contracts and interest rate swap agreements. To
varying degrees, they involve elements of credit and interest rate risk in
excess of the amounts recognized in the consolidated balance sheets. The
contract or notional amounts of these instruments reflect the extent of
involvement FMB has in these particular categories of financial instruments.
Commitments to extend credit are agreements to lend to customers as long as
there are no violations of any conditions established in the contracts.
Commitments generally have fixed expiration dates or other termination clauses
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Letters of credit are conditional commitments issued by the Banks to
guarantee the performance of customers to third parties. Letters of credit are
written for a fixed period of time, usually one year or less, and generally
require payment of a fee. The credit risk involved in issuing letters of credit
is essentially the same as that involved in extending loan facilities to
customers.
For both commitments to extend credit and letters of credit, the Banks
evaluate each customer's credit worthiness on a case-by-case basis. The amount
of collateral obtained, if deemed necessary by the Banks upon extension of
credit, is based on management's credit evaluation. Collateral held varies but
may include accounts receivable, inventory, property, plant and equipment, and
income-producing commercial properties.
FMB enters into foreign exchange forward contracts to purchase or sell
foreign currencies at a future date at a predetermined exchange rate. These
contracts are used to assist customers with international transactions based
upon foreign denominated currencies. There is credit risk and exposure to
foreign currency exchange fluctuations inherent in these transactions to the
extent that the customer would fail to fulfill its purchase or delivery
responsibility and FMB would execute the transaction at the prevailing currency
valuation, which may be different than the value of the original contract.
Interest rate forward contracts are utilized by FMB in its mortgage banking
operations to hedge the value of residential real estate loans that are being
underwritten for anticipated sale to secondary market investors. Changes in
market interest rates, between the time that a customer receives a rate-lock
commitment and the sale of the fully-funded loan, can change the sale value of
the loan. FMB enters into forward contracts to sell exchange traded instruments
whose change in value, due to the same change in market interest rates,
substantially offsets the change in sale value of the underlying rate-locked
loans which are anticipated to be funded.
FMB and its subsidiaries enter into interest rate swap agreements as part
of the asset/liability management process to hedge its short-term interest
sensitivity position against the impact of changes in interest rates. Interest
rate swap agreements generally involve the exchange of fixed and floating
interest payment obligations without the exchange of the underlying principal
amounts. The interest rate differential to be paid or received is recognized in
interest income over the life of the agreements.
The exposure to credit loss in the event of nonperformance by the other
party to the financial instruments for commitments to extend credit and letters
of credit written is represented by the contractual amount of those instruments.
The Banks use the same credit policies in making commitments and conditional
obligations as they do for on-balance-sheet instruments. For foreign exchange
and interest rate forward contracts and interest rate swap agreements, the
notional or contract amounts do not represent exposure to credit loss. FMB
controls the credit risk for these instruments through credit approvals, limits
and monitoring procedures.
Substantially all of FMB's business during the years presented is with
customers in the State of Michigan with no group concentration of credit.
The contract or notional amounts of financial instruments with
off-balance-sheet risk, held for purposes other than trading, are as follows
(dollars in thousands):
<TABLE>
<CAPTION>
December 31,
1996 1995
<S> <C> <C>
Financial instruments whose
contract amounts represent credit risk:
Commitments to extend credit ........... $718,951 $588,727
Letters of credit ...................... 101,432 38,233
Financial instruments whose notional
or contract amounts exceed the
amount of credit risk:
Foreign exchange forward contracts ..... 924 --
Interest rate forward contract ......... 15,000 --
Interest rate swap agreements .......... 50,000 30,000
</TABLE>
Note 17. Disclosures About Estimated Fair Value of Financial Instruments
Most of FMB's assets and liabilities are considered financial instruments. Many
of FMB's financial instruments lack an available trading market, and it is the
intent and general practice of FMB to hold its financial instruments to
maturity. As a result, significant assumptions and present value calculations
were used in determining estimated fair values.
For financial instruments bearing a variable interest rate, it is presumed
that recorded book values are reasonable estimates of fair value. For all other
financial instruments, the following methods and assumptions were used to
estimate fair values:
Cash and cash equivalents
Recorded book value of cash and due from banks and federal funds sold is a
reasonable estimate of fair value.
Interest bearing deposits with banks
The present value of future cash flows from interest bearing deposits with banks
is used to determine estimated fair value. The discount rates used are the
current rates that FMB would receive for similar deposits.
Securities
Quoted market prices for the specific instruments owned, or for similar
securities, are used to determine estimated fair value.
Loans
FMB holds in its portfolio few loans of the type that are readily salable in the
secondary market, or that are commonly used to collateralize investment
securities. Therefore, the present value of estimated future cash flows from the
loan portfolio is used to determine fair value. The discount rates used are the
current rates at which loans with similar terms would be made to borrowers with
similar credit ratings.
Mortgage servicing rights
The estimated fair value of mortgage servicing rights is computed by discounting
the projected future net cash flows relating to mortgage loans sold with
servicing retained given period-end assumptions regarding, among other things,
market servicing costs and estimated long-term prepayments.
Deposits without stated maturities
Recorded book value of non-interest bearing demand deposits and savings and NOW
account deposits, representing the amount payable on demand at the reporting
date, is a reasonable estimate of fair value.
The relationship value of these instruments, commonly referred to as the
core deposit intangible, is not considered a financial instrument and is not
included in the fair value disclosure. The value of the core deposit intangible
would significantly increase the estimated fair value of FMB's financial assets.
Deposits with stated maturities
The present value of future cash flows for time deposits is used to determine
estimated fair value. The discount rates used are the current rates offered for
time deposits with similar maturities.
Other borrowed funds
For short-term borrowings, recorded book value is a reasonable estimate of fair
value due to the relatively short period between origination and expected
repayment of these instruments.
For Federal Home Loan Bank advances, the present value of future cash flows
is used to determine estimated fair value. The discount rates used are the
current rates offered for advances with similar maturities.
Long-term debt
The present value of future cash flows for long-term debt issues is used to
determine estimated fair value. The discount rate used is the average of quoted
yields to maturity on trades of similarly-rated financial institution debt
issues.
Accrued interest
Accrued interest receivable and payable on financial instruments is included in
the reported values of the underlying instruments. For accrued interest
receivable and payable, the recorded book values are reasonable estimates of
fair value.
Off-balance-sheet financial instruments held for purposes other than trading
For foreign exchange and interest rate forward contracts and interest rate swap
agreements, dealer quotes for the specific instruments owned are used to
determine estimated fair value. These values represent the estimated amount FMB
would pay to terminate the agreements, taking into account the current interest
rates. For
<PAGE> 18
commitments to extend credit and letters of credit, the fees currently charged
for similar agreements are used to determine estimated fair value. Given the
market in which it operates, FMB seldom charges fees on commitments to extend
credit.
The estimated fair values of FMB's financial instruments are as follows (dollars
in thousands):
<TABLE>
<CAPTION>
December 31, 1996 December 31, 1995
Carrying Fair Carrying Fair
Value Value Value Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents ............. $ 168,675 $ 168,675 $ 245,268 $ 245,319
Interest bearing deposits
with banks ........................... 1,716 1,731 5,370 5,348
Securities ............................ 760,012 768,915 688,590 702,149
Loans, net of allowance ............... 2,482,394 2,498,122 2,203,054 2,224,673
Mortgage servicing rights ............. 1,707 1,769 -- --
Total financial assets ................ $ 3,414,504 $ 3,439,212 $ 3,142,282 $ 3,177,489
Financial Liabilities
Deposits without stated maturities .... $ 1,373,565 $ 1,373,565 $ 1,231,982 $ 1,231,982
Deposits with stated maturities ....... 1,652,668 1,658,253 1,592,096 1,600,953
Other borrowed funds .................. 163,512 163,006 134,412 134,412
Long-term debt ........................ 29,726 29,968 5,869 6,228
Total financial liabilities ........... $ 3,219,471 $ 3,224,792 $ 2,964,359 $ 2,973,575
Off-Balance-Sheet Financial Instruments
Held For Purposes Other Than Trading
Interest rate swap agreements ......... $ (3) $ 70 $ (4) $ (607)
Foreign exchange forward contracts .... n/a 20 n/a --
Interest rate forward contracts ....... n/a 35 n/a --
Commitments to extend credit .......... n/a -- n/a --
Letters of credit ..................... n/a (347) n/a (173)
Total off-balance-sheet financial
instruments .......................... $ (3) $ (222) $ (4) $ (780)
</TABLE>
The remaining balance sheet assets and liabilities of FMB are not considered
financial instruments and have not been valued differently than is customary
under historical cost accounting. Since assets and liabilities that are not
financial instruments are excluded above, the difference between total financial
assets and financial liabilities does not, nor is it intended to, represent the
market value of FMB. Furthermore, the estimated fair value information may not
be comparable between financial institutions due to the wide range of valuation
techniques permitted, and assumptions necessitated, in the absence of an
available trading market.
<PAGE> 19
Note 18. First Michigan Bank Corporation (Parent Company Only) Financial
Information
<TABLE>
<CAPTION>
Balance Sheets (dollars in thousands)
December 31,
1996 1995
<S> <C> <C>
Assets
Cash and cash equivalents .......... $ 1,976 $ 811
Interest bearing deposits with banks 17,100 15,200
Investment in subsidiaries ......... 265,755 232,730
Net premises and equipment ......... 18,899 18,684
Other assets ....................... 14,352 11,600
Total assets ....................... $318,082 $279,025
Liabilities and Shareholders'
Equity
Liabilities:
Short-term borrowings .............. $ 11 $ 10,011
Long-term debt ..................... 29,537 4,883
Other liabilities .................. 14,390 10,303
Total liabilities .................. 43,938 25,197
Shareholders' equity ............... 274,144 253,828
Total liabilities and
shareholders' equity ............... $318,082 $279,025
</TABLE>
Statements of Income (dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended
December 31,
1996 1995 1994
<S> <C> <C> <C>
Income
From subsidiaries:
Dividends ................. $ 22,287 $ 27,600 $ 16,550
Centralized support
service fees ............. 19,853 15,696 12,093
Interest on notes
receivable ............... -- -- 17
Investment interest ....... 861 451 534
Other ..................... (8) 15 (6)
Total income .............. 42,993 43,762 29,188
Expense
Salaries and employee
benefits ................. 16,548 13,325 10,576
Interest on long-term
debt ..................... 993 508 643
Other ..................... 12,917 9,241 6,927
Total expense ............. 30,458 23,074 18,146
Income before income
tax benefit and equity
in undistributed net
income of subsidiaries ... 12,535 20,688 11,042
Income tax benefit ........ 3,210 2,225 1,723
Income before equity in
undistributed net
income of subsidiaries ... 15,745 22,913 12,765
Equity in undistributed
net income of subsidiaries 26,423 14,399 20,962
Net Income ................ $ 42,168 $ 37,312 $ 33,727
Net Income Per Share ...... $ 1.57 $ 1.40 $ 1.27
</TABLE>
<PAGE> 20
<TABLE>
<CAPTION>
Statements of Cash Flows (dollars in thousands)
Year ended December 31,
1996 1995 1994
<S> <C> <C> <C>
Cash Flows From Operating Activities
Net income ......................... $ 42,168 $ 37,312 $ 33,727
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Provision for depreciation,
amortization and accretion ........ 3,178 2,378 1,914
Deferred income taxes .............. (350) (53) 428
Other-net .......................... 1,902 2,102 (536)
Equity in undistributed net
income of subsidiaries ............ (26,423) (14,399) (20,962)
Total adjustments .................. (21,693) (9,972) (19,156)
Net cash provided by
operating activities .............. 20,475 27,340 14,571
Cash Flows From Investing
Activities
Net (increase) decrease
in interest bearing deposits
with banks ........................ (1,900) (8,200) 8,000
Purchase of premises and
equipment and other assets ........ (4,492) (3,525) (959)
Proceeds from sale of
premises and equipment ............ -- 293 2,034
Contribution to capital
of subsidiaries ................... (7,500) (4,250) (8,900)
Net cash provided by
(used in) investing
activities ........................ (13,892) (15,682) 175
Cash Flows From Financing
Activities
Increase (decrease) in
short-term borrowings ............. 15,000 -- (3)
Repayment of long-term debt ........ (346) (598) (1,497)
Cash dividends and
fractional shares ................. (16,073) (13,386) (10,703)
Proceeds from issuance
of common stock ................... 5,256 4,278 3,641
Common stock repurchased ........... (9,255) (1,911) (6,311)
Net cash used in financing
activities ........................ (5,418) (11,617) (14,873)
Increase (decrease) In Cash
and Cash Equivalents .............. 1,165 41 (127)
Cash and Cash Equivalents,
At Beginning of Year .............. 811 770 897
Cash and Cash Equivalents,
At End of Year .................... $ 1,976 $ 811 $ 770
</TABLE>
Note 19. Regulatory Restrictions
The Banks may, from time to time, be required to maintain certain average
reserve balances with the Federal Reserve Bank. During 1996 and 1995, these
reserves were $9,021,000 and $7,594,000, respectively.
Federal and state banking laws and regulations place certain restrictions
on the amount of dividends and loans that a bank must pay to its parent company.
Of the $263,349,000 in net assets of the Banks, $49,311,000 is available for
dividends to the parent company in 1997 (before considering 1997 net income),
and the remaining $214,038,000 is restricted based on minimum risk-based capital
requirements now in effect.
Note 20. Regulatory Capital Requirements
FMB and the Banks individually 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 the regulators that could have a direct
material effect on the financial statements of the Banks and of FMB as a whole.
Under the capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Banks must meet specific capital guidelines that involve
quantitative measures the Banks' assets, liabilities, and certain
off-balance-sheet items as calculated under regulatory accounting practices. In
addition, the Banks' capital amounts and classifications are subject to
qualitative judgments by the regulators about components, risk weightings and
other factors.
<PAGE> 21
The table below sets forth the quantitative measures established by regulation
to ensure capital adequacy for FMB and the Banks which are considered
significant subsidiaries (dollars in thousands):
<TABLE>
<CAPTION>
To Be Well
Capitalized Under Minimum
Prompt Corrective For Capital
Actual Action Provisions: Adequacy Purposes:
Amount Ratio Amount Ratio Amount Ratio
As of December 31, 1996
<S> <C> <C> <C> <C> <C> <C>
Total Capital
(to risk weighted assets):
FMB ..................................... $300,186 11.1% $269,505 10.0% $215,604 8.0%
FMB-First Michigan Bank ................. 114,563 10.1 113,071 10.0 90,456 8.0
FMB-First Michigan Bank-
Grand Rapids ............................ 47,311 10.5 45,096 10.0 36,077 8.0
FMB-Lumberman's Bank .................... 35,184 10.3 34,037 10.0 27,230 8.0
Tier 1 Capital
(to risk weighted assets):
FMB ..................................... $264,836 9.8% $161,703 6.0% $107,802 4.0%
FMB-First Michigan Bank ................. 102,449 9.1 67,842 6.0 45,228 4.0
FMB-First Michigan Bank-
Grand Rapids ............................ 42,102 9.3 27,057 6.0 18,038 4.0
FMB-Lumberman's Bank .................... 31,095 9.1 20,422 6.0 13,615 4.0
Tier 1 Capital
(to average assets):
FMB ..................................... $264,836 7.6% $173,252 5.0% $103,951 3.0%
FMB-First Michigan Bank ................. 102,449 7.9 64,680 5.0 38,808 3.0
FMB-First Michigan Bank-
Grand Rapids ............................ 42,102 8.0 26,300 5.0 15,780 3.0
FMB-Lumberman's Bank .................... 31,095 7.1 21,867 5.0 13,120 3.0
As of December 31, 1995
Total Capital (to risk weighted assets):
FMB ..................................... $278,229 11.9% $233,308 10.0% $186,646 8.0%
FMB-First Michigan Bank ................. 99,606 10.3 96,800 10.0 77,440 8.0
FMB-First Michigan Bank-
Grand Rapids ............................ 40,042 11.0 36,284 10.0 29,027 8.0
FMB-Lumberman's Bank .................... 31,494 10.7 29,367 10.0 23,494 8.0
Tier 1 Capital (to risk weighted assets):
FMB ..................................... $245,625 10.5% $139,985 6.0% $ 93,323 4.0%
FMB-First Michigan Bank ................. 88,571 9.2 58,080 6.0 38,720 4.0
FMB-First Michigan Bank-
Grand Rapids ............................ 35,614 9.8 21,771 6.0 14,514 4.0
FMB-Lumberman's Bank .................... 28,011 9.5 17,620 6.0 11,747 4.0
Tier 1 Capital (to average assets):
FMB ..................................... $245,625 7.8% $157,980 5.0% $ 94,788 3.0%
FMB-First Michigan Bank ................. 88,571 7.4 59,597 5.0 35,758 3.0
FMB-First Michigan Bank-
Grand Rapids ............................ 35,614 7.9 22,646 5.0 13,587 3.0
FMB-Lumberman's Bank .................... 28,011 7.1 19,658 5.0 11,795 3.0
</TABLE>
As of December 31, 1996, the most recent notifications from the Federal Deposit
Insurance Corporation have respectively categorized the Banks as
well-capitalized under the regulatory framework for prompt corrective action.
There are no conditions or events since that notification that, in the opinion
of management, have changed the categories under which any of the Banks would be
classified.
<PAGE> 22
First Michigan Bank Corporation
Holland, Michigan
We have audited the accompanying consolidated balance sheets of First Michigan
Bank Corporation and subsidiaries as of December 31, 1996 and 1995, and the
related consolidated statements of income, shareholders' equity and cash flows
for each of the three years in the period ended December 31, 1996. These
financial statements are the responsibility of FMB's management. Our
responsibility is to express an opinion on these 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 aspects, the financial position of First Michigan
Bank Corporation and subsidiaries at December 31, 1996 and 1995, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996 in conformity with generally accepted
accounting principles.
/s/ BDO Seidman, LLP
BDO Seidman, LLP
January 16, 1997
Grand Rapids, Michigan
<PAGE> 1
Exhibit 99(d)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31, June 30,
1997 1996 1996
(dollars in thousands)
Assets
<S> <C> <C> <C>
Cash and due from banks $ 152,132 $ 155,725 $ 126,942
Federal funds sold 200 12,950 1,450
Total cash and cash equivalents 152,332 168,675 128,392
Interest bearing deposits with banks 2,163 1,713 1,310
Securities:
Available-for-sale 490,042 465,460 418,194
Held-to-maturity (market values $247,584,
$293,593 and $319,723 respectively) 239,191 284,691 312,374
Loans 2,692,453 2,499,038 2,345,385
Allowance for loan losses (35,178) (31,720) (30,183)
Premises and equipment 67,967 68,667 69,489
Other assets 64,185 63,909 59,799
---------- ---------- ----------
Total assets $3,673,155 $3,520,433 $3,304,760
========= ========= =========
Liabilities and Shareholders' Equity
Deposits:
Non-interest bearing $ 367,301 $ 361,692 $ 332,384
Interest bearing:
Savings and NOW accounts 1,024,757 1,011,153 942,028
Time 1,652,310 1,643,124 1,565,525
--------- --------- ---------
Total deposits 3,044,368 3,015,969 2,839,937
Short-term borrowings 272,268 163,220 168,534
Other liabilities 37,311 37,563 33,532
Long-term debt 29,537 29,537 4,714
---------- ---------- -----------
Total liabilities 3,383,484 3,246,289 3,046,717
--------- --------- ---------
Shareholders' equity:
Preferred stock - no par value; 1,000,000
shares authorized -- -- --
Common stock - $1 par value; 50,000,000
shares authorized; issued and outstanding:
27,812,979, 26,304,157 and 19,736,038
respectively 27,813 26,304 19,736
Surplus 203,673 163,828 170,902
Retained earnings 57,672 83,374 69,951
Securities valuation, net of tax 513 638 (2,546)
----------- ----------- -----------
Total shareholders' equity 289,671 274,144 258,043
--------- --------- ----------
Total liabilities and shareholders' equity $3,673,155 $3,520,433 $3,304,760
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
<PAGE> 2
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1997 1996 1997 1996
(in thousands, except for per share data)
Interest Income
<S> <C> <C> <C> <C>
Interest and fees on loans $ 62,960 $ 53,984 $122,170 $106,896
Interest on securities:
Taxable 8,705 8,163 17,332 15,494
Tax-exempt 2,985 3,239 6,104 6,497
Other interest income 140 291 537 1,561
Total interest income 74,790 65,677 146,143 130,448
Interest Expense
Interest on deposits 32,245 29,213 64,242 59,039
Interest on short-term borrowings 3,321 1,721 5,484 3,175
Interest on long-term debt 518 122 1,017 255
Total interest expense 36,084 31,056 70,743 62,469
Net Interest Income 38,706 34,621 75,400 67,979
Provision for loan losses 4,449 2,317 7,937 4,689
Net interest income after provision for loan losses 34,257 32,304 67,463 63,290
Non-Interest Income
Service charges on deposits 3,877 3,562 7,447 6,816
Trust income 2,302 1,996 4,576 4,016
Other operating income 4,851 3,275 9,532 6,608
Securities gains (losses) -- (100) 121 (84)
Total non-interest income 11,030 8,733 21,676 17,356
Non-Interest Expense
Salaries and employee benefits 16,067 14,524 31,409 29,182
Occupancy 1,778 1,772 3,679 3,613
Equipment 1,915 1,737 3,755 3,401
Other operating 9,921 8,878 19,763 17,248
Total non-interest expense 29,681 26,911 58,606 53,444
Income Before Income Taxes 15,606 14,126 30,533 27,202
Income taxes 4,549 3,925 8,747 7,422
Net Income $ 11,057 $ 10,201 $ 21,786 $ 19,780
Net income per share $.39 $.36 $.77 $.70
Cash dividends declared per share .18 .15 .35 .29
Average shares outstanding (in thousands) 28,313 28,164 28,270 28,124
</TABLE>
See accompanying notes to financial statements.
<PAGE> 3
CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
Six months ended June 30,
1997 1996
Cash Flows From Operating Activities
<S> <C> <C>
Net income $ 21,786 $ 19,780
-------- --------
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for loan losses 7,937 4,689
Origination of loans for sale in secondary market (94,484) (125,472)
Proceeds from sale of loans 95,078 126,144
Gain on sale of loans (594) (672)
Origination of mortgage servicing rights (774) --
Realized securities (gains) losses (121) 84
Provision for depreciation, amortization and accretion 4,048 1,236
Deferred income taxes (435) (737)
Increase in interest receivable (643) (193)
Increase (decrease) in interest payable 572 (847)
Other - net 1,111 (539)
-------- --------
Total adjustments 11,695 3,693
------- -------
Net cash provided by operating activities 33,481 23,473
------- -------
Cash Flows From Investing Activities
Net (increase) decrease in interest bearing deposits with banks (450) 4,051
Purchase of securities available-for-sale (92,998) (189,209)
Proceeds from sales of securities available-for-sale 33,681 27,906
Proceeds from maturities and prepayments of securities available-for-sale 32,208 68,137
Purchase of securities held-to-maturity (1,783) (6,959)
Proceeds from maturities and prepayments of securities
held-to-maturity 50,247 43,984
Net increase in loans (197,743) (130,677)
Purchase of premises and equipment and other assets (4,570) (6,139)
-------- --------
Net cash used in investing activities (181,408) (188,906)
------- -------
Cash Flows From Financing Activities
Net increase in non-interest bearing demand, savings and NOW deposit accounts 19,212 43,262
Net increase (decrease) in time deposits 9,187 (17,065)
Net increase in short-term borrowings 109,048 34,211
Repayment of long-term debt -- (964)
Cash dividends and fractional shares (9,528) (7,696)
Proceeds from sales of stock 3,665 2,928
Common stock repurchased -- (6,119)
-----------
Net cash provided by financing activities 131,584 48,557
------- -------
Decrease in Cash and Cash Equivalents (16,343) (116,876)
Cash and Cash Equivalents, beginning of period 168,675 245,268
------- -------
Cash and Cash Equivalents, end of period $152,332 $128,392
======= =======
</TABLE>
See accompanying notes to financial statements.
<PAGE> 4
Notes to Consolidated Financial Statements
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Rule 10-01 of
Regulation S-X. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements.
1. In the opinion of management of the Company, the unaudited consolidated
financial statements contained herein include all adjustments (consisting
of only normal recurring accruals) necessary to present fairly the
consolidated financial position of the Company as of June 30, 1997, June
30, 1996 and December 31, 1996 and consolidated results of operations for
the three months and six months ended June 30, 1997 and 1996.
2. The results of operations for the three months and six months ended June
30, 1997 are not necessarily indicative of the results to be expected for
the full year.
3. The accompanying unaudited consolidated financial statements should be read
in conjunction with the Notes to Consolidated Financial Statements
contained in the Registrant's Form 10-K for the year ended December 31,
1996.
