<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C., 20549
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE PERIOD ENDED MARCH 31, 1994
OR
( ) Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ___________ to __________
Commission file number 0-7186
MICHIGAN NATIONAL CORPORATION
(Exact name of registrant as specified in its charter)
Michigan 38-0111135
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
27777 Inkster Road, Farmington Hills, MI 48334
(Address of principal executive offices)
(810) 473-3000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Common stock outstanding at April 30, 1994 - 15,205,663 SHARES
<PAGE> 2
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
FORM 10-Q
INDEX
PART I. FINANCIAL INFORMATION (UNAUDITED)
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED STATEMENT OF INCOME:
THREE MONTHS ENDED MARCH 31, 1994 AND 1993 1
CONSOLIDATED STATEMENT OF CONDITION:
MARCH 31, 1994 AND DECEMBER 31, 1993 3
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY:
THREE MONTHS ENDED MARCH 31, 1994 AND 1993 5
CONSOLIDATED STATEMENT OF CASH FLOWS:
THREE MONTHS ENDED MARCH 31, 1994 AND 1993 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 16
PART I EXHIBIT 45
PART II. OTHER INFORMATION 46
ITEM 1. LEGAL PROCEEDINGS 46
ITEM 6.(A) EXHIBITS 46
SIGNATURES 47
<PAGE> 3
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF INCOME
AND SUBSIDIARIES
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED INCREASE
MARCH 31 (DECREASE)
(IN THOUSANDS, EXCEPT PER SHARE) 1994 1993
- - -------------------------------------------------------------------------------------------------------------------------------
INTEREST INCOME
<S> <C> <C> <C>
Federal funds sold and resale agreements $4,752 $4,089 $663
Interest-bearing deposits with banks 2,276 974 1,302
Money market investments 74 44 30
Investment securities available for sale 3,532 2,022 1,510
Investment securities held to maturity 16,356 22,501 (6,145)
Trading securities 1,009 1,765 (756)
Loans and lease financing, including related fees 126,529 133,575 (7,046)
Income from covered assets 7 (7)
FDIC assistance 25 (25)
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL GUARANTEED YIELD ON COVERED ASSETS 32 (32)
Note receivable-FDIC 3,889 6,140 (2,251)
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST INCOME 158,417 171,142 (13,388)
INTEREST EXPENSE
Money market accounts 14,153 15,713 (1,560)
Savings deposits 6,776 7,215 (439)
Time deposits < $100,000 35,004 43,817 (8,813)
Time deposits > $100,000 6,192 9,446 (3,254)
Short-term borrowings 2,762 4,381 (1,619)
Long- term debt 1,536 1,636 (100)
FDIC assistance (3,286) (3,530) 244
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL INTEREST EXPENSE 63,137 78,678 (15,541)
NET INTEREST INCOME 95,280 92,464 2,153
PROVISION FOR POSSIBLE CREDIT LOSSES 6,000 12,506 (6,506)
- - -------------------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE CREDIT LOSSES 89,280 79,958 8,659
- - -------------------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges 32,830 29,017 3,813
Trust and investment services income 5,080 5,143 (63)
Mortgage banking gains, net 4,746 998 3,748
Investments available-for-sale gains, net 5,968 (5,968)
Other income 10,862 10,301 561
- - -------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST INCOME 53,518 51,427 2,091
NON-INTEREST EXPENSE
Salaries and wages 46,107 44,560 1,547
Other employee benefits 15,208 12,990 2,218
Net occupancy expense 7,652 7,337 315
Equipment expense 10,319 10,714 (395)
Outside services 7,755 7,735 20
Defaulted loan expense, net (71) 3,480 (3,551)
Amortization of purchased mortgage servicing rights 5,386 59,340 (53,954)
Other expenses 25,734 30,027 (4,293)
- - --------------------------------------------------------------------------------------------------------------------------------
TOTAL NON-INTEREST EXPENSE 118,090 176,183 (58,093)
- - --------------------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAXES 24,708 (44,798) 69,506
Income tax provision (Note I) 6,424 6,424
- - -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $18,284 ($44,798) $63,082
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Consolidated Statement of Income is continued on the next page.
1
<PAGE> 4
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF INCOME
AND SUBSIDIARIES continued
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED INCREASE
MARCH 31 (DECREASE)
(IN THOUSANDS, EXCEPT PER SHARE) 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
NET INCOME (LOSS) PER COMMON SHARE $1.19 ($3.00) $4.19
- - -------------------------------------------------------------------------------------------------------------------------------
AVERAGE COMMON SHARES OUTSTANDING 15,377 14,942 435
- - -------------------------------------------------------------------------------------------------------------------------------
CASH DIVIDENDS DECLARED PER COMMON SHARE $0.50 $0.50
- - --------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See notes to consolidated financial statements.
2
<PAGE> 5
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CONDITION
AND SUBSIDIARIES
<TABLE>
<CAPTION>
March 31, December 31,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $504,354 $518,080
Federal funds sold and resale agreements 604,600 483,000
- - -------------------------------------------------------------------------------------------------------------
Total Cash and Cash Equivalents 1,108,954 1,001,080
Interest-bearing deposits with banks 377,023 121,445
Money market investments 11,776 11,513
Investment securities available for sale (amortized cost of
$236,872 and $893 at 03/31/94 and 12/31/93, respectively) (Note C)
Mortgage-backed securities 138,979
U.S. Government and other securities 104,440 893
Investment securities held to maturity, (market value of $1,173,713
and $1,343,659 at 03/31/94 and 12/31/93, respectively) (Note C)
Mortgage-backed securities 791,425 983,765
U.S. Government and other securities 381,399 330,008
Trading securities 97,186 70,113
Residential mortgages held for sale (Note D) 342,061 583,056
Loans and lease financing (Note D) 5,979,221 6,106,829
- - -------------------------------------------------------------------------------------------------------------
Total Loans and Lease Financing 6,321,282 6,689,885
Unearned income (25,868) (18,619)
Allowance for possible credit losses (194,521) (190,992)
- - -------------------------------------------------------------------------------------------------------------
Net Loans and Lease Financing 6,100,893 6,480,274
Note receivable-FDIC 348,930 462,535
Premises and equipment, net 192,663 199,142
Due from customers on acceptances 573 612
Accrued income receivable 74,661 77,347
Purchased mortgage servicing rights, net 45,363 49,389
Capitalized excess service fees, net 6,885 6,869
Property from defaulted loans and other real estate owned, net 80,928 98,066
Other assets 266,597 279,757
- - -------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,128,675 $10,172,808
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
The Consolidated Statement of Condition is continued on the next page.
3
<PAGE> 6
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CONDITION
AND SUBSIDIARIES continued
<TABLE>
<CAPTION>
MARCH 31, DECEMBER 31,
(IN THOUSANDS EXCEPT PER SHARE AMOUNTS) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES
Non-interest bearing demand deposits $1,822,329 $1,995,940
Interest-bearing deposits:
Money market accounts 2,196,869 2,195,670
Savings deposits 1,200,945 1,183,280
Time deposits < $100,000 2,523,825 2,597,669
Time deposits > $100,000 670,332 650,677
- - -------------------------------------------------------------------------------------------------------------
Total Deposits 8,414,300 8,623,236
Short-term borrowings (Note E) 418,733 293,293
Customer acceptances outstanding 573 612
Accrued liabilities 386,764 362,955
Long-term debt 76,752 77,122
- - -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 9,297,122 9,357,218
Contingencies and Commitments (Notes F and G)
SHAREHOLDERS' EQUITY
Common stock, $10 par value, authorized 50,000,000 shares 152,038 151,764
Surplus 196,233 195,466
Retained earnings 494,239 483,572
Net unrealized gains on investment
securities available for sale (Note C) 4,255
Note receivable-ESOP (15,212) (15,212)
- - -------------------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 831,553 815,590
- - -------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $10,128,675 $10,172,808
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
Common stock outstanding 15,203,744 15,176,336
- - -------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 7
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CHANGES
AND SUBSIDIARIES IN SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
Net
unrealized
gain on
investment
Convertible securities Note
Preferred Common Retained available Receivable
(in thousands) Stock Stock Surplus Earnings for sale ESOP Total
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $6,000 $149,079 $185,759 $482,949 ($18,012) $805,775
Net income (44,798) (44,798)
Common stock issued, net 743 2,644 3,387
Cash dividends
Common stock (7,493) (7,493)
Convertible preferred stock (90) (90)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1993 6,000 149,822 188,403 430,568 (18,012) $756,781
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1994 $151,764 $195,466 $483,572 ($15,212) 815,590
Net income / (loss) 18,284 18,284
Net unrealized gain on investment securities
available for sale (Note C) 4,255 4,255
Common stock issued, net 274 767 1,041
Cash dividends
Common stock (7,617) (7,617)
- - -----------------------------------------------------------------------------------------------------------------------------------
Balance, March 31, 1994 152,038 196,233 494,239 4,255 (15,212) 831,553
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE> 8
MICHIGAN NATIONAL CORPORATION AND CONSOLIDATED STATEMENT OF CASH FLOWS
SUBSIDIARIES
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------
Three Months Ended March 31 (in thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income $18,284 ($44,798)
Adjustments to reconcile net income to net cash
(used) provided by operating activities:
Provision for possible credit losses 6,000 12,506
Depreciation and amortization expense 15,576 76,503
Net amortization(accretion) associated with investment securities 480 (276)
Write-downs of property from defaulted loans 1,523 1,505
Net deferred income taxes (7,044) (23,972)
Gain from sale of investment securities available for sale (Note C) (5,968)
Gain from sale of fixed assets (66) (81)
Gain from sale of property from defaulted loans (2,909) (726)
(Increase)decrease in operating assets:
Trading account securities (27,073) (25,289)
Accrued interest receivable 2,686 1,900
Residential mortgages held for sale 240,995 267,581
Pending investment and trading securities sales (25,826) (59,404)
Capitalized excess service fees (1,072) (1,820)
Other assets 43,277 (10,147)
Increase (decrease) in operating liabilities:
Accrued interest payable (13,201) (5,004)
Pending investment and trading securities purchases 4,572 141,263
Accrued liabilities 32,438 36,075
Other, net 830 794
- - ------------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities $289,470 $360,642
- - ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Payments for:
Purchase of investment securities available for sale ($100,735)
Purchase of investment securities held to maturity (197,341) ($224,163)
Purchase of premises and equipment (2,283) (10,669)
Purchase of mortgage servicing rights (1,360) (3,477)
Capital expenditures on property from defaulted loans (741) (2,077)
Proceeds from:
Sale of investment securities 652
Sale of investment securities available for sale 171,100
Principal collection of investment securities available for sale 400 15,560
Principal collection of investment securities held to maturity 202,041 98,449
Sale of premises and equipment 159 112
Sales and principal collection of property
from defaulted loans 17,501 10,428
Net decrease (increase) in:
Interest-bearing deposits with banks (255,578) (93,684)
Money market investments (263) (5,764)
Loans and lease financing 133,455 (100,391)
Covered assets and FDIC assistance 18,410
Note receivable-FDIC 113,605 162,293
- - ------------------------------------------------------------------------------------------------------------------------
Net cash (used) provided by investing activities ($91,140) $36,779
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
The Consolidated Statement of Cash Flows is continued on the next page.
6
<PAGE> 9
MICHIGAN NATIONAL CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS
AND SUBSIDIARIES (continued)
<TABLE>
<CAPTION>
Three Months Ended March 31 (in thousands) 1994 1993
- - ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Financing Activities
Payments for:
Long-term debt ($384) ($400)
Common stock dividends (7,617) (7,493)
Preferred stock dividends (90)
Repurchase of common stock (7) (8)
Proceeds from issuance of:
Common stock 1,048 3,394
Net (decrease)increase in:
Deposits (208,936) (392,705)
Short-term borrowings 125,440 4,255
- - ------------------------------------------------------------------------------------------------------------------------
Net cash (used) by financing activities ($90,456) ($393,047)
- - ------------------------------------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents $107,874 $4,374
Cash and cash equivalents at beginning of year 1,001,080 1,013,995
- - ------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at March 31 $1,108,954 $1,018,369
- - ------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
a.) Cash transactions:
Interest paid $76,338 $83,682
Federal income taxes paid (net of refunds) (1) 294
State taxes paid (net of refunds) 10 63
b.) Non-cash transactions in property from defaulted loan accounts:
Transfer from loans to property from defaulted loans 4,269 6,844
Loans originated to finance sales of property from defaulted loans 5,338 1,140
c.) Non-cash transactions in covered assets:
Transfer from covered assets to loans and lease financings 114
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) No taxes paid in three months ended 1993
See notes to consolidated financial statements.
Certain prior period amounts have been reclassified in order to conform to
current year presentation.
7
<PAGE> 10
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
A. BASIS OF PRESENTATION
The unaudited consolidated financial statements of Michigan National
Corporation and subsidiaries (Corporation) are prepared in accordance with
generally accepted accounting principles for interim financial information,
with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X and Item
303(b) of Regulation S-K.
In the opinion of management, the accompanying unaudited consolidated financial
statements contain all adjustments of a normal recurring nature necessary to
present fairly the consolidated operating results of the Corporation for the
three months ended March 31, 1994 and 1993, its financial position at March 31,
1994 and December 31, 1993 and cash flows for the three months ended March 31,
1994, and 1993. Certain prior period amounts were reclassified to conform with
the current period presentation. The operating results for the three months
ended March 31, 1994 are not necessarily indicative of operating results to be
expected for the year ending December 31, 1994.
The Corporation uses the equity method to account for its 49% investment in
Bloomfield Hills Bancorp, Inc., which is not materially different than
consolidation. The amount of accumulated retained earnings from this
subsidiary included in consolidated retained earnings was approximately $216
thousand at March 31, 1994. At December 31, 1993, accumulated retained
earnings of approximately $184 thousand from this subsidiary were included in
consolidated retained earnings.
These financial statements and related notes should be read in conjunction with
the Michigan National Corporation 1993 Annual Report (1993 Annual Report).
Terms used in this report are defined on page 6 of the 1993 Annual Report.
8
<PAGE> 11
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
B. ACQUISITIONS AND SALE
On May 6, 1994, the Corporation entered into an agreement with International
Bank of Commerce to sell First State Bank and Trust Company (First State) for a
cash purchase price of approximately $28 million. First State's net equity at
March 31, 1994, was $21.4 million. The transaction is subject to regulatory
approvals and is expected to be concluded in the fourth quarter, 1994.
On April 5, 1994, the Corporation entered into an agreement with Comerica
Incorporated to sell Lockwood Banc Group, Inc. (Lockwood) and its wholly owned
subsidiary, Lockwood National Bank of Houston for a cash purchase price of $44
million. Lockwood's net equity at March 31, 1994, was $28.5 million. The
transaction is subject to regulatory approvals and is expected to be concluded
in the fourth quarter, 1994.
C. INVESTMENT SECURITIES
There were no sales of securities during the three months ended March 31, 1994.
For the three months ended March 31, 1993, gross gains of $6.6 million and
gross losses of $0.6 million were realized from sales of securities classified
as available for sale. The remaining balance of the security gains category
for the three months ended March 31, 1993, consisted of non-sales related
activity, including write-offs of premiums and discounts associated with early
pay-offs of securities.
The Financial Accounting Standards Board has issued Statement of Financial
Accounting Standard (SFAS) No. 115, Accounting for Certain Investments in Debt
and Equity Securities. This Statement requires investment in equity and debt
securities be classified in three categories and accounted for as follows: (i)
debt securities that the Corporation has the positive intent and ability to
hold to maturity are classified as held-to-maturity securities and reported at
amortized cost; (ii) debt and equity securities that are bought and held
principally for the purpose of selling them in the near term are classified as
trading securities and reported at fair value, with unrealized gains and losses
included in earnings; (iii) debt and equity securities not classified as
either held-to-maturity securities or trading securities are classified as
available-for-sale securities and reported at fair value, with unrealized gains
and losses excluded from earnings and reported in a separate component of
shareholders' equity. The Statement is effective for financial statements with
fiscal years beginning after December 15, 1993, and was adopted by the
Corporation effective January 1, 1994. Upon initial application of this
Statement, the Corporation transferred securities with a book value of
approximately $135.6 million and a market value of approximately $144.7 million
to the Available for Sale portfolio from the Held to Maturity portfolio.
At March 31, 1994, securities classified as available-for-sale had net
unrealized market gains of $6.5 million reflected in book value. The after tax
effect on shareholders equity of the net unrealized market gains was $4.3
million.
9
<PAGE> 12
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
C. Investment Securities continued
- - --------------------------------------------------------------------------------
The following summarizes the book value, estimated market value, and gross
unrealized gains and losses of investment securities at March 31, 1994 and
December 31, 1993.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
(in thousands) 3/31/94 12/31/93
- - ------------------------------------------------------------------------------------------------------------------------------------
Estimated Estimated
Market Market
Gross Gross Value Gross Gross Value
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>
Investment securities
available-for-sale:
Mortgage-backed securities $131,575 $7,404 $138,979
U.S. Treasury, Government agencies
and corporations 104,770 847 103,923 $893 $893
Other securities 527 10 517
- - ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities
available-for-sale $236,872 $7,404 $857 $243,419 $893 $893
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
Amortized Amortized
Cost Gross Gross Estimated Cost 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>
Investment securities
held-to-maturity:
Mortgage-backed securities $791,425 $7,108 $8,340 $790,193 $983,765 $25,900 $2,524 $1,007,141
U.S. Treasury, Government agencies
and corporations 327,413 2,271 1,825 327,859 275,484 4,351 12 279,823
State and municipal securities 38,299 1,688 13 39,974 38,918 2,181 12 41,087
Other securities 15,687 15,687 15,606 2 15,608
- - ------------------------------------------------------------------------------------------------------------------------------------
Total investment securities
held-to-maturity $1,172,824 $11,067 $10,178 $1,173,713 $1,313,773 $32,434 $2,548 $1,343,659
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Investment securities with a book value of $556 million at March 31, 1994 were
pledged to collateralize deposits of public funds and for other purposes
required or permitted by law; at December 31, 1993, the corresponding amount
was $656 million. In addition, at December 31, 1993, mortgage-backed
investment securities with a book value of $14 million (market value of $15
million) were pledged under repurchase agreements. For the quarter ended March
31, 1994 there were no mortgage-backed securities pledged under repurchase
agreements.
- - --------------------------------------------------------------------------------
The following summarizes interest and dividend income from investment
securities for the three month periods ended March 31, 1994 and 1993.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------
1994 1993
- - -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Mortgage-backed securities $3,044 $1,816
U.S. Treasury, Government agencies
and corporations 487 206
Other securities 1
- - -----------------------------------------------------------------------------------------------------------------------
Total investment securities available for sale $3,532 $2,022
- - -----------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------
Mortgage-backed securities $11,678 $18,279
U.S. Treasury, Government agencies
and corporations 3,867 3,375
State and municipal securities 578 666
Other securities 233 181
- - -----------------------------------------------------------------------------------------------------------------------
Total investment securities held to maturity $16,356 $22,501
- - -----------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------
</TABLE>
Income from Other Securities includes dividends of $183 thousand and $136
thousand for the three months ended March, 1994 and 1993, respectively.
10
<PAGE> 13
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
D. LOANS AND LEASE FINANCING
- - ------------------------------------------------------------------------------
The following summarizes loans and lease financing (excluding Covered Assets)
at March 31, 1994 and December 31, 1993.
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
(In thousands) 3/31/94 12/31/93
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Commercial, financial & agricultural secured by real estate $927,047 $971,917
Other commercial, financial & agricultural 2,295,503 2,373,707
Commercial real estate-mortgage 1,201,482 1,238,177
Residential real estate-mortgage
mortgages held for sale 342,061 583,056
mortgages held for investments 459,674 465,904
Short-term real estate-construction 159,106 159,594
Installment 803,193 780,532
Lease financing 133,216 116,998
- - ---------------------------------------------------------------------------------------------------------------------------
Total 6,321,282 6,689,885
Unearned income 25,868 18,619
- - ---------------------------------------------------------------------------------------------------------------------------
Total $6,295,414 $6,671,266
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 14
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
E. SHORT-TERM BORROWINGS
- - ------------------------------------------------------------------------------
The following summarizes short-term borrowings at March 31, 1994 and December
31, 1993.
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ----------------------------------------------------------------------------------------------
(In thousands) 3/31/94 12/31/93
- - ----------------------------------------------------------------------------------------------
<S> <C> <C>
Federal funds purchased and repurchase agreements $247,077 $133,925
Other short-term borrowings 171,656 159,368
- - ----------------------------------------------------------------------------------------------
Total short-term borrowings $418,733 $293,293
- - ----------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE> 15
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
F. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation is party to financial instruments with off-balance sheet risk
in the normal course of business to meet the financing needs of its customers,
to reduce its own exposure to fluctuations in interest rates, and to realize
profits.
- - --------------------------------------------------------------------------------
The following summarizes financial instruments with off-balance sheet risk at
March 31, 1994 and December 31, 1993.
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
(in thousands) CONTRACT OR NOTIONAL AMOUNT
- - ----------------------------------------------------------------------------------------------------------------------------
3/31/94 12/31/93
<S> <C> <C>
Financial instruments whose contract amounts
represent credit risk:
Commitments to extend credit $3,741,765 $3,431,721
Standby and other letters of credit 265,938 221,580
Other assets sold with recourse 99,882 115,681
Financial instruments whose contract or notional
amounts exceed the amount of credit risk:
Forward and futures contracts
Commitments to purchase
Commitments to sell 487,220 701,478
Foreign exchange contracts 2,835 4,565
Options
Commitments to sell 50,000
Interest rate swap contracts 2,863,763 2,514,207
Interest rate caps 40,750 10,000
- - ----------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------
</TABLE>
13
<PAGE> 16
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
G. LEGAL PROCEEDINGS
There have been no material developments in any previously reported legal
proceedings brought against the Corporation, nor any new material legal
proceedings brought against the Corporation during the period January 1, 1994,
through April 30, 1994.
H. POSTEMPLOYMENT BENEFITS
The Financial Accounting Standards Board has issued SFAS No. 112, Employer's
Accounting for Postemployment Benefits. This Statement requires accrual of the
estimated cost of benefits provided by an employer to former or inactive
employees after employment but before retirement (e.g., salary continuation,
severance and disability benefits, job training and counseling and continuation
of benefits such as health care and life insurance coverage). Postemployment
benefit expense recognized under these requirements will replace the
"pay-as-you-go" method of accounting previously utilized by the Corporation for
certain postemployment benefits. The Statement is effective for financial
statements with fiscal years beginning after December 15, 1993. The
Corporation adopted this Statement effective January 1, 1994, and recognized
$1.5 million of personnel benefit expense during the first quarter in
connection with its adoption.
14
<PAGE> 17
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
I. INCOME TAXES
The Corporation is projecting an effective income tax rate for 1994 of 26%.
The difference between the effective tax rate and the federal statutory rate of
35% is largely due to tax exempt income from FDIC assistance received by
Independence One Bank of California, as well as tax exempt interest income from
obligations held by Michigan National Bank.
The increase in the effective income tax rate from (9.2%) in 1993 to 26% for
1994 is due to higher projected pre-tax earnings in 1994 and a lower level of
tax-exempt FDIC assistance. This has the effect of increasing the percentage
of projected taxable income relative to total projected pre-tax financial
income, resulting in a higher effective tax rate.
The Omnibus Budget Reconciliation Act of 1993, signed into law by the President
on August 10, 1993, increased the normal corporate statutory income tax rate by
1% to 35% effective January 1, 1993. This one-time adjustment, which increased
the value of the Corporation's deferred tax assets, contributed to the
Corporation's low tax rate in 1993.
15
<PAGE> 18
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
<TABLE>
<CAPTION>
MANANGEMENT'S DISCUSSION AND ANALYSIS 1994 1993 1993 1993 1993 1992
- - -------------------------------------------------------------------------------------------------------------------------------
TABLE 1 SELECTED QUARTERLY FINANCIAL INFORMATION First Fourth Third Second First Fourth
Quarter Quarter Quarter Quarter Quarter Quarter
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
OPERATING RESULTS (IN THOUSANDS)
Interest income $158,417 $169,447 $176,053 $177,591 $171,142 $187,187
Interest expense 63,137 67,616 72,646 73,682 78,678 84,274
- - -------------------------------------------------------------------------------------------------------------------------------
Net interest income 95,280 101,831 103,407 103,909 92,464 102,913
Provision for possible credit losses 6,000 7,000 8,000 12,494 12,506 15,317
Non-interest income 53,518 67,763 65,966 55,674 51,427 66,826
Non-interest expense 118,090 130,463 135,852 138,187 176,183 141,210
- - -------------------------------------------------------------------------------------------------------------------------------
Income (loss) before income taxes 24,708 32,131 25,521 8,902 (44,798) 13,212
Income tax provision (benefit) 6,424 (501) (1,506) 1,322
- - -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) $18,284 $32,632 $27,027 $8,902 ($44,798) $11,890
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Net income (loss) $1.19 $2.13 $1.77 $0.58 ($3.00) $0.78
Cash dividends declared 0.50 (1) (1) 0.50 0.50 0.50 0.50
Book value end-of-period 54.70 53.74 51.66 50.19 50.11 53.65
Market value end-of-period 61.50 57.50 58.88 56.50 60.00 51.25
Closing market value: high 65.25 62.75 59.88 61.63 64.25 52.25
Closing market value: low 55.00 57.50 54.50 52.00 50.00 44.00
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED PERIOD-END BALANCES (IN MILLIONS)
Total assets $10,129 $10,173 $10,395 $10,517 $10,442 $10,663
Earning assets 9,151 9,135 8,932 9,388 9,291 9,540
Total loans and lease financing, net of unearned income 6,295 6,671 6,697 6,929 6,534 6,731
Non-performing assets 235 255 276 290 293 304
Deposits 8,414 8,623 8,555 8,613 8,582 8,975
Long-term debt 77 77 78 81 82 83
Shareholders' equity 832 816 781 759 757 806
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED AVERAGE BALANCES (IN MILLIONS)
Total assets $9,973 $10,249 $10,390 $10,372 $10,184 $10,658
Earning assets 9,001 9,156 9,292 9,255 9,117 9,529
Total loans and lease financing, net of unearned income 6,399 6,681 6,880 6,742 6,477 6,737
Deposits 8,424 8,709 8,610 8,718 8,550 8,867
Long-term debt 77 77 79 82 82 83
Shareholders' equity 817 791 770 766 810 806
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
SELECTED FINANCIAL RATIOS
Return on average shareholders' equity 8.95% 16.50% 14.04% 4.65% (22.13%) 5.90%
Return on average total assets 0.73 1.27 1.04 0.34 (1.76) 0.45
Average equity to average total assets 8.19 7.72 7.41 7.38 7.95 7.56
Allowance to period-end loans 3.09 2.86 2.82 2.68 2.79 2.61
Non-performing assets to total loans (net of unearned
income) plus property from defaulted loans, net 3.69 3.77 4.05 4.11 4.38 4.42
Net interest spread 3.74 3.77 3.84 3.95 3.67 3.92
Net interest margin 4.50 4.64 4.65 4.74 4.38 4.67
Equity to asset ratio (period end) 8.21 8.02 7.51 7.22 7.25 7.56
Leverage ratio 7.84 7.56 7.09 6.90 7.12 7.24
Tier 1 risk based capital ratio 9.85 9.57 9.01 8.79 9.12 9.69
Total risk based capital ratio 12.03 11.73 11.16 10.99 11.34 11.91
Dividend payout ratio 42.02 (1) (1) 28.25 86.21 N/M 64.10
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
N/M = Not meaningful
Certain prior period amounts have been reclassified to conform to current period
presentation.
(1) A fourth quarter 1993 dividend of $0.50 per share was declared January 19,
1994, payable to shareholders of record as of February 1, 1994. This did
not represent a change in the Corporation's dividend policy, but rather a
change only in the timing of the dividend declaration.
16
<PAGE> 19
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
FINANCIAL REVIEW
Net income for the three months ended March 31, 1994, was $18.3 million, or
$1.19 per share, compared to a loss of $44.8 million, or $3.00 per share, for
the same period last year.
A $61.0 million decrease in amortization expense for mortgage servicing assets,
a $6.5 million decrease in the provision for possible credit losses, and a $3.6
million decrease in defaulted loan expense were the major contributors to the
earnings improvement over last year's first quarter.
Substantial write-downs of mortgage servicing intangible assets during 1993
resulted in a 68% decrease in the net book value of those assets and,
therefore, reduced amortization expense in 1994. The decrease in the provision
for possible credit losses and in defaulted loan expense is directly
attributable to improved credit quality during 1993 which continued through the
first quarter of 1994.
At March 31, 1994, the Corporation's Tier 1 Risk Based Capital Ratio was 9.85%
and the Total Risk Based Capital Ratio was 12.03% which continue to meet the
definition of the FDIC's well capitalized category for depository institutions.
As part of its initiative to restructure its core business the Corporation
has entered into agreements to sell its two Texas banks - Lockwood and First
State Bank and Trust Company (First State). On May 6, 1994, the Corporation
entered into an agreement with International Bank of Commerce to sell First
State for a cash purchase price of approximately $28 million. First State's
net equity at March 31, 1994, was $21.4 million. The transaction is subject to
regulatory approvals and is expected to be concluded in the fourth quarter,
1994.
On April 5, 1994, the Corporation entered into an agreement with Comerica
Incorporated to sell Lockwood Banc Group Inc., and its wholly owned subsidiary,
Lockwood National Bank of Houston for a cash purchase price of $44 million,
which represents a 1.6 multiple of year-end book value and 2.3 multiple of
year-end tangible book value.
17
<PAGE> 20
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
NET INTEREST INCOME
OVERVIEW
Net Interest Income increased $2.8 million and Net Interest Income on a Fully
Taxable Equivalent Basis increased $1.5 million in the first three months of
1994 compared to the same period in 1993.
The Net Interest Rate Spread and Net Interest Margin remained above five year
historical ratios. The Net Interest Rate Spread increased 7 Basis Points and
the Net Interest Margin increased 12 Basis Points in the first three months of
1994 compared to the same period last year. A significant increase in the
average balance of non-interest bearing demand deposits and effective
asset/liability management contributed to the increase in Net Interest Margin.
Please refer to Tables 2 through 4 for a presentation of various Net Interest
Margin related information.
INTEREST RATE RISK MANAGEMENT
The Corporation's Asset/Liability Committee, with the review of the Board of
Directors, sets policies regarding the management of the Net Interest Margin
and the interest rate risk of the Corporation. Policies implemented by the
Asset/Liability Committee utilize both on and off-balance sheet strategies to
manage such risk. At March 31, 1994, the Corporation was hedging the interest
rate risk associated with a portion of its prime-based, variable-rate
commercial loans with approximately $1.9 billion of interest rate swap
agreements.
The Corporation measures forecasted interest rate risk through the use of an
income forecasting simulation model. The model facilitates the forecasting of
Net Interest Income under a variety of interest rate scenarios. At March 31,
1994, the Corporation estimated that annual Net Interest Income would increase
approximately $3.8 million should a 100 Basis Point increase in the prime rate
occur. Conversely, an estimated $5.0 million of annual Net Interest Income is
at risk should a 100 Basis Point decrease in the prime rate occur.
BALANCE SHEET COMPOSITION
In the first quarter of 1994 the average balance of total earning assets
decreased $116.1 million, or 1.27%, from the same period in 1993. The average
balance of interest-bearing liabilities decreased $500.2 million, or 6.62%,
while the average balance of non- interest bearing demand deposits increased
$207.4 million in the first quarter of 1994 compared to the same period in
1993.
18
<PAGE> 21
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
EARNING ASSETS
Reductions in the average balances of the Note Receivable-FDIC and loans and
lease financing contributed to the decrease in earning assets. The average
balance of the Note Receivable-FDIC declined as a result of a $114 million
principal payment in January, 1994. The average balance of loans and lease
financing decreased $75 million primarily due to a decrease in the average
balance of residential mortgage loans of $186 million. Contributing to the
decrease in residential mortgage loans was the September 1993 sale of
approximately $300 million of prime plus mortgage loans. A slow down in
mortgage lending volume in the first quarter of 1994 due to slightly higher
mortgage interest rates and inclement weather on the east coast also
contributed to the decrease.
Partially offsetting the decrease in residential loans was the purchase of
Federal Housing Administration (FHA) insured residential mortgage loans during
the third and fourth quarters of 1993 and an increase in the average balance of
installment loans. The average balance of FHA insured loans was approximately
$129 million for the first quarter, 1994. For further discussion of the
activity in the residential mortgage loan portfolio during 1993, refer to the
Loans and Lease Financing Portfolio and Credit Risk Analysis section on page 21
of the 1993 Annual Report. Installment loans increased $124 million primarily
due to the low interest rate environment and aggressive marketing of Capital
Reserve and Equimoney loan products.
A portion of the liquidity provided by these decreases in earning assets and
the increase in demand deposits was used to pay down higher cost funding
sources and the balance invested in money market investments. Money market
investments provide the Corporation a ready source of liquidity with which to
fund future origination of loans and maturing deposit liabilities.
INTEREST-BEARING LIABILITIES
The Corporation's funding mix continued to shift during the first quarter of
1994 as it did throughout 1993 as a result of the liquidity provided by the
decrease in total earning assets and the current low interest rate environment.
The Corporation used some of the liquidity provided by the decrease in earning
assets to reduce higher cost discretionary funding sources, primarily time
deposits greater than $100,000. The average balances of lower cost savings and
money market accounts grew as a percentage of total interest-bearing
liabilities while higher cost time deposits greater than $100,000 decreased.
Also contributing to this change in deposit mix were successful pricing
strategies and customer preferences for shorter term and more liquid deposit
19
<PAGE> 22
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
products in the current low interest rate environment.
This rate environment has also induced some customers to seek higher returns
in traditional non-bank financial products, contributing to the decrease in
time deposits less than $100,000.
There was a significant decrease in the average balance of short-term
borrowings in the first quarter of 1994 compared to the same period last year.
Liquidity provided by increases in non-interest bearing demand deposits along
with the reduction in total earning assets reduced the Corporation's need for
discretionary borrowings.
EFFECT OF BALANCE SHEET COMPOSITION ON NET INTEREST MARGIN
The Net Interest Rate Spread and Net Interest Margin in the first quarter of
1994 improved 7 Basis Points and 12 Basis Points, respectively, compared to
those of the same period last year. The decline in the average rate paid on
interest bearing liabilities resulting from the favorable change in funding mix
was slightly larger than the decline in the average rate received on earning
assets.
Net Interest Margin for the first quarter of 1994 was favorably affected by a
$207 million increase in the average balance of non-interest bearing demand
deposits. The increase in non-interest bearing demand deposits resulted from
higher balances in commercial and retail banking customer accounts and the
collection of payoffs on loans in the Corporation's off-balance sheet mortgage
servicing portfolios, which are temporarily held and invested before being
remitted to investors.
The Corporation previously announced its intention to sell its two Texas banks,
Lockwood and First State Bank and Trust, during 1994 so that it can focus more
directly on its core franchises. Combined, these two banks contributed
interest earning assets with an average balance of $539.5 million, yielding
6.79%, and interest bearing liabilities with an average balance of $422.0
million and a weighted average cost of 3.15%, during the first quarter 1994.
INTEREST RATE ENVIRONMENT
On balance, interest rates declined steadily throughout 1993 before increasing
during the first quarter of 1994. In addition, the spread between the prime
rate and money market borrowing rates began to narrow during the first quarter
of 1994. Due to the Corporation's reduced reliance on money market funding
sources discussed above, its funding cost was not significantly affected by the
increase in money market borrowing rates.
20
<PAGE> 23
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
As discussed above and on page 9 of the 1993 Annual Report, the Corporation
utilizes interest rate swap agreements to hedge the interest rate risk
associated with a portion of its prime-based, variable rate commercial loans.
The rate the Corporation pays on the notional value of substantially all its
interest rate swap agreements varies with LIBOR. The narrowing of the spread
between the prime interest rate and LIBOR that occurred during the first
quarter had the effect of reducing the level of net interest income that the
Corporation received on its hedged positions.
A 25 Basis Point increase in the Corporation's prime lending rate on March 24,
1994, partially offset the negative effects that the increase in the LIBOR had
on the Corporation's hedged positions. The prime lending rate increased for
the second time during 1994 on April 19, increasing 50 Basis Points to 6.75%.
Increases in the prime lending rate have a positive effect on net interest
income because of the Corporation's overall asset sensitive position.
Further contraction of the spreads between prime and money market borrowing
rates could have the effect of reducing Net Interest Income.
21
<PAGE> 24
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -------------------------------------------------------------------------------
TABLE 2 SUMMARY OF CONSOLIDATED NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED March 31, 1994 December 31, 1993 September 30, 1993
- - -----------------------------------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE BALANCE INTEREST RATE
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $600,261 $4,752 3.21% $498,375 $3,842 3.06% $365,674 $2,823 3.06%
Interest-bearing deposits with banks 245,968 2,276 3.75% 110,324 955 3.43% 31,809 282 3.52%
Money market funds 10,695 73 2.77% 10,031 67 2.65% 9,201 62 2.67%
- - -----------------------------------------------------------------------------------------------------------------------------------
Total money market investments 856,924 7,101 3.36% 618,730 4,864 3.12% 406,684 3,167 3.09%
Investment securities available for sale
Investment securities-taxable 174,704 3,532 8.20% 891 7 3.12% 7,503 59 3.12%
Investment securities held to maturity
Investment securities-taxable 1,085,285 15,778 5.90% 1,247,769 20,355 6.47% 1,327,220 21,953 6.56%
Investment securities-tax-exempt 38,673 815 8.55% 39,099 797 8.09% 39,575 848 8.50%
Trading securities 92,551 1,123 4.92% 105,976 1,260 4.72% 168,314 1,881 4.43%
- - -----------------------------------------------------------------------------------------------------------------------------------
Sub-total investment securities 1,391,213 21,248 6.19% 1,393,735 22,419 6.38% 1,542,612 24,741 6.36%
Mark-to-market securities adjustment 862
- - -----------------------------------------------------------------------------------------------------------------------------------
Total investment securities 1,392,075 21,248 1,393,735 22,419 1,542,612 24,741
Loans and lease financing 6,398,873 126,947 8.05% 6,680,501 137,499 8.17% 6,879,707 143,368 8.27%
Covered assets and FDIC assistance
Note receivable-FDIC 352,717 5,984 6.88% 462,535 8,259 7.08% 462,535 8,519 7.31%
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets 9,000,589 161,280 7.27% 9,155,501 173,041 7.50% 9,291,538 179,795 7.68%
Allowance for possible credit losses (192,948) (191,301) (188,908)
Cash and due from banks 511,378 568,373 543,804
Other assets 654,256 716,491 743,659
- - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS $9,973,275 $10,249,064 $10,390,093
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $2,187,184 $14,153 2.62% $2,127,503 $14,986 2.79% $2,117,822 $15,462 2.90%
Savings deposits 1,194,861 6,776 2.30% 1,161,392 7,637 2.61% 1,134,487 7,675 2.68%
Time deposits < $100,000 2,560,931 29,957 4.74% 2,624,687 32,516 4.92% 2,698,401 34,090 5.01%
Time deposits > $100,000 698,963 6,184 3.59% 716,042 6,867 3.80% 754,192 7,721 4.06%
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,641,939 57,070 3.48% 6,629,624 62,006 3.71% 6,704,902 64,948 3.84%
Fed funds purchased & repo agreements 194,893 1,475 3.07% 220,977 1,696 3.04% 410,691 3,282 3.17%
Dollar repurchase agreements
Other short-term borrowings 142,320 1,287 3.67% 89,828 734 3.24% 145,466 1,178 3.21%
Subordinated notes 57,482 1,201 8.47% 57,709 1,205 8.28% 58,446 1,220 8.28%
Long-term debt 15,352 228 6.02% 15,354 233 6.02% 15,808 240 6.02%
Capital lease obligations 4,005 107 10.84% 4,148 110 10.52% 4,356 114 10.38%
- - -----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,055,991 61,368 3.53% 7,017,640 65,984 3.73% 7,339,669 70,982 3.84%
Demand deposits 1,782,393 2,079,388 1,905,196
Other liabilities 317,738 360,872 375,257
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 9,156,122 9,457,900 9,620,122
Shareholders' equity 817,153 791,164 769,971
- - -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $9,973,275 $10,249,064 $10,390,093
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income (fully taxable
equivalent basis) $99,912 $107,057 $108,813
Tax equivalent adjustment 4,632 5,226 5,406
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income $95,280 $101,831 $103,407
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread 3.74% 3.77% 3.84%
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest margin 4.50% 4.64% 4.65%
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
22
<PAGE> 25
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -------------------------------------------------------------------------------
TABLE 2 SUMMARY OF CONSOLIDATED NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT)
<TABLE>
<CAPTION>
THREE MONTHS ENDED June 30, 1993 MARCH 31, 1993
- - --------------------------------------------------------------------------------------------------------
AVERAGE AVERAGE AVERAGE AVERAGE
(IN THOUSANDS) BALANCE INTEREST RATE BALANCE INTEREST RATE
- - --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $367,004 $2,707 2.96% $541,073 $4,089 3.06%
Interest-bearing deposits with banks 152,005 1,220 3.22% 116,390 974 3.39%
Money market funds 7,817 50 2.57% 7,397 44 2.41%
- - --------------------------------------------------------------------------------------------------------
Total money market investments 526,826 3,977 3.03% 664,860 5,107 3.12%
Investment securities available for sale
Investment securities-taxable 61,981 526 3.40% 115,421 2,022 7.10%
Investment securities held to maturity
Investment securities-taxable 1,284,436 22,939 7.16% 1,200,107 21,835 7.38%
Investment securities-tax-exempt 40,702 868 8.55% 42,343 919 8.80%
Trading securities 136,627 1,628 4.78% 147,484 1,942 5.34%
- - --------------------------------------------------------------------------------------------------------
Sub-total investment securities 1,523,746 25,961 6.83% 1,505,355 26,718 7.20%
Mark-to-market securities adjustment
- - --------------------------------------------------------------------------------------------------------
Total investment securities 1,523,746 25,961 1,505,355 26,718
Loans and lease financing 6,742,123 142,702 8.49% 6,474,169 134,103 8.40%
Covered assets and FDIC assistance 2,540 32 5.11%
Note receivable-FDIC 462,535 8,778 7.61% 469,748 9,302 8.03%
- - --------------------------------------------------------------------------------------------------------
Total interest-earning assets 9,255,230 181,418 7.86% 9,116,672 175,262 7.80%
Allowance for possible credit losses (184,655) (179,584)
Cash and due from banks 543,738 493,074
Other assets 758,048 753,535
- - --------------------------------------------------------------------------------------------------------
TOTAL ASSETS $10,372,361 $10,183,697
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $2,110,664 $14,807 2.81% $2,109,653 $15,713 3.02%
Savings deposits 1,099,960 7,517 2.74% 1,024,817 7,215 2.86%
Time deposits < $100,000 2,827,961 35,982 5.10% 2,936,855 38,477 5.31%
Time deposits > $100,000 780,401 8,088 4.16% 903,338 9,438 4.24%
- - --------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 6,818,986 66,394 3.91% 6,974,663 70,843 4.12%
Fed funds purchased & repo agreements 333,313 2,592 3.12% 242,503 1,853 3.10%
Dollar repurchase agreements 29,117 310 4.27% 128,055 1,451 4.60%
Other short-term borrowings 116,182 1,006 3.47% 128,623 1,077 3.40%
Subordinated notes 58,682 1,222 8.35% 59,067 1,228 8.43%
Long-term debt 18,187 273 6.02% 18,187 270 6.02%
Capital lease obligations 4,931 134 10.90% 5,107 138 10.96%
- - --------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 7,379,398 71,931 3.91% 7,556,205 76,860 4.13%
Demand deposits 1,899,393 1,575,036
Other liabilities 328,004 242,598
- - --------------------------------------------------------------------------------------------------------
Total Liabilities 9,606,795 9,373,839
Shareholders' equity 765,566 809,858
- - --------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $10,372,361 $10,183,697
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Net interest income (fully taxable
equivalent basis) $109,487 $98,402
Tax equivalent adjustment 5,578 5,938
- - --------------------------------------------------------------------------------------------------------
Net interest income $103,909 $92,464
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Net interest rate spread 3.95% 3.67%
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
Net interest margin 4.74% 4.38%
- - --------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------
</TABLE>
23
<PAGE> 26
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - --------------------------------------------------------------------------
TABLE 3 CHANGE IN NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT)
- - --------------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter-to-Date Change in Change in Change in
Average Balance Interest Average Rate
(IN THOUSANDS) 3/31/94 vs 12/31/93 3/31/94 vs 12/31/93 3/31/94 vs 12/31/93
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $101,886 $910 0.15%
Interest-bearing deposits with banks 135,644 1,321 0.32%
Money market funds 664 6 0.12%
- - ----------------------------------------------------------------------------------------------------------------------------------
Total money market investments 238,194 2,237 0.24%
Investment securities available for sale
Investment securities-taxable 173,813 3,525 5.08%
Investment securities held to maturity
Investment securities-taxable (162,484) (4,577) -0.57%
Investment securities-tax-exempt (426) 18 0.46%
Trading securities (13,425) (137) 0.20%
- - ----------------------------------------------------------------------------------------------------------------------------------
Sub-total investment securities (2,522) (1,171) -0.19%
Mark-to-market adjustment 862
- - ----------------------------------------------------------------------------------------------------------------------------------
Total investment securities (1,660) (1,171)
Loans and lease financing (281,628) (10,552) -0.12%
Note receivable-FDIC (109,818) (2,275) -0.20%
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (154,912) (11,761) -0.23%
Allowance for possible credit losses (1,647)
Cash and due from banks (56,995)
Other assets (62,235)
- - ----------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ($275,789)
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $59,681 ($833) -0.17%
Savings deposits 33,469 (861) -0.31%
Time deposits < $100,000 (63,756) (2,559) -0.18%
Time deposits > $100,000 (17,079) (683) -0.21%
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 12,315 (4,936) -0.23%
Fed funds purchased & repo agreements (26,084) (221) 0.03%
Other short-term borrowings 52,492 553 0.43%
Subordinated notes (227) (4) 0.19%
Long-term debt (2) (5)
Capital lease obligations (143) (3) 0.32%
- - ----------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 38,351 (4,616) -0.20%
Demand deposits (296,995)
Other liabilities (43,134)
- - ----------------------------------------------------------------------------------------------------------------------------------
Total Liabilities (301,778)
Shareholders' equity 25,989
- - ----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ($275,789)
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income (fully taxable equivalent basis) ($7,145)
Tax equivalent adjustment (594)
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest income ($6,551)
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread -0.03%
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Net interest margin -0.14%
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
24
<PAGE> 27
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -------------------------------------------------------------------
TABLE 3 CHANGE IN NET INTEREST INCOME (FULLY TAXABLE EQUIVALENT)
- - -------------------------------------------------------------------
<TABLE>
<CAPTION>
Quarter-to-Date Change in Change in Change in
Average Balance Interest Average Rate
( in thousands) 3/31/94 vs 3/31/93 3/31/94 vs 3/31/93 3/31/94 vs 3/31/93
- - ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $59,188 $663 0.15%
Interest-bearing deposits with banks 129,578 1,302 0.36%
Money market funds 3,298 29 0.36%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total money market investments 192,064 1,994 0.24%
Investment securities available for sale
Investment securities-taxable 59,283 1,510 1.10%
Investment securities held to maturity
Investment securities-taxable (114,822) (6,057) -1.48%
Investment securities-tax-exempt (3,670) (104) -0.25%
Trading securities (54,933) (819) -0.42%
- - ---------------------------------------------------------------------------------------------------------------------------------
Sub-total investment securities (114,142) (5,470) -1.01%
Mark-to-market adjustment 862
- - ---------------------------------------------------------------------------------------------------------------------------------
Total investment securities (113,280) (5,470)
Loans and lease financing (75,296) (7,156) -0.35%
Covered assets and FDIC assistance (2,540) (32) -5.11%
Note receivable-FDIC (117,031) (3,318) -1.15%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (116,083) (13,982) -0.53%
Allowance for possible credit losses (13,364)
Cash and due from banks 18,304
Other assets (99,279)
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ($210,422)
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $77,531 ($1,560) -0.40%
Savings deposits 170,044 (439) -0.56%
Time deposits < $100,000 (375,924) (8,520) -0.57%
Time deposits > $100,000 (204,375) (3,254) -0.65%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits (332,724) (13,773) -0.64%
Fed funds purchased & repo agreements (47,610) (378) -0.03%
Dollar repurchase agreements (128,055) (1,451) -4.60%
Other short-term borrowings 13,697 210 0.27%
Subordinated notes (1,585) (27) 0.04%
Long-term debt (2,835) (42)
Capital lease obligations (1,102) (31) -0.12%
- - ---------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities (500,214) (15,492) -0.60%
Demand deposits 207,357
Other liabilities 75,140
- - ---------------------------------------------------------------------------------------------------------------------------------
Total Liabilities (217,717)
Shareholders' equity 7,295
- - ---------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY ($210,422)
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income (fully taxable equivalent basis) $1,510
Tax equivalent adjustment (1,306)
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest income $2,816
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread 0.07%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------------
Net interest margin 0.12%
- - ---------------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
25
<PAGE> 28
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -------------------------------------------------------------------------------
TABLE 4 VOLUME/RATE ANALYSIS (FULLY TAXABLE EQUIVALENT)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------
Quarter-to-Date 3/31/94 vs 12/31/93
Change in Interest Due to:
(IN THOUSANDS) Average Balance Average Rate Net Change
- - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $733 $177 $910
Interest-bearing deposits with banks 1,230 91 1,321
Money market funds 4 2 6
- - ------------------------------------------------------------------------------------------------------------------------------
Total money market investments 1,967 270 2,237
Investment securities available for sale
Investment securities-taxable 3,496 29 3,525
Investment securities held to maturity
Investment securities-taxable (2,736) (1,841) (4,577)
Investment securities-tax-exempt (55) 73 18
Trading securities (421) 284 (137)
- - ------------------------------------------------------------------------------------------------------------------------------
Sub-total investment securities 284 (1,455) (1,171)
Mark-to-market adjustment
- - ------------------------------------------------------------------------------------------------------------------------------
Total investment securities 284 (1,455) (1,171)
Loans and lease financing (7,817) (2,735) (10,552)
Covered assets and FDIC assistance
Note receivable-FDIC (2,031) (244) (2,275)
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (7,597) (4,164) (11,761)
Allowance for possible credit losses
Cash and due from banks
Other assets
- - ------------------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ($7,597) ($4,164) ($11,761)
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $2,017 ($2,850) ($833)
Savings deposits 1,238 (2,099) (861)
Time deposits < $100,000 (1,022) (1,537) (2,559)
Time deposits > $100,000 (207) (476) (683)
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 2,026 (6,962) (4,936)
Fed funds purchased & repo agreements (326) 105 (221)
Other short-term borrowings 451 102 553
Subordinated notes (33) 29 (4)
Long-term debt (5) (5)
Capital lease obligations (16) 13 (3)
- - ------------------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 2,097 (6,713) (4,616)
Demand deposits
Other liabilities
- - ------------------------------------------------------------------------------------------------------------------------------
Total Liabilities 2,097 (6,713) (4,616)
Shareholders' equity
- - ------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $2,097 ($6,713) ($4,616)
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest income (fully taxable equivalent basis) ($7,145)
Tax equivalent adjustment (594)
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest income ($6,551)
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest rate spread -0.03%
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
Net interest margin -0.14%
- - ------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
26
<PAGE> 29
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - -----------------------------------------------------------------------
TABLE 4 VOLUME/RATE ANALYSIS (FULLY TAXABLE EQUIVALENT)
- - -----------------------------------------------------------------------
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------
Quarter-to-Date 3/31/94 vs 3/31/93
Change in Interest Due to:
(in thousands) Average Balance Average Rate Net Change
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Federal funds sold and resale agreements $457 $206 $663
Interest-bearing deposits with banks 1,188 114 1,302
Money market funds 21 8 29
- - --------------------------------------------------------------------------------------------------------------------
Total money market investments 1,666 328 1,994
Investment securities available for sale
Investment securities-taxable 1,161 349 1,510
Investment securities held to maturity
Investment securities-taxable (1,956) (4,101) (6,057)
Investment securities-tax-exempt (78) (26) (104)
Trading securities (676) (143) (819)
- - --------------------------------------------------------------------------------------------------------------------
Sub-total investment securities (1,549) (3,921) (5,470)
Mark-to-market adjustment
- - --------------------------------------------------------------------------------------------------------------------
Total investment securities (1,549) (3,921) (5,470)
Loans and lease financing (1,566) (5,590) (7,156)
Covered assets and FDIC assistance (32) (32)
Note receivable-FDIC (2,107) (1,211) (3,318)
- - --------------------------------------------------------------------------------------------------------------------
Total interest-earning assets (3,588) (10,394) (13,982)
Allowance for possible credit losses
Cash and due from banks
Other assets
- - --------------------------------------------------------------------------------------------------------------------
TOTAL ASSETS ($3,588) ($10,394) ($13,982)
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
LIABILITIES
Money market accounts $3,326 ($4,886) ($1,560)
Savings deposits 5,064 (5,503) (439)
Time deposits < $100,000 (4,631) (3,889) (8,520)
Time deposits > $100,000 (1,941) (1,313) (3,254)
- - --------------------------------------------------------------------------------------------------------------------
Total interest-bearing deposits 1,818 (15,591) (13,773)
Fed funds purchased & repo agreements (360) (18) (378)
Dollar repurchase agreements (726) (725) (1,451)
Other short-term borrowings 120 90 210
Subordinated notes (63) 36 (27)
Long-term debt (42) (42)
Capital lease obligations (30) (1) (31)
- - --------------------------------------------------------------------------------------------------------------------
Total interest-bearing liabilities 717 (16,209) (15,492)
Demand deposits
Other liabilities
- - --------------------------------------------------------------------------------------------------------------------
Total Liabilities 717 (16,209) (15,492)
Shareholders' equity
- - --------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES & SHAREHOLDERS' EQUITY $717 ($16,209) (15,492)
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Net interest income (fully taxable equivalent basis) $1,510
Tax equivalent adjustment (1,306)
- - --------------------------------------------------------------------------------------------------------------------
Net interest income 2,816
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Net interest rate spread 0.07%
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Net interest margin 0.12%
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 30
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
LOANS AND LEASE FINANCING PORTFOLIO AND CREDIT RISK ANALYSIS
The Corporation's total loans and lease financing, net of unearned income, at
March 31, 1994, decreased $376 million, or 5.6%, from their level at December
31, 1993. Please refer to Table 5 for a presentation of the Corporation's
loans and lease financing portfolio for the five most recent quarters, and
Tables 5a and 5b, respectively, for a presentation of the Corporation's
commercial real estate loans outstanding and commercial, financial and
agricultural loans outstanding at March 31, 1994, by geographic area. Watch
Credits for the five most recent quarters are presented in Table 5.
The decrease in total loans outstanding was primarily due to decreases in the
residential real estate-mortgage and commercial loan portfolios. The balance
of residential real estate mortgage loans decreased due to a slow down in
mortgage lending volume in the first quarter of 1994. The decrease was
primarily due to slightly higher mortgage interest rates and inclement weather
on the east coast. Lower residential loan demand also contributed to the
decrease in the balance of the warehouse loan portfolio, which is included in
commercial loans.
28
<PAGE> 31
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - --------------------------------------------------------------------------------
TABLE 5 LOANS AND LEASE FINANCING PORTFOLIO
<TABLE>
<CAPTION>
Balance at: (in thousands) 03/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - ----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Commercial, financial & agricultural secured by real estate $927,047 $971,917 $913,554 $937,774 $952,130
Other commercial, financial & agricultural 2,295,503 2,373,707 2,537,150 2,533,941 2,412,832
Commerical real estate-mortgage 1,201,482 1,238,177 1,229,197 1,211,915 1,172,592
Residential real estate-mortgage
Mortgages held for sale 342,061 583,056 635,363 609,094 403,219
Mortgages held for investment 459,674 465,904 386,680 667,659 649,283
Short-term real estate-construction 159,106 159,594 156,639 167,789 207,882
Installment 803,193 780,532 751,069 722,141 673,406
Lease financing 133,216 116,998 105,122 96,006 78,549
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 6,321,282 6,689,885 6,714,774 6,946,319 6,549,893
Less: unearned income 25,868 18,619 18,192 17,450 16,025
- - ----------------------------------------------------------------------------------------------------------------------------------
Total 6,295,414 6,671,266 6,696,582 6,928,869 6,533,868
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
Watch Credits (in millions) (1) $356 $387 $450 $478 $528
- - ----------------------------------------------------------------------------------------------------------------------------------
- - ----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans classified as Watch Credits are included in the above loan balances.
29
<PAGE> 32
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
TABLE 5a. COMMERCIAL, FINANCIAL AND AGRICULTURAL LOANS OUTSTANDING AT MARCH 31,
1994 (in thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other Other
Industry (1) Michigan Midwest Northeast South States Total
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Commercial, Financial and Agricultural Loans
Secured by Real Estate Outstanding:
Finance, insurance and real estate $300,080 $14,283 $3,457 $8,309 $2,132 $328,261
Service 203,323 18,763 20,195 126 1,869 244,276
Retail Trade 71,798 1,250 80,782 2,362 156,192
Manufacturing 45,010 163 1,939 928 48,040
Automotive 51,192 1,941 53,133
Wholesale Trade 23,430 56 23,486
Transportation/utilities 11,764 11,764
Other 17,423 87 44,385 61,895
- - --------------------------------------------------------------------------------------------------------------------------
Total 724,020 36,543 104,434 12,736 49,314 927,047
- - --------------------------------------------------------------------------------------------------------------------------
Other Commercial, Financial and
Agricultural Loans Outstanding:
Finance, insurance and real estate 246,971 796 333 14,868 187,599 450,567
Service 358,222 17,918 2,067 1,026 8,260 387,493
Manufacturing 231,391 25,930 8,124 6,662 6,998 279,105
Retail Trade 266,105 8,528 1,367 9,306 2,968 288,274
Wholesale Trade 230,952 8,400 6,552 245,904
Automotive 230,350 5,008 782 236,140
Transportation/utilities 206,835 6,606 1,459 3,190 218,090
Other 58,340 179 3,061 128,350 189,930
- - --------------------------------------------------------------------------------------------------------------------------
Total 1,829,166 73,365 13,350 35,705 343,917 2,295,503
- - --------------------------------------------------------------------------------------------------------------------------
Total Commercial, Financial and
Agricultural Loans Outsatnding $2,553,186 $109,908 $117,784 $48,441 $393,231 $3,222,550
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
Percentage of geographic location to
total Commercial, Financial and
Agricultural Loans outstanding 79.23% 3.41% 3.66% 1.50% 12.20% 100.00%
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Industry categories are internally developed definitions based on the
primary market in which the borrower operates.
30
<PAGE> 33
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
TABLE 5b. SHORT-TERM COMMERCIAL REAL ESTATE - CONSTRUCTION AND COMMERCIAL REAL
ESTATE - MORTGAGE LOANS OUTSTANDING
MARCH 31, 1994 (in thousands)
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Other Other
Collateral Type Michigan Midwest Northeast South States Total
- - --------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Short-term Commercial
Real Estate-Construction:
Land development/acquisition $15,564 $129 $54,303 $69,996
Retail 15,504 15,504
Office 8,365 8,365
Residential > 4 family 4,843 39 6,801 11,683
Other 48,238 2,157 $3,163 53,558
- - --------------------------------------------------------------------------------------------------------------------
Total 92,514 168 63,261 3,163 159,106
- - --------------------------------------------------------------------------------------------------------------------
Commercial Real Estate-Mortgage:
Retail 251,634 5,902 24,386 744 282,666
Office 229,690 3,515 5,357 1,186 239,748
Residential > 4 family 159,339 1,357 3,000 35,191 198,887
Mobile home parks 82,592 9,368 $537 14,890 6,736 114,123
Industrial 113,318 4,949 1,717 4,659 124,643
Hotels 66,407 889 18,039 5,862 28,537 119,734
Warehouse 24,409 5,459 646 30,514
Other 33,068 639 254 4,175 53,031 91,167
- - --------------------------------------------------------------------------------------------------------------------
Total 960,457 32,078 18,830 59,387 130,730 1,201,482
- - --------------------------------------------------------------------------------------------------------------------
Total Commercial
Real Estate Loans Outstanding $1,052,971 $32,246 $18,830 $122,648 $133,893 $1,360,588
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
Percentage of geographic location to
Total Commercial Real Estate Loans
outstanding 77.39% 2.37% 1.38% 9.02% 9.84% 100.00%
- - --------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------
</TABLE>
31
<PAGE> 34
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
LOANS AND LEASE FINANCING PORTFOLIO AND CREDIT RISK ANALYSIS
(CONTINUED)
The level of Non-performing Assets and watch Credits at March 31, 1994,
decreased from their level at December 31, 1993. However, due to a decrease in
total loans outstanding, the percentage of Non-performing Loans to total loans
increased to 2.46% at March 31, 1994, from 2.36% at December 31, 1993. Please
refer to Table 6 for a presentation of Non-performing Assets for the five most
recent quarters and to Table 5a for a presentation of the changes in
commercial and commercial real estate Non-performing Assets during the three
months ended March 31, 1994.
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------------------
TABLE 6 NON-PERFORMING ASSETS
(in thousands) 03/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-accrual loans
Commercial, financial & agricultural secured by real estate $37,045 $36,872 $37,538 $38,658 $35,973
Other commercial, financial & agricultural 29,939 32,243 28,346 33,118 23,239
Commerical real estate-mortgage 12,443 8,886 14,046 14,655 12,847
Residential real estate-mortgage 19,437 22,271 17,627 15,700 9,996
Short-term real estate-construction 53,588 55,189 53,760 55,464 60,008
Installment 1,421 1,002 1,876 2,195 2,466
Lease financing 22 65 65
- - ---------------------------------------------------------------------------------------------------------------------------
Total 153,895 156,463 153,193 159,855 144,594
Renegotiated Loans
Commercial, financial & agricultural secured by real estate 44 47 23 23
Other commercial, financial & agricultural 85 95 115
Commerical real estate-mortgage 331 338
Short-term real estate-construction 300 313 325 350
- - ---------------------------------------------------------------------------------------------------------------------------
Total 675 698 433 468 115
- - ---------------------------------------------------------------------------------------------------------------------------
Total Non-performing Loans 154,570 157,161 153,626 160,323 144,709
- - ---------------------------------------------------------------------------------------------------------------------------
Property from defaulted loans
Commercial, financial & agricultural secured by real estate 17,344 18,998 19,832 19,654 22,898
Other commercial, financial & agricultural 6,963 7,299 4,407 5,418 13,124
Commerical real estate-mortgage 11,971 13,193 15,558 19,158 23,471
Residential real estate-mortgage
Mortgages held for investment 6,635 6,242 5,099 6,821 6,147
Short-term real estate-construction 37,091 51,084 76,535 77,791 81,156
Installment 917 937 706 836 818
Other real estate owned, net 7 313 314 315 315
- - ---------------------------------------------------------------------------------------------------------------------------
Property from defaulted loans and other real estate owned 80,928 98,066 122,451 129,993 147,929
- - ---------------------------------------------------------------------------------------------------------------------------
Total Non-performing Assets $235,498 $255,227 $276,077 $290,316 $292,638
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
Non-performing Assets to total loans (net of unearned
income) plus property from defaulted loans and other
real estate owned, net 3.69% 3.77% 4.05% 4.11% 4.38%
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
Non-performing loans to total loans, net of unearned income 2.46% 2.36% 2.29% 2.31% 2.21%
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses to
Non-performing Loans 126% 122% 123% 116% 126%
- - ---------------------------------------------------------------------------------------------------------------------------
- - ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
Amounts for June 30, 1993 and March 31, 1993 have been restated for a change in
reporting classification to exclude loans that are 90 days or more past due and
still accruing and include real estate of discontinued operations. Loans 90
days or more past due and still accruing at March 31, 1994, December 31, 1993,
September 30, 1993, June 30, 1993 and March 31, 1993 amounted to $115,967,
$118,363, $88,139, $2,483, and $4,143. At March 31, 1994, 96.9% of loans 90
day or more past due and still accruing were insured by the FHA.
32
<PAGE> 35
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
TABLE 6a. CHANGES IN COMMERCIAL AND COMMERCIAL REAL ESTATE NON-PERFORMING
ASSETS (in thousands)
- - -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
Commercial Short-Term Commercial Other
Real Estate- Commercial Loans Secured Commercial
Mortgage Real Estate- By Real Estate Total
Construction
- - --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-performing Assets at
December 31, 1993 $22,417 $106,586 $55,917 $39,542 $224,462
Activity during 1994:
Additions 2,544 1,708 2,145 1,582 7,979
Pay-downs (887) (679) (159) (1,286) (3,011)
Disposition of assets (597) (13,949) (1,267) (1,172) (16,985)
Charge-offs (447) (260) (1,178) (1,885)
Write-downs (704) (704)
Return to accrual (1) (237) (784) (892) (1,913)
Other(2) 1,952 (2,687) (455) 306 (884)
- - --------------------------------------------------------------------------------------------------------------------------
Net activity during 1994 2,328 (15,607) (1,484) (2,640) (17,403)
- - --------------------------------------------------------------------------------------------------------------------------
Non-performing Assets at
March 31, 1994 $24,745 $90,979 $54,433 $36,902 $207,059
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
Percentage of Non-Performing Asset
category to Total 11.95% 43.94% 26.29% 17.82% 100.00%
- - --------------------------------------------------------------------------------------------------------------------------
- - --------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Loans are returned to performing status after a reasonable period of
sustained performance and the borrower's financial condition has improved to
a point where doubt as to repayment of principal and interest no longer
exists.
(2) Represents net activity for assets with a carrying value generally less than
$250 thousand.
33
<PAGE> 36
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
ALLOWANCE AND PROVISION FOR POSSIBLE CREDIT LOSSES
Provisions are made to the allowance for possible loan losses in amounts
necessary to maintain the allowance at a level considered by management to be
sufficient to provide for risk of loss inherent in the loan portfolio.
Determining the adequacy of the allowance for possible loan losses involves a
disciplined quarterly analysis process. The analysis ensures that all relevant
factors affecting loan collectability are consistently applied. The analysis
of the allowance relies mainly on historical loss ratios, current general
economic and industry trends, and current and projected financial condition of
certain individual borrowers. Specific allocations of the allowance are
assigned to individual loans where serious doubt of full principal repayment
exists. General allocations of the allowance are assigned to the remaining
portfolio on the basis of historical loss factors. The historical loss factors
are determined on the basis of past charge-off experience identified by
portfolio type and, within each portfolio type, identified by risk rating. A
migration analysis is utilized to support the calculation of the allowance and
evaluate the overall reasonableness. Management believes the allowance for
possible loan loss at March 31, 1994, is adequate based on the risks identified
in the various loan categories.
The Corporation places more emphasis on estimates of a property's net
realizable values and the borrowers' equity position in the collateral, and
less emphasis on secondary collateral values and personal guarantees when
assessing the need for charge-off. The Corporation's Appraisal Review
Department is responsible for establishing and maintaining property appraisal
policies in accordance with regulatory guidelines. The frequency of
re-appraisal is based upon several factors including the loan's risk rating.
In the three month period ended March 31, 1994, the provision decreased $6.5
million, from $12.5 million in the same period in 1993 as improvements in the
area of credit quality continued. The improvement in credit quality is
evidenced by reductions in Watch Credits, Non-performing Assets and net
charge-offs during 1993 and the first three months of 1994.
While the provision for possible credit losses decreased year-over-year, the
allowance for possible credit losses as a percentage of Non-performing Loans
was 126% at both March 31, 1994 and 1993. The allowance for possible credit
losses as a percentage of total period-end loans improved to 3.09% at March 31,
1994, from 2.79% at March 31 last year.
34
<PAGE> 37
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - ------------------------------------------------------------------------------
TABLE 7 ANALYSIS OF THE ALLOWANCE FOR POSSIBLE CREDIT LOSSES
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------
(in thousands) Three Months Ended 03/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - -----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Beginning balance $190,992 $189,055 $185,399 $182,101 $175,471
Charge-offs
Commercial, financial & agricultural secured by real-estate 260 1,190 716 851 2,075
Other commercial, financial & agricultural 1,178 2,718 233 6,499 2,048
Commerical real estate-mortgage 447 276 463 2,691 888
Residential real estate-mortgage 440 284 258 748
Short-term real estate-construction 3,000 1,000
Installment 1,903 2,054 2,187 1,976 1,795
Lease financing 15 51
- - -----------------------------------------------------------------------------------------------------------------------------
Total 4,228 6,537 6,908 12,765 7,806
Recoveries
Commercial, financial & agricultural secured by real-estate 76 100 704 90 24
Other commercial, financial & agricultural 1,030 683 577 1,529 1,196
Commerical real-estate--mortgage 173 268 396 631 200
Residential real-estate--mortgage 4 9
Short-term real-estate--construction 1 1 361 1 35
Installment 473 417 526 439 466
Lease financing 0 5 1
- - -----------------------------------------------------------------------------------------------------------------------------
Total 1,757 1,474 2,564 2,691 1,930
Net charge-offs 2,471 5,063 4,344 10,074 5,876
Additions:
Provisions charged to operating expense 6,000 7,000 8,000 12,494 12,506
Allowance of subsidiary purchased 878
- - -----------------------------------------------------------------------------------------------------------------------------
Ending balance $194,521 $190,992 $189,055 $185,399 $182,101
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
Allowance for possible credit losses to period-end loans 3.09% 2.86% 2.82% 2.68% 2.79%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
CHARGE-OFF RATIOS
- - -----------------------------------------------------------------------------------------------------------------------------
Quarter-to-Date 03/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - -----------------------------------------------------------------------------------------------------------------------------
Annualized net charge-offs to average
loans, net of unearned income 0.15% 0.30% 0.25% 0.60% 0.36%
- - -----------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------
</TABLE>
35
<PAGE> 38
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
NON-INTEREST INCOME AND NON-INTEREST EXPENSE
For the first quarter of 1994, non-interest income increased $2.1 million and
non-interest expenses decreased $58.1 million over the same period in 1993.
Substantial write-downs of mortgage servicing intangible assets during 1993
resulted in a 68% decrease in the net book value of those assets. This lower
book value resulted in reductions in amortization expense of capitalized excess
service fees of $7.1 million and purchased mortgage servicing rights of $54.0
million in the first quarter 1994.
Non-interest income (excluding amortization expense for capitalized excess
service fee assets) for the first quarter 1994 was $5.1 million lower than last
year's first quarter principally due to securities gains of $6.0 million
realized in the first quarter 1993. In addition, mortgage servicing fees were
$5.8 million lower than last year's first quarter due principally to the fourth
quarter 1993 sale of servicing rights for approximately $2.5 billion of loans
and to accelerated prepayments in the servicing portfolio throughout 1993. The
decline in mortgage servicing fees was offset by a $3.7 million increase in
mortgage banking secondary marketing gains and a total $2.3 million increase in
deposit account and merchant card processing fee income.
Non-interest expense (excluding amortization expense of purchased mortgage
servicing rights) in the first quarter 1994 was $4.1 million lower than the
first quarter 1993 principally due to a decrease in defaulted loan expense.
Gains from the sale of real estate owned and lower operating expenses resulted
in net defaulted loan income of $71 thousand in the first quarter 1994 compared
to net expense of $3.5 million last year. A $1.0 million decline in the
provision for foreclosure costs on residential mortgage loans serviced is
attributable to a smaller servicing portfolio in the first quarter 1994
compared to the same period last year.
Partially offsetting the above decreases in non-interest expenses was an
increase in employee benefit costs. The Corporation recognized $1.5 million of
expense in connection with the adoption of SFAS No. 112, Employer's Accounting
for Postemployment Benefits, during the first quarter 1994. The expense
recognized under SFAS No. 112 replaced the pay-as-you-go method of accounting
previously used by the Corporation for certain postretirement benefit expenses.
Also contributing to the increase in employee benefit costs was a change in the
discount rate used in determining the actuarial present value of projected
pension and postretirement benefit obligations. This change in discount rate
from 8.5% at December 31, 1992, to 7.0% at December 31, 1993, contributed to a
36
<PAGE> 39
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
$0.9 million increase in both postretirement and pension expense in the first
quarter 1994. The Corporation expects that cost savings from a change in the
retiree health insurance plan will mitigate the increases in postretirement
and pension expense beginning in the second quarter 1994.
The major components of the Corporation's non-interest income and non-interest
expense are presented in Table 8 and Table 9, respectively, for the five most
recent quarters. Also, refer to Table 10 Business Review for summary
financial information regarding the Corporations principal subsidiaries.
37
<PAGE> 40
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - --------------------------------------------------------------------------------
TABLE 8 NON-INTEREST INCOME
- - --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended (in thousands) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Service charges on deposit accounts 15,113 15,117 15,176 15,362 $13,888
Merchant card processing fees 4,515 4,943 4,578 4,319 3,465
Mortgage servicing fees 10,741 14,297 15,482 16,656 16,512
Amortization of capitalized excess service fees (1,056) (1,750) (4,711) (4,266) (8,200)
Loan service charges 3,517 3,058 2,918 1,955 3,352
- - -------------------------------------------------------------------------------------------------------------------------------
Service charges 32,830 35,665 33,443 34,026 29,017
Trust and investment services income 5,080 4,923 4,619 4,837 5,143
Mortgage banking gains, net 4,746 6,919 16,984 4,681 998
Gains(losses) from sale of mortgage servicing rights 9,273 53
Investments available for sale gains, net 12 160 5,968
Other Income:
Trading profits (losses) (379) 405 195 818 950
Other 11,241 10,578 10,713 11,099 9,351
- - -------------------------------------------------------------------------------------------------------------------------------
Other income 10,862 10,983 10,908 11,917 10,301
- - -------------------------------------------------------------------------------------------------------------------------------
Total Non-Interest Income $53,518 $67,763 $65,966 $55,674 $51,427
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
38
<PAGE> 41
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
- - ------------------------------------------------------------------------------
TABLE 9 NON-INTEREST EXPENSE
- - ------------------------------------------------------------------------------
<TABLE>
<CAPTION>
- - -------------------------------------------------------------------------------------------------------------------------------
Three Months Ended (in thousands) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Salaries and wages $46,107 $45,663 $47,489 $44,586 $44,560
Other employee benefits 15,208 12,760 12,198 13,257 12,990
Net occupancy 7,652 7,615 7,460 7,529 7,337
Equipment 10,319 10,570 9,748 10,600 10,714
Outside services 7,755 9,652 8,795 8,052 7,735
Defaulted loan expense, net
Writedowns and losses from sale 1,900 4,451 4,379 3,542 1,903
Gains from sale (3,234) (1,451) (1,077) (2,149) (827)
Other operating expenses, net 1,263 3,177 2,724 1,426 2,404
Amortization of purchased mortgage servicing rights 5,386 9,850 14,154 21,654 59,340
Other Expenses:
FDIC Insurance 5,386 5,392 5,406 5,526 5,474
Assets held for sale, net (income)loss 64 (378) 8 (92) (129)
Communications 2,321 2,180 2,434 2,322 2,441
Stationery and supplies 2,249 2,831 2,264 2,382 2,466
Advertising 1,619 2,218 1,971 2,060 1,906
Michigan single business tax 2,181 583 1,827 2,062 2,209
Postage 1,567 1,546 1,470 1,589 1,631
Amortization of goodwill 311 314 300 300 223
Uncollected interest on early payoffs of loans serviced 1,799 3,588 3,648 2,827 1,901
Provision for foreclosure costs on loans serviced 975 580 873 837 1,985
Other 7,262 9,322 9,781 9,877 9,920
- - -------------------------------------------------------------------------------------------------------------------------------
Other expenses 25,734 28,176 29,982 29,690 30,027
- - -------------------------------------------------------------------------------------------------------------------------------
Total non-interest expense $118,090 $130,463 $135,852 $138,187 $176,183
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
Net overhead ratio (1) 2.87% 2.74% 3.01% 3.57% 5.47%
Efficiency ratio (2) 76.96% 74.63% 77.73% 83.67% 117.59%
- - -------------------------------------------------------------------------------------------------------------------------------
- - -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Non-interest expense less non-interest income divided by average earning
assets.
(2) Non-interest expense divided by the sum of net interest income on a fully
taxable basis and non-interest income.
39
<PAGE> 42
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
- - --------------------------------------------------------------------------------------------------------------------------------
TABLE 10 BUSINESS REVIEW
- - --------------------------------------------------------------------------------------------------------------------------------
MNB
(excluding IOMC) IOMC IOBOC
Three Months Ended March 31 (in thousands) 1994 1993 1994 1993 1994 1993
- - --------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for possible credit losses $75,324 $66,272 $3,210 $3,589 $5,354 $5,785
Non-interest income 34,663 36,235 16,615 18,072 713 557
Gains from sale of mortgage servicing rights
Amortization of capitalized excess service fees (1,056) (8,200)
Amortization of purchased mortgage servicing rights (5,386) (59,340)
Other non-interest expense (80,597) (79,660) (19,901) (21,390) (5,092) (4,493)
-------- -------- -------- -------- -------- --------
Income before taxes $29,390 $22,847 ($6,518) ($67,269) $975 $1,849
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
At March 31
Total assets $8,661,587 $9,097,583 $764,649 $1,105,107 $756,567 $856,187
Total Liabilities $8,007,654 $8,494,364 $738,923 $1,069,131 $652,818 $731,943
Total Equity $653,933 $603,219 $25,726 $35,976 $103,749 $124,244
Mortgage Servicing Portfolio :
Originated Servicing $3,863 $4,187
Purchased Servicing $5,076 $9,862
-------- --------
Total $8,939 $14,049
-------- --------
-------- --------
</TABLE>
(1) Amounts include intercompany eliminations
Certain prior period amounts have been reclassified to conform to current
period presentation.
40
<PAGE> 43
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
TABLE 10 BUSINESS REVIEW (Continued)
- - -----------------------------------------------------------------------------------------------------------------------------------
Texas Bank Holding Company and Consolidated
Subsidiaries other operations (1) MNC
Three Months Ended March 31 (in thousands) 1994 1993 1994 1993 1994 1993
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income after
provision for possible credit losses $5,598 $4,419 ($206) ($107) $89,280 $79,958
Non-interest income 1,539 1,966 1,044 2,797 54,574 59,627
Gains from sale of mortgage servicing rights
Amortization of capitalized excess service fees (1,056) (8,200)
Amortization of purchased mortgage servicing rights (5,386) (59,340)
Other non-interest expense (5,244) (3,739) (1,870) (7,561) (112,704) (116,843)
-------- -------- -------- -------- -------- --------
Income before taxes $1,893 $2,646 ($1,032) ($4,871) $24,708 ($44,798)
-------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- --------
At March 31
Total assets $594,302 $497,277 ($648,432) ($1,114,016) $10,128,673 $10,442,138
Total Liabilities $544,332 $458,248 ($646,607) ($1,068,328) $9,297,120 $9,685,358
Total Equity $49,970 $39,029 ($1,825) ($45,688) $831,553 $756,780
</TABLE>
(1) Amounts include intercompany eliminations
Certain prior period amounts have been reclassified to conform to current
period presentation.
41
<PAGE> 44
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
MANAGEMENT'S DISCSSION AND ANALYSIS
INCOME TAX PROVISION
The Corporation is projecting an effective income tax rate for 1994 of 26%.
The difference between the effective tax rate and the federal statutory rate of
35% is largely due to tax exempt income from FDIC assistance received by
Independence One Bank of California, as well as tax exempt interest income from
obligations held by Michigan National Bank.
The increase in the effective income tax rate from (9.2%) in 1993 to 26% for
1994 is due to higher projected pre-tax earnings in 1994 and a lower level of
tax-exempt FDIC assistance. This has the effect of increasing the percentage
of projected taxable income relative to total projected pre-tax financial
income, resulting in a higher effective tax rate.
The Omnibus Budget Reconciliation Act of 1993, signed into law by the President
on August 10, 1993, increased the normal corporate statutory income tax rate by
1% to 35% effective January 1, 1993. This one-time adjustment, which increased
the value of the Corporation's deferred tax assets, contributed to the
Corporation's low tax rate in 1993.
CAPITAL RESOURCES
The capital position of the Corporation continues to be an important factor in
developing corporate strategies and achieving established goals. Management
reviews the various capital measures weekly and takes appropriate action to
ensure that they are within established internal and external guidelines.
Management believes the Corporation's capital position, which exceeds
guidelines established by industry regulators, is adequate to support its
various businesses.
The Office of the Comptroller of the Currency announced a proposed rulemaking
to amend the agency's capital adequacy rules to explicitly include in the Tier
1 capital ratio net unrealized gains and losses on securities classified as
available-for-sale resulting from the adoption of SFAS No. 115. Under SFAS No.
115, which the Corporation adopted effective January 1, 1994, these net
unrealized holding gains and losses are reported as a separate component of
stockholders' equity. Stockholders' equity is a major component of risk-based
capital and current capital adequacy rules exclude these net unrealized gains
and losses from stockholders' equity. The proposed rulemaking would amend the
definition of stockholders' equity to include adjustments for both unrealized
gains and losses on available-for-sale securities under SFAS No. 115.
42
<PAGE> 45
<TABLE>
<CAPTION>
- - -----------------------------------------------------------------------------------------------------------------------------------
TABLE 11 CAPITAL RATIOS
Quarter Ended (in thousands) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Tier 1:
Common shareholders' equity $827,323 $815,590 $753,822 $733,564 $730,884
Convertible preferred stock 6,000
Intangible assets (13,901) (14,279) (14,239) (14,702) (10,550)
PMSR Capital Limitation (1,697) (403)
SFAS 109 Capital Limitation (33,886) (21,876)
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Tier 1 capital $777,839 $779,032 $739,583 $718,862 $726,334
- - -----------------------------------------------------------------------------------------------------------------------------------
Tier 2:
Allowance for possible credit losses (1) $100,508 $103,149 $103,718 $103,208 $100,609
Equity commitment note 15,212 15,212 15,212 18,012 18,012
Equity contract note 57,475 57,715 57,944 58,184 58,504
Qualified subordinated debt
- - -----------------------------------------------------------------------------------------------------------------------------------
Total Tier 2 capital $173,195 $176,076 $176,874 $179,404 $177,125
- - -----------------------------------------------------------------------------------------------------------------------------------
Total qualifying capital $951,034 $955,108 $916,457 $898,266 $903,459
- - -----------------------------------------------------------------------------------------------------------------------------------
Risk-weighted assets 6,980,006 7,233,972 7,389,159 7,540,523 7,319,376
Risk-weighted off-balance sheet exposure 1,074,546 1,032,619 922,510 730,814 739,858
- - -----------------------------------------------------------------------------------------------------------------------------------
Less: disallowance for loan loss, intangibles & other 146,200 124,880 101,496 97,333 92,507
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Total risk-weighted assets and off-balance sheet exposure $7,908,352 $8,141,711 $8,210,173 $8,174,004 $7,966,727
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Tier 1 risk based capital ratio 9.85% 9.57% 9.01% 8.79% 9.12%
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Total risk based capital ratio 12.03% 11.73% 11.16% 10.99% 11.34%
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
Leverage ratio 7.84% 7.56% 7.09% 6.90% 7.12%
- - -----------------------------------------------------------------------------------------------------------------------------------
- - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The allowance for possible credit losses is limited to 1.25% of the total
risk-weighted assets and off-balance sheet exposure.
43
<PAGE> 46
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION & ANALYSIS
LIQUIDITY
The purpose of liquidity management is to ensure sufficient cash flow to meet
all financial commitments and enable the Corporation to capitalize on
opportunities for business expansion. The parent company manages its liquidity
position to provide the cash necessary to service debt, pay dividends, invest
in subsidiaries and satisfy other operating requirements. The subsidiary banks
and subsidiary savings and loan manage liquidity to meet the needs of borrowers
and to satisfy the need for deposit withdrawals. The Corporation is managing
the asset/liability process toward a prudent level of liquidity thereby
enhancing balance sheet strength. Management believes the Corporation's
liquidity position is strong and is adequate to support its various businesses.
<TABLE>
<CAPTION>
- - ------------------------------------------------------------------------------------------------------------------------------------
Table 12 Sources of Funds
- - ------------------------------------------------------------------------------------------------------------------------------------
Michigan National Corporation
Three Months Ended
(in thousands) 3/31/94 12/31/93 9/30/93 6/30/93 3/31/93
- - ------------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of % of
Total Total Total Total Total
Asset Asset Asset Asset Asset
Balance Funding Balance Funding Balance Funding Balance Funding Balance Funding
- - ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Core deposits $7,555,568 75% $7,770,981 76% $7,560,474 73% $7,683,909 73% $7,477,476 71%
Discretionary deposits (1) 858,732 8% 852,255 8% 994,072 9% 928,755 9% 1,105,112 11%
Short-term borrowings 418,733 4% 293,293 3% 556,432 5% 654,351 6% 532,349 5%
Long-term debt 76,752 1% 77,122 1% 77,998 1% 81,312 1% 82,192 1%
Equity 831,553 8% 815,590 8% 781,397 8% 758,848 7% 756,781 7%
Other liabilities 387,337 4% 363,567 4% 425,037 4% 409,986 4% 488,228 5%
- - ------------------------------------------------------------------------------------------------------------------------------------
Total 10,128,675 100% 10,172,808 100% 10,395,410 100% 10,517,161 100% 10,442,138 100%
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
Parent Company:
Subsidiaries' retained
earnings available for
dividends (2) $44,478 $33,104 $52,029 $31,426 $40,817
- - ------------------------------------------------------------------------------------------------------------------------------------
- - ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Discretionary deposits consist of time deposits > $100,000 plus all
brokered deposits.
(2) Retained earnings available for dividends is calculated based on current
year-to-date net income plus two years' prior income less certain
adjustments.
44
<PAGE> 47
MICHIGAN NATIONAL CORPORATION AND SUBSIDIARIES
PART 1 EXHIBIT
EXHIBIT (11) COMPUTATION OF EARNINGS PER COMMON SHARE
<TABLE>
<CAPTION>
- - ---------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED
MARCH 31
- - ---------------------------------------------------------------------------------------------------------------
1994 1993
- - ---------------------------------------------------------------------------------------------------------------
<S> <C> <C>
(in thousands, except per share)
PRIMARY
Net Income $18,284 ($44,798)
-----------------------------------------
Average common shares outstanding 15,189 14,942
Common stock equivalents 188 (1)
-----------------------------------------
AVERAGE PRIMARY SHARES OUTSTANDING 15,377 14,942
-----------------------------------------
-----------------------------------------
PRIMARY EARNINGS PER SHARE $1.19 ($3.00)
-----------------------------------------
-----------------------------------------
FULLY DILUTED
Net Income $18,284 ($44,798)
-----------------------------------------
Average common shares outstanding 15,189 14,942
Common stock equivalents 219 (1)
-----------------------------------------
AVERAGE FULLY DILUTED SHARES 15,408 14,942
OUTSTANDING -----------------------------------------
-----------------------------------------
FULLY DILUTED EARNINGS PER SHARE $1.19 ($3.00)
-----------------------------------------
-----------------------------------------
</TABLE>
(1) The Corporation has changed from the "if converted" method to the
"treasury stock" method to calculate the dilutive effect of its
Cancelable Mandatory Stock Purchase Contracts (Equity Contracts).
45
<PAGE> 48
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 1. - Legal Proceedings
See note G. of the Notes to Consolidated Financial Statements and Note
U. of the 1993 Annual Report
Item 6.(a) - Exhibits
Exhibit (10) - Material contracts
Separation Agreement dated March 29, 1994, between Michigan
National Corporation and Charles W. Kight. See page 48.
Exhibit (11) - Statement regarding computation of per share earnings.
See Part I Exhibit on page 45.
46
<PAGE> 49
MICHIGAN NATIONAL CORPORATION
AND SUBSIDIARIES
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 thereunto duly authorized.
MICHIGAN NATIONAL Corporation
(Registrant)
May 12, 1994 /s/ Joseph J. Whiteside
-----------------------
Executive Vice President
(Chief Financial Officer)
May 12, 1994 /s/ Robert V. Panizzi
-----------------------------------
First Vice President and Controller
(Chief Accounting Officer)
47
<PAGE> 50
Item 6.(a)
EXHIBIT (10)
SEPARATION AGREEMENT
The effective date of this Agreement is a date eight (8) days after
the signing of the Agreement by the Employee.
1.0. Definitions. The following definitions shall apply to this
Agreement.
1.1. Employee. The term "Employee" shall mean Charles W. Kight, his
heirs, assigns, successors, executors, administrators, and personal
representatives.
1.2. Employer. The term "Employer" shall mean MICHIGAN NATIONAL
CORPORATION, a Michigan corporation, and its affiliates and subsidiaries
(including without limitation MICHIGAN NATIONAL BANK, a national banking
association, and its subsidiaries); their respective successors and assigns;
and their respective past, present and future officers, directors and
employees, and their heirs, assigns, executors, administrators, personal
representatives and successors.
2.0. Release. In consideration of the lump sum payment in the amount
of five hundred dollars ($500.00) to be paid by Employer to Employee, and for
other consideration described in Schedule "A", to which Employee is not
otherwise entitled, attached and incorporated into this Agreement, Employee
voluntarily, knowingly and after adequate opportunity to review its provisions
and to obtain the advice of legal counsel of his choice enters into this
Separation Agreement with the express intention of extinguishing any current
rights regarding employment which he now has with Employer.
2.1. Employee expressly releases Employer from any claims of money,
employment, reemployment and reinstatement, and from any claims, demands,
actions, judgments and executions that he ever had, now has, or may have,
whether in tort, contract or otherwise, based upon common law, equity or any
statute of any state or the United States, against Employer, created by, or
arising out of, any period of Employee's employment by or resignation from
Employer.
The Employer hereby releases, acquits, and forever discharges
Employee from any and all grievances, claims, actions, charges, suits, causes
of action, demands, rights, damages, levies, costs, executions, and expenses
whatsoever, known or unknown, liquidated or unliquidated, fixed or contingent,
direct or indirect, which the Employer may have against Employee. In the event
Employee is named as a party defendant in any litigation involving his
employment with Employer, Employer shall defend Employee and shall indemnify
Employee for any costs, expenses, judgments or settlements incurred as a result
of litigation, pursuant to the Michigan Corporation Act.
2.2. Employee specifically intends that this release include any
claims he may have for unlawful employment discrimination arising under
Americans With Disabilities Act, Civil Rights Act of 1991, Older Worker's
Benefit Protection Act, Title VII of the Civil Rights Act of 1964 as amended,
the Age Discrimination in Employment Act as amended, Section 1981 of the Civil
Rights Act of 1866, the Equal Pay Act of 1963, Section 1985 of the Civil Rights
Action of 1871, the Rehabilitation Act of 1973, Executive Order 11246, the
Americans With Disabilities Act, the Civil Rights Act of 1991, the Michigan
Civil Rights Act known as the Elliott-Larson Act, and any other local, state or
federal equal employment law, statute, public policy, order or regulation.
Employee further represents that he has made no assignment of any of his claims
or rights concerning his employment.
48
<PAGE> 51
3.0. Entire Settlement. The above stated consideration is the sole
consideration to Employee for this Agreement, and it is expressly understood
that such consideration is paid and accepted in full settlement of any claim
arising out of the employment and/or resignation of Employee by Employer,
whether known or unknown and whether ascertainable at the time of the execution
of this instrument. This Agreement reflects the entire settlement agreement
between Employee and Employer.
4.0. No Admission of Liability. Employee acknowledges that Employer's
payment of the consideration for this Agreement is not to be construed as an
admission of any liability on the part of Employer, such liability being
expressly denied by Employer.
5.0. Representations. Each party warrants to the other that no
promise or inducement has been offered or made except as stated in this
Agreement or its attachment; that this Agreement is executed without reliance
on any statement or representation by the other; and Employee warrants that he
is of legal age and is legally competent to execute this Agreement and accept
the full responsibility therefore.
6.0. Resignation. Concurrent with the execution of this Agreement by
Employee, Employee will tender to Employer his voluntary letter of resignation
as an officer and employee of Employer, immediately effective as of the
effective date of this Agreement, irrevocably terminating thereby all
employment relationships Employee may have with Employer. Employee warrants
that his resignation is intended to sever his employment relationship with
Employer, will be immediately effective as stated above, and will not be
dependent upon acceptance or other subsequent action of Employer.
7.0. Confidentiality. The parties agree that the existence and the
terms of this Separation Agreement are confidential and should not be disclosed
to any other person, excluding advisors and family, or entity unless required
by statute, regulation, or court order. If one party should violate the
conditions of this confidentiality clause the other party shall be released
from the restriction without penalty.
8.0. Subpoenas. Employee agrees that he will immediately advise the
Michigan National Corporation Legal Department at 27777 Inkster Road, P.O. Box
9065, Farmington Hills, Michigan 48333-9065 if he receives a subpoena for any
proceeding in which Employer is involved, as a party or otherwise.
9.0. Severability and Modification. If any clause of the Agreement is
found to be invalid, it shall not affect the validity of the other provisions
of this Agreement. This Separation Agreement contains the entire agreement of
the parties and can only be modified by a subsequent written agreement.
10.0. Authority. The Employer has expressly authorized, by all
necessary corporate action, the negotiation, acceptance and execution of this
Agreement and its terms by the undersigned corporate representative. By its
representative's signature below, Employer acknowledges that it has voluntarily
and knowingly authorized the execution of this Agreement and by that signature
accepts the terms of this Agreement.
49
<PAGE> 52
11.0. Time for Consideration. Employee shall have up to 21 days to
consider this Agreement from March 10, 1994, the date the Agreement was
presented to him. If the Agreement has not been accepted within 21 days,
Employer shall have the sole right to extend additional time for consideration
or to withdraw the Agreement offer.
12.0. Revocation. This Agreement may be revoked at any time, up to seven
(7) days following the signing of the Agreement, by notifying the Employer in
writing. The Agreement shall not become enforceable or effective until the
revocation period has expired.
13.0. Confidentiality of Proprietary Information. Employee agrees that
certain information concerning Employer which Employee obtained during the
course of his employment with Employer is proprietary and confidential.
Proprietary information includes financial, marketing, operational or other
information, written or unwritten, not commonly known by the general public.
Employee agrees that he will not disclose this information to any third party
or make use of this information on behalf of Employee or on behalf of a third
party. It is agreed that this Agreement shall not prevent Employee, in the
pursuit of or employment in other employment, from using and drawing upon his
experience resulting from his employment with Employer.
IN WITNESS WHEREOF Employee states that he has read this Agreement and
understands its meaning and intent, which is that it constitutes a complete
General Release, that he has had adequate time and opportunity to consult with
legal counsel prior to executing the Agreement, and that he has been advised in
writing by Employer to consult with an attorney before executing the Agreement,
and that he knowingly and willingly intends to be legally bound by the same,
executes this Agreement as set forth below.
WITNESS: "EMPLOYER"
MICHIGAN NATIONAL CORPORATION
_____________________________ BY: /s/ DOUGLAS E. EBERT
Douglas E. Ebert
Its: Chief Operating Officer
Dated: 3-29-94
"EMPLOYEE"
______________________________ /s/ CHARLES W. KIGHT
Charles W. Kight
Dated: 3-28-94
50
<PAGE> 53
SCHEDULE "A"
This is the Schedule "A" referred to in the Separation Agreement
executed between Michigan National Corporation and Charles W. Kight. This
Schedule contains the additional compensation terms and conditions applicable
thereto.
1. Employee will receive in accordance with the respective terms of
such plans such pension, deferred compensation, ESOP and other accrued deferred
benefits in which he has become vested as of the effective date of this
Agreement.
2. Notwithstanding the vesting schedule stated in Employee's
Supplemental Pension Agreement, Employee will be considered to have six (6)
years of vesting as of the date of Employee separation.
3. Employee will be considered to be fully vested as of the date of
Employee's separation, in any stock options in which he would have been fully
vested on October 31, 1994. Employee will be able to exercise those options
anytime from the date of this Agreement through January 1, 1995.
4. Employee's days of unused vacation accrued through the effective
date of this Agreement will be paid to Employee in a lump sum computed at his
regular bi-weekly base salary of $10,807.70, less withholding for Federal
Income Tax, F.I.C.A., and other statutory deductions and deductions authorized
by Employee, within a reasonable time, but in any event no later than
Employer's second regular payroll payment date after the effective date of this
Agreement.
5. Employer will continue Employee's salary, in lieu, however, of the
performance of additional services for Employer by Employee, subject to any
reduction under Paragraph 10 below, through October 7, 1994, a period of
thirty-four (34) weeks, computed at Employee's regular bi-weekly base salary of
$10,807.70, less withholding for Federal Income Tax, F.I.C.A., and other
statutory deductions and deductions authorized by Employee. These payments
will be made bi-weekly as earned commencing with Employer's first regular
payroll payment date after March 10, 1994 and continuing through October 7,
1994.
6. Employee's Group Medical, Dental, and Vision insurance coverages
in effect on the effective date of this Agreement will be continued by Employer
through the end of the month in which wage continuation payments end, subject
to Employee's payroll deductions, if any, required by the provisions of those
benefit plans. Employer-paid non-contributory life insurance coverage, in an
amount equal to two (2) times Employee's annual base salary, will be continued
by Employer through the end of the month in which wage continuation payments
end. At Employee's option, any existing amount of contributory life insurance
coverage may be continued by Employee at Employee's sole expense through the
end of the month in which wage continuation payments end.
7. Employee's Short Term and Long Term Disability Insurance provided
by Employer will be terminated effective as of the first business day following
the effective date of this Agreement.
8. Employee's existing Officer's Auto Insurance provided by Employer
will be continued through the end of the month in which wage continuation
payments end.
51
<PAGE> 54
9. In lieu of Employer providing outplacement assistance to Employee,
Employer agrees to pay to Employee a lump sum amount equal to 15% of his
current annual salary.
10. Employee agrees that any outstanding business expense items will be
submitted for reimbursement prior to the date of separation, and that his
expense credit (X-Card) will be concurrently returned to his supervisor for
destruction and closing of the account.
Employee further agrees that any credit transactions, including
personal transactions, charged to Employee's X-Card account which are in
default following the date of separation may be immediately offset against his
wage continuation payment due on August 24, 1994. Employee's signature on
this Agreement constitutes a full, free and written consent and approval as
required pursuant to all state and federal laws.
11. Employee agrees that if he should obtain other employment, excluding
part-time consulting or teaching up to $50,000.00 in compensation, during the
term of this Separation Agreement, the separation pay will be reduced by the
amount of wages earned from such outside employment. In the event the wage
rate from outside employment shall be equal to or greater than the amount of
separation pay, all obligations of Employer to pay such separation pay are
extinguished. Employee is obligated and agrees to report to Human Resources
any outside employment which is obtained during the term of this Agreement.
This Schedule "A" is to be read as a part of the attached Separation
Agreement.
There are no additional terms or conditions.
WITNESS: "EMPLOYER"
MICHIGAN NATIONAL CORPORATION
____________________________ BY: /s/ DOUGLAS E. EBERT
Douglas E. Ebert
Its: Chief Operating Officer
Dated: 3-29-94
"EMPLOYEE"
_____________________________ /s/ CHARLES W. KIGHT
Charles W. Kight
Dated: 3-28-94
52
