-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, QKeyQw7I/+3Ny8U4aebu7SAcBIh02n3nwxoexFH52Y/s63dOBdGogPgYfb4kwQdV WibUU1q9G0HZvYcad9xpEQ== 0000950152-97-007333.txt : 19971024 0000950152-97-007333.hdr.sgml : 19971024 ACCESSION NUMBER: 0000950152-97-007333 CONFORMED SUBMISSION TYPE: 8-K/A PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 19970930 ITEM INFORMATION: ITEM INFORMATION: FILED AS OF DATE: 19971023 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: HUNTINGTON BANCSHARES INC/MD CENTRAL INDEX KEY: 0000049196 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 310724920 STATE OF INCORPORATION: MD FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K/A SEC ACT: SEC FILE NUMBER: 000-02525 FILM NUMBER: 97699692 BUSINESS ADDRESS: STREET 1: HUNTINGTON CTR STREET 2: 41 S HIGH ST HC0632 CITY: COLUMBUS STATE: OH ZIP: 43287 BUSINESS PHONE: 6144808300 MAIL ADDRESS: STREET 1: HUNTINGTON CENTER2 STREET 2: 41 S HIGH ST HC063 CITY: COLUMBUS STATE: OH ZIP: 43287 8-K/A 1 HUNTINGTON BANCSHARES, INC. FORM 8-K/AMENDED 1 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM 8-K/A CURRENT REPORT PURSUANT TO SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 --------------- DATE OF REPORT: SEPTEMBER 30, 1997 --------------- HUNTINGTON BANCSHARES INCORPORATED (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER) --------------- Maryland 0-2525 31-0724920 (State or other (Commission File No.) (IRS Employer jurisdiction of incorporation) Identification Number) --------------- Huntington Center 41 South High Street Columbus, Ohio 43287 (614) 480-8300 (ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER INCLUDING AREA CODE OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES) --------------- N/A (FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT) 2 ITEM 5. OTHER INFORMATION. As previously reported by Huntington Bancshares Incorporated, a Maryland corporation and a registered bank holding company ("Huntington"), on its Current Report on Form 8-K filed with the Securities and Exchange Commission on October 15, 1997, First Michigan Bank Corporation, a Michigan corporation and a registered bank holding company ("First Michigan"), was merged (the "Merger") into Huntington on September 30, 1997, pursuant to the terms of an Agreement and Plan of Merger and a Supplemental Agreement (collectively, the "Merger Agreements"). As a result of the Merger, each outstanding share of First Michigan's common stock, $1.00 par value ("First Michigan Common"), was converted into 1.155 shares of Huntington's common stock, without par value ("Huntington Common"). Cash was paid for fractional shares. Approximately 32.2 million Huntington Common shares were issued in the Merger. In addition, each outstanding First Michigan stock option was converted into an option to acquire Huntington Common, with the number of Huntington Common shares subject to such option equal to the number of First Michigan shares subject to the First Michigan stock option multiplied by 1.155, rounded to the nearest whole share. The Merger was accounted for as a pooling of interests under generally accepted accounting principles. In accordance with Item 7 of Form 8-K, Huntington is submitting with this filing the required historical financial information of First Michigan. ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS. (a)(i) The following audited consolidated financial statements of First Michigan required by Item 7(a) of Form 8-K are incorporated herein by reference to Exhibit 99(c) filed herewith: Consolidated Statement of Income for the year ended December 31, 1996; Consolidated Balance Sheet as of December 31, 1996; Consolidated Statement of Cash Flows for the year ended December 31, 1996; Consolidated Statement of Shareholders' Equity for the year ended December 31, 1996; Notes to Consolidated Financial Statements Independent Auditors Report - BDO Seidman LLP The information presented in Exhibit 99(c) with respect to the years ended December 31, 1995 and 1994 is not incorporated herein by reference. (ii) The following unaudited consolidated financial statements of First Michigan required by Item 7(a) of Form 8-K are incorporated herein by reference to Exhibit 99(d) filed herewith: 2 3 Consolidated Balance Sheet as of June 30, 1997*; Consolidated Statement of Income for the three and six months ended June 30, 1997 and 1996; Consolidated Statement of Cash Flows for the six months ended June 30, 1997 and 1996; Notes to Consolidated Financial Statements. *The information presented in the Consolidated Balance Sheet as of December 31, 1996 and June 30, 1996 is not incorporated herein by reference. (b) Pro Forma Financial The pro forma financial information required by Item 7(b) of Form 8-K was incorporated by reference into Huntington's initial Current Report on Form 8-K filed with the Securities and Exchange Commission on October 15, 1997. (c) Exhibits. * 2(a) Agreement and Plan of Merger, dated May 5, 1997, between Huntington Bancshares Incorporated and First Michigan Bank Corporation -- previously filed as Exhibit A to the Joint Proxy Statement/Prospectus, dated July 11, 1997, filed with the Securities and Exchange Commission pursuant to 424(b)(3), and incorporated herein by reference. * 2(b) Supplemental Agreement, dated May 5, 1997, between Huntington Bancshares Incorporated and First Michigan Bank Corporation -- previously filed as Exhibit B to the Joint Proxy Statement/Prospectus, dated July 11, 1997, filed with the Securities and Exchange Commission pursuant to 424(b)(3), and incorporated herein by reference. * 2(c) Warrant Purchase Agreement, dated May 5, 1997, between Huntington Bancshares Incorporated and First Michigan Bank Corporation -- previously filed as Exhibit 2(c) to Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 7, 1997, and incorporated herein by reference. * 2(d) Warrant to Purchase 5,268,716 shares of First Michigan Bank Corporation common stock, dated May 5, 1997 -- previously filed as Exhibit 2(d) to Current Report on Form 8-K, filed with the Securities and Exchange Commission on May 7, 1997, and incorporated herein by reference. * 2(e) Agreement Not to Exercise Share Appreciation Rights, dated May 5, 1997, executed by certain executives of First Michigan Bank Corporation -- previously filed as Exhibit 2(e) to Registration Statement on Form S-4 (Registration No. 333-30313), filed with the 3 4 Securities and Exchange Commission on June 27, 1997, and incorporated herein by reference. * 99(a) News Release, dated September 30, 1997, relating to the merger of First Michigan Bank Corporation with and into Huntington Bancshares Incorporated -- previously filed as Exhibit 99(a) to Current Report on Form 8-K, filed with the Securities and Exchange Commission on October 15, 1997, and incorporated herein by reference. * 99(b) News Release, dated October 14, 1997, relating to Huntington's earnings for the third quarter and nine months ended September 30, 1997 -- previously filed as Exhibit 99(b) to Current Report on Form 8-K, filed with the Securities and Exchange commission on October 15, 1997, and incorporated herein by reference. 99(c) Consolidated Financial Statements of First Michigan Bank Corporation and Report of BDO Seidman, LLP. 99(d) Unaudited Financial Statements of First Michigan Bank Corporation. - -------------- * Previously filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized. HUNTINGTON BANCSHARES INCORPORATED Date: October 22, 1997 By: /s/ Gerald R. Williams ------------------------------ Gerald R. Williams Executive Vice President 4 EX-99.C 2 EXHIBIT 99(C) 1 Exhibit 99(c)
Consolidated Statements of Income (Dollars in Thousands, Except for Per Share Data) Year ended December 31, 1996 1995 1994 Interest Income Loans and fees on loans ............... $ 221,856 $ 202,395 $ 156,755 Securities: Taxable ............................... 32,244 29,376 28,128 Tax-exempt ............................ 12,899 13,824 14,307 Other ................................. 2,472 3,002 1,051 Total interest income ................. 269,471 248,597 200,241 Interest Expense Deposits .............................. 121,172 113,037 77,957 Other borrowed funds .................. 6,911 5,793 4,395 Long-term debt ........................ 1,008 697 857 Total interest expense ................ 129,091 119,527 83,209 Net Interest Income ................... 140,380 129,070 117,032 Provision for loan losses ............. 11,321 7,991 6,670 Net interest income after provision for loan losses ........... 129,059 121,079 110,362 Non-Interest Income Service charges on deposits ........... 14,239 12,792 11,939 Trust and investment management fees ................................ 8,228 7,250 6,829 Mortgage banking revenue .............. 6,351 4,017 3,847 Other operating ....................... 9,003 6,758 7,144 Net realized securities gains (losses) ............................. (84) 324 (297) Total non-interest income ............. 37,737 31,141 29,462 Non-Interest Expense Salaries and employee benefit ......... 59,348 55,157 50,153 Occupancy ............................. 7,132 6,561 6,013 Equipment ............................. 7,187 6,062 5,757 FDIC insurance ........................ 29 2,918 5,180 Other operating ....................... 34,653 30,886 28,218 Total non-interest expense ............ 108,349 101,584 95,321 Income Before Income Taxes ............ 58,447 50,636 44,503 Income taxes .......................... 16,279 13,324 10,776 Net Income ............................ $ 42,168 $ 37,312 $ 33,727 Net Income Per Share .................. $ 1.57 $ 1.40 $ 1.27 Average Shares Outstanding (in thousands) ...................... 26,779 26,652 26,643
See accompanying notes to consolidated financial statements. 2
Consolidated Balance Sheets (Dollars in Thousands) December 31, 1996 1995 Assets Cash and due from banks ...................... $ 155,725 $ 128,168 Federal funds sold ........................... 12,950 117,100 Total cash and cash equivalent ............... 168,675 245,268 Interest bearing deposits with banks ......... 1,713 5,361 Securities: Available-for-sale ........................... 465,460 329,688 Held-to-maturity (market values of $293,595 and $362,788) ................... 284,691 349,227 Total securities ............................. 750,151 678,915 Loans ........................................ 2,499,038 2,216,947 Allowance for loan losses .................... (31,720) (28,031) Net loans .................................... 2,467,318 2,188,916 Net premises and equipment ................... 68,667 68,551 Other assets ................................. 63,909 53,728 Total assets ................................. $ 3,520,433 $ 3,240,739 Liabilities and Shareholders' Equity Deposits: Non-interest bearing demand .................. $ 361,692 $ 337,370 Interest bearing: Savings and NOW accounts ..................... 1,011,153 893,732 Time ......................................... 1,643,124 1,582,589 Total deposits ............................... 3,015,969 2,813,691 Other borrowed funds ......................... 163,220 134,323 Other liabilities ............................ 37,563 33,219 Long-term debt ............................... 29,537 5,678 Total liabilities ............................ 3,246,289 2,986,911 Shareholders' equity: Preferred stock - no par value; 1,000,000 shares authorized, none outstanding ........................... -- -- Common stock - $1 par value; 50,000,000 shares authorized; issued and outstanding: 26,304,157 and 18,848,338 .................. 26,304 18,848 Surplus ...................................... 163,828 146,930 Retained earnings ............................ 83,374 86,232 Securities valuation, net of tax ............. 638 1,818 Total shareholders' equity ................... 274,144 253,828 Total liabilities and shareholders' equity ....................... $ 3,520,433 $ 3,240,739
See accompanying notes to consolidated financial statements. 3 Consolidated Statements of Cash Flows (Dollars in Thousands)
Year ended December 31, 1996 1995 1994 Cash Flows From Operating Activities Net income ................................ $ 42,168 $ 37,312 $ 33,727 Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses ................. 11,321 7,991 6,670 Origination of loans held for sale in secondary market ............. (218,158) (169,861) (140,356) Proceeds from sale of loans in secondary market ...................... 219,540 171,135 141,499 Gain on sale of loans ..................... (1,382) (1,274) (1,143) Capitalization of mortgage servicing rights ......................... (1,865) -- -- Net realized securities (gains) losses ................................... 84 (324) 297 Provision for depreciation, amortization and accretion ............... 6,265 7,725 8,234 Deferred income taxes ..................... (874) (853) 58 Net increase in interest receivable ............................... (763) (1,519) (3,850) Net increase (decrease) in interest payable ...................... (166) 3,964 1,799 Other-net ................................. 2,343 4,353 (402) Total adjustments ......................... 16,345 21,337 12,806 Net cash provided by operating activities ..................... 58,513 58,649 46,533 Cash Flows From Investing Activities Net (increase) decrease in interest bearing deposits with banks ....................... 3,648 (1,395) (1,183) Purchase of securities available-for-sale ...................... (260,713) (104,623) (52,427) Proceeds from sales of securities available-for-sale ............ 27,906 6,240 16,097 Proceeds from maturities and prepayments of securities available-for-sale ....................... 96,254 29,961 17,357 Purchase of securities held-to-maturity ......................... (15,247) (6,451) (132,336) Proceeds from maturities and prepayments of securities held-to-maturity ......................... 80,418 131,671 143,575 Net increase in loans ..................... (288,893) (262,497) (287,190) Purchase of premises and equipment and other assets ............... (13,723) (11,314) (12,616) Net cash used in investing act ............ (370,350) (218,408) (308,723) Cash Flows From Financing Activities Net increase in non-interest bearing demand and savings and NOW account deposits ..................... 133,908 19,315 19,205 Net increase in time deposits ............. 40,258 306,437 227,659 Deposits from branch acquisitions ......... 28,112 -- -- Net increase (decrease) in other borrowed funds ..................... 53,897 (38,456) 56,666 Repayment of long-term debt ............... (1,141) (2,384) (1,833) Cash dividends and fractional shares ................................... (16,073) (13,386) (10,846) Proceeds from issuance of common stock ............................. 5,538 4,278 3,854 Common stock repurchased .................. (9,255) (1,911) (6,311) Net cash provided by financing activities ..................... 235,244 273,893 288,394 Increase (Decrease) In Cash and Cash Equivalents ..................... (76,593) 114,134 26,204 Cash and Cash Equivalents, At Beginning of Year ..................... 245,268 131,134 104,930 Cash and Cash Equivalents, At End of Year ........................... $ 168,675 $ 245,268 $ 131,134 Supplemental Cash Flow Information Interest paid ............................. $ 129,257 $ 115,563 $ 81,410 Income taxes paid ......................... 17,836 12,559 10,638
See accompanying notes to consolidated financial statements. 4 Consolidated Statements of Shareholders' Equity (Dollars in Thousands)
Securities Common Retained Valuation, Stock Surplus Earnings Net of Tax Balance, January 1, 1994, as previously reported ............. $ 16,493 $ 108,154 $ 77,728 $ 1,853 Adjustment to record acquisition of subsidiary on pooling-of- interests basis .................... 541 2,951 693 -- Balance, January 1, 1994, as adjusted 17,034 111,105 78,421 1,853 Net income .......................... -- -- 33,727 -- Cash dividends - $.47 per share ..... -- -- (11,488) -- Cash dividends paid by subsidiary prior to acquisition ........................ -- -- (142) -- Stock issued under terms of dividend reinvestment and employee stock purchase plans ...... 125 2,597 -- -- Stock issued upon exercise of stock options .......... 101 1,233 -- -- Stock issued in payment of 5% stock dividend, at market ............................. 853 15,676 (16,579) -- Common stock repurchased ............ (277) (6,034) -- -- Effect of stock issued by subsidiary under terms of employee stock ownership plan prior to acquisition ............... -- 34 -- -- Net unrealized loss on available-for-sale securities ....... -- -- -- (4,788) Balance, December 31, 1994 .......... 17,836 124,611 83,939 (2,935) Net income .......................... -- -- 37,312 -- Cash dividends - $.55 per share .............................. -- -- (14,021) -- Stock issued under terms of dividend reinvestment and employee stock purchase plans .............................. 152 3,524 -- -- Stock issued upon exercise of stock options ................... 41 466 -- -- Stock issued under terms of directors' current stock purchase plan ................. 4 91 -- -- Stock issued in payment of 5% stock dividend, at market .......................... 893 20,071 (20,998) -- Common stock repurchased ............ (78) (1,833) -- -- Net unrealized gain on available-for-sale securities ......................... -- -- -- 4,753 Balance, December 31, 1995 .......... 18,848 146,930 86,232 1,818 Net income .......................... -- -- 42,168 -- Cash dividends - $.65 per share .......................... -- -- (16,906) -- Stock issued under terms of dividend reinvestment and employee stock purchase plans ............... 179 4,357 -- -- Stock issued upon exercise of stock options ................... 93 840 -- -- Stock issued under terms of directors' current stock purchase plan ................ 3 88 -- -- Stock issued in payment of 5% stock dividend, at market .......................... 944 27,105 (28,095) -- Four-for-three common stock split ........................ 6,564 (6,564) (25) -- Common stock repurchased ............ (327) (8,928) -- -- Net unrealized loss on available-for-sale securities ......................... -- -- -- (1,180) Balance, December 31, 1996 .......... $ 26,304 $ 163,828 $ 83,374 $ 638
See accompanying notes to consolidated financial statements. 5 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note 1. Summary of Significant Accounting Policies Organization and Nature of Operations First Michigan Bank Corporation (FMB) is a bank holding company with 14 subsidiary community banks engaged in the business of commercial banking (the Banks). FMB has four non-bank subsidiaries providing trust, brokerage, credit and title insurance services to customers of the Banks. The Banks are engaged in the business of general commercial, retail and mortgage banking. The Banks offer a variety of deposit products including checking accounts, savings accounts, time deposits and short-term deposits. The Banks conduct lending activities in the residential and commercial mortgage markets, in the general commercial market and in the consumer installment marketplace. These financial services and products are delivered through a network of full-service branches, specialized offices, automatic teller machines and various electronic delivery channels. The principal markets for the Banks' financial services are the Michigan communities in which each of the banks is located and the areas immediately surrounding these communities. The Banks serve these markets through 90 branch offices in or near these communities. Principles of Consolidation and Basis of Presentation The consolidated financial statements include the accounts of FMB and its subsidiaries. Upon consolidation, all significant intercompany accounts and transactions have been eliminated. Goodwill is being amortized over periods up to 20 years. In March 1995, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of." SFAS No. 121 requires that long-lived assets and certain identifiable intangibles held and used by an entity be reviewed for impairment and reported at the lower of carrying amount or fair value, less cost to sell, whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Management periodically reviews goodwill and other long-lived assets for impairment based upon the projected, undiscounted net cash flows of the subsidiaries to which the goodwill relates or the long-lived assets belong. FMB has not experienced any impairment of its goodwill and long-lived assets. In June 1996, the FASB issued SFAS No. 125, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Statement provides consistent standards for distinguishing transfers of financial assets that are sales from transfers that are borrowings and for derecognition of liabilities that have been extinguished. This Statement also requires that liabilities and derivatives incurred or obtained as part of a transfer be measured initially at fair value. SFAS No. 125 also amends SFAS No. 122 (discussed under "Mortgage Banking Operations") to provide further guidance on measurement of servicing rights relating to assets transferred. The Statement is effective for transfers, servicing or extinguishments occurring after December 31, 1996, except for certain provisions which are effective after December 31, 1997. Adoption of the accounting provisions of this standard is not expected to have a material effect upon FMB's financial condition or results of operations. Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported revenues and expenses during the reporting period. The amount of those assets actually realized and liabilities actually settled in future periods could differ from those estimates. The differences, if any, would be reflected in the reported amounts of revenues and expenses in future periods. Cash and Cash Equivalents For the purposes of reporting cash flows, cash equivalents include amounts due from banks and federal funds sold. Generally, federal funds are purchased and sold for one-day periods. Securities Management has identified as "available-for-sale" certain securities which may be sold in the future to meet FMB's investment objectives of quality, liquidity and yield and to avoid significant market value deterioration. Securities available-for-sale are adjusted to fair market value each reporting period with unrealized gains and losses reported as a separate component of shareholders' equity, net of tax. Securities held-to-maturity are stated at cost adjusted for amortization of premium and accretion of discount. The adjusted cost of the specific security sold is used to compute gain or loss on all securities transactions. Loans and Allowance for Loan Losses Loans are stated at their principal balance outstanding, net of unearned income. The allowance for loan losses is maintained at a level considered by management to be adequate to absorb possible future loan losses inherent in 6 the current portfolio. Management's assessment of the adequacy of the allowance is based upon type and volume of the loan portfolio, past loan loss experience, existing and anticipated economic conditions, and other factors which deserve current recognition in estimating possible future loan losses. A portion of the total allowance for loan losses is related to impaired loans. A loan is impaired when it is probable that the creditor will be unable to collect all principal and interest amounts due according to the contracted terms of the loan agreement. FMB considers loans that have been placed on non-accrual status or which have been renegotiated in a troubled debt restructuring to be impaired. The allowance for loan losses for an impaired loan is recorded at the amount by which the outstanding recorded principal balance exceeds the fair value of the collateral on the impaired loan. For a loan that is not collateral-dependent, the allowance for loan losses is recorded at the amount by which the outstanding recorded principal balance exceeds the current best estimate of the future cash flows on the loan, discounted at the loan's effective interest rate. FMB adopted the accounting provisions for impaired loans prospectively as of January 1, 1995. Accordingly, the required disclosures are presented for 1995 and 1996 only. Net Premises and Equipment Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed by the straight-line method for financial reporting purposes. Accelerated depreciation methods are used for income tax purposes. Other Real Estate Other real estate, which is included in other assets, is comprised of properties in the possession of the subsidiary banks which are generally acquired through foreclosure proceedings or deed in lieu of foreclosure. These properties are held for sale and are carried at the lower of the amount of the related loan or the fair market value of the property minus estimated costs to sell the property (net realizable value). Losses which may result from the acquisition of such properties are charged against the allowance for loan losses. Losses in net realizable value during the holding period are expensed immediately, while gains are recognized in other operating income only upon disposition. Employee Benefit Plans FMB has a noncontributory pension plan for the benefit of all full-time employees and part-time employees working more than 1,000 hours per year. Benefits under the plan are based on the employee's years of service and compensation during the five consecutive highest paid plan years of the last ten plan years preceding retirement. FMB's funding policy is to contribute an actuarially-determined amount that can be deducted for federal income tax purposes. FMB also sponsors a defined contribution 401(k) plan for the benefit of all employees over 21 years old. For those employees who work 1,000 or more hours per year, FMB matches employee contributions at levels that management determines to be appropriate. FMB acts as a self-insurer for employees' medical, dental and accident insurance whereby it assumes limited liabilities with the excess liability assumed by underwriters. Claims for active employees are charged to operations during the year in which they occur. FMB has a postretirement benefit plan that provides medical and dental coverage between the ages of 60 and 65 to any full-time employee who elects early retirement after 10 or more years of service. The plan contains the same cost-sharing features of deductibles and copayments that are contained in the medical and dental insurance plans provided to active employees. Partial funding of the plan is accomplished through monthly contributions to a self-insurance trust fund which was established to cover the medical and dental benefits of both retirees and active participants. The monthly contribution to the self-insurance trust fund for each retiree is equivalent to the amount contributed each month for an active participant. Mortgage Banking Operations FMB originates mortgage loans which it sells into the secondary market. Closed mortgage loans are held for sale generally less than 15 days, and book value approximates market value. FMB retains the servicing rights when it sells the mortgage loans. Servicing income is recognized in other non-interest income when received and expenses are recognized in operating expenses when incurred. On January 1, 1996, FMB prospectively adopted the accounting provisions for mortgage servicing rights promulgated by SFAS No. 122, "Accounting for Mortgage Servicing Rights," which is an amendment to SFAS No. 65, "Accounting for Certain Mortgage Banking Activities." SFAS No. 122 amends SFAS No. 65 to require that an asset be recognized for the rights to service mortgage loans including those rights that are created by the origination of mortgage loans which are sold or securitized with the servicing rights retained by the originator. The amount of the asset for these originated mortgage servicing rights (OMSR) is determined based upon the relative fair value of the underlying mortgage loans without the OMSR and the OMSR itself. Recognition of these assets results in an increase in the gains recognized upon the sale of the underlying loans. The OMSR assets are being amortized in proportion to and over the life of the estimated net future servicing income. FMB 7 stratifies the mortgage loans sold by sale date, term and interest rate for purposes of applying SFAS No. 122 both for the origination valuation of the OMSR and for evaluating the remaining book value of the OMSR assets for impairment. Any impairment is recognized as a separate valuation allowance for each impaired stratum. Due to the prospective adoption of these accounting provisions, the required disclosures are presented for 1996 only. The overall impact of adoption was not material to FMB's results of operations for the year. Stock Options FMB applies the intrinsic value method of accounting promulgated under Accounting Principles Board (APB) Opinion 25, "Accounting for Stock Issued to Employees," and related interpretations for its fixed-price, stock option plan. Accordingly, no compensation cost is recognized as a result of options awarded to employees under the plan. SFAS No. 123, "Accounting for Stock-Based Compensation," which became effective January 1, 1996, establishes a fair value method of accounting for all stock-based compensation, but it allows companies to continue to account for stock options granted to employees under the intrinsic value method in accordance with APB Opinion 25. Companies electing to maintain their accounting for employee stock compensation under APB Opinion 25 are required to provide pro forma net income and earnings per share disclosures, determined as if the company had applied the fair value accounting method under SFAS No. 123. FMB has elected to continue to account for its stock option plans in accordance with APB Opinion 25 and, accordingly, has provided the supplemental disclosures for 1995 and 1996 that are required by this new accounting standard. Interest Income and Fees on Loans Interest on loans is accrued based upon the principal balance outstanding. The recognition of interest income is discontinued when, in the opinion of management, there is sufficient doubt that the borrower will be able to meet the scheduled repayments. When the accrual of interest is discontinued, the balance of interest accrued but not collected is eliminated from income. For impaired loans that are on non-accrual status, cash payments received are generally applied to reduce the outstanding recorded principal balance of the loans. However, all or a portion of a cash payment received on a non-accrual loan may be recognized as interest income to the extent allowed by the loan contract, provided that the borrower's financial condition or the underlying collateral on the loan support the collection in full of the remaining outstanding recorded principal balance of the loan. For an impaired loan that has been renegotiated in a troubled debt restructuring, interest income is recognized on an accrual basis according to the modified contractual terms so long as the restructured loan continues to perform in accordance with the modified contractual terms. For loans with an initial term exceeding one year, loan origination and commitment fees and related lending costs are deferred, and the net amount is amortized as an adjustment of the related loan's yield over its original term. The net unamortized amount related to a loan that is subsequently sold is recognized currently as other operating income. For loans with an initial term of one year or less, the effect of the deferral of loan fees and costs is immaterial to the operations of FMB. Interest Rate Swap Agreements Interest rate swap agreements are derivative financial instruments entered into for the purpose of hedging short-term interest sensitivity positions against the impact of changes in interest rates. The interest rate differential to be paid or received is recognized in interest income over the life of the agreements. Advertising Costs All advertising costs incurred are expensed in the period in which they are incurred. Income Taxes FMB and its subsidiaries file a consolidated federal income tax return. The parent company and its subsidiaries each report current income tax expense as allocated under a consolidated tax sharing agreement. Deferred tax assets and liabilities are computed by each member of the consolidated group based on the difference between the financial statement and income tax basis of assets and liabilities using enacted tax rates. The reversal of these temporary differences will result in taxable or deductible amounts in future years when the related asset or liability is recovered or settled within each entity. Trust Assets and Income Property, other than cash deposits, held by subsidiary banks in fiduciary or agency capacities for their customers is not included in the accompanying consolidated balance sheets since such property is not an asset of FMB. Trust income is reported on an accrual basis. Income Per Share Income per share is computed based on the average number of shares outstanding during each period including the assumed exercise of dilutive stock options, and is retroactively adjusted for stock dividends and splits. 8 Note 2. Acquisitions On April 15, 1996, FMB acquired Arcadia Financial Corporation (Arcadia) and its wholly-owned subsidiary, which was subsequently renamed FMB-Arcadia Bank. The acquisition was effected through the exchange of 1.648 shares of FMB common stock (653,749 shares in total) for each outstanding share of Arcadia. The acquisition was accounted for as a pooling-of-interests. Accordingly, the accompanying consolidated financial statements have been restated to include the balances and results of operations of Arcadia prior to the acquisition. Separate pro forma results of operations of the combined entities for the periods prior to their respective acquisition dates are as follows (dollars in thousands, except for per share data):
Year ended Three months ended December 31, March 31, 1996 1995 1994 (unaudited) (unaudited) (unaudited) Total interest income and non-interest income: FMB ................. $ 70,958 $270,651 $222,489 Arcadia ............. 2,436 9,087 7,214 Combined ............ $ 73,394 $279,738 $229,703 Net income: FMB ................. $ 9,215 $ 35,910 $ 32,380 Arcadia ............. 364 1,402 1,347 Combined ............ $ 9,579 $ 37,312 $ 33,727 Net income per share: FMB ................. $ 0.36 $ 1.39 $ 1.25 Combined ............ 0.36 1.40 1.26
Note 3. Securities The amortized cost and carrying value, which is estimated market value, of securities available-for-sale are as follows (dollars in thousands):
December 31, 1996 December 31, 1995 Gross Gross Gross Gross Amortized Unrealized Unrealized Carrying Amortized Unrealized Unrealized Carrying Cost Gains Losses Value Cost Gains Losses Value U.S. Treasury securities and obligations of U.S. government corporations and agencies ... $346,264 $ 1,436 $ 1,217 $346,483 $232,745 $ 1,910 $ 512 $234,143 Obligations of states and political subdivisions .. 32,575 899 109 33,365 28,895 1,426 9 30,312 Corporate securities ......... -- -- -- -- 500 -- -- 500 Mortgage-backed securities ... 73,419 391 418 73,392 57,016 420 439 56,997 Equity securities ............ 12,220 -- -- 12,220 7,736 -- -- 7,736 Total ........................ $464,478 $ 2,726 $ 1,744 $465,460 $326,892 $ 3,756 $ 960 $329,688
The carrying value and estimated market value of securities held-to-maturity are as follows (dollars in thousands): December 31, 1996 December 31, 1995 Gross Gross Estimated Gross Gross Estimated Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value U.S. Treasury securities and obligations of U.S. government corporations and agencies .... $ 48,864 $ 181 $ 110 $ 48,935 $ 81,793 $ 610 $ 144 $ 82,259 Obligations of states and political subdivisions .. 173,170 8,935 392 181,713 178,034 12,462 98 190,398 Corporate securities ......... 118 1 -- 119 2,530 23 -- 2,553 Mortgage-backed securities ... 62,539 466 177 62,828 86,870 931 225 87,576 Total ........................ $284,691 $ 9,583 $ 679 $293,595 $349,227 $ 14,026 $ 467 $362,786
9 As permitted by the transition provisions in the guide to implementation of SFAS No. 115 issued by the FASB in November 1995, FMB transferred securities with an amortized cost of $110,674,000 from the held-to-maturity to the available-for-sale category on December 27, 1995. The net unrealized gain on the securities transferred amounted to $421,000. As of December 31, 1996, all holdings of debt securities were of investment grade with over 95% of the holdings rated A or better by either Moody's or Standard and Poor's. Securities not rated by a nationally recognized organization represent smaller local issues which in management's opinion, if rated, would qualify as A or better. Securities with a carrying value of $171,380,000 at December 31, 1996 were pledged for various purposes as required or permitted by law. The carrying value and estimated market value of debt securities, by contractual maturity, are shown in the table below. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. For the purposes of this table, the maturities of mortgage-backed securities have been determined using weighted-average expected lives, taking into account anticipated future prepayments. Maturities of investments in debt securities as of December 31, 1996 are as follows (dollars in thousands):
Available-for-sale Held-to-maturity Estimated Amortized Carrying Carrying Market Cost Value Value Value Due in one year or less .............. $124,785 $124,603 $ 83,011 $ 83,381 Due after one year through five years 301,597 302,587 137,689 143,063 Due after five years through ten years 22,596 22,717 60,751 63,837 Due after ten years .................. 3,280 3,333 3,240 3,314 Total debt securities ............. 452,258 453,240 $284,691 $293,595 Equity securities .................... 12,220 12,220 -- -- Total ............ $464,478 $465,460 -- --
Proceeds from sales of securities during 1996, 1995 and 1994 were $27,906,000, $6,240,000 and $16,097,000, respectively. Gross gains of $19,000, $339,000 and $45,000 and gross losses of $103,000, $15,000 and $342,000 were realized on those sales for 1996, 1995 and 1994, respectively. Note 4. Loans The composition of the loan portfolio is as follows (dollars in thousands): December 31, 1996 1995 Commercial, financial and agricultural ... $ 667,200 $ 608,718 Real estate: Commercial .... 521,283 474,887 Construction .. 225,043 155,872 Residential ... 637,991 548,869 Held-for-sale . 2,220 8,626 Consumer ............ 445,301 419,975 Total . $2,499,038 $2,216,947
The Banks have granted loans to directors and executive officers of FMB and its significant subsidiaries and to their associates. These related party loans are made on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with unrelated persons and do not involve more than normal risk of collectibility. The aggregate dollar amount of these loans was $28,295,000 and $31,797,000 at December 31, 1996 and 1995, respectively. During 1996, $12,791,000 of new loans were made, repayments amounted to $12,387,000 and changes in persons included, decreased the aggregate loans to related parties by $3,906,000. 10 Note 5. Allowance for Loan Losses A summary of the activity in the allowance for loan losses is as follows (dollars in thousands): Year ended December 31, 1996 1995 1994 Balance, at beginning of year . $ 28,031 $ 24,733 $ 21,288 Provision charged to operations 11,321 7,991 6,670 Loan losses ................... (9,918) (6,846) (5,370) Loan loss recoveries .......... 2,286 2,153 2,145 Balance, at end of year ....... $ 31,720 $ 28,031 $ 24,733
Information about FMB's impaired loans as of and for the year ended (dollars in thousands): December 31, 1996 1995 Recorded balance of impaired loans, at end of year: With related allowance for loan loss .............. $ 634 $1,683 With no related allowance for loan loss ........... 7,958 3,933 Total ............................................. $8,592 $5,616 Average balance of impaired loans for the year .... $8,108 $7,360 Allowance for loan loss related to impaired loans . $ 260 $ 609 Interest income on impaired loans: Recorded on a cash basis .......................... $ 261 $ 67 Recorded on an accrual basis ...................... 276 169 Foregone due to impairment ........................ 1,063 801
Note 6. Premises and Equipment Premises and equipment consists of the following (dollars in thousands): December 31, 1996 1995 Land and improvements .... $ 17,164 $ 15,967 Building and improvements 47,654 47,869 Furniture and equipment .. 48,989 44,672 Total .................... 113,807 108,508 Accumulated depreciation . (45,140) (39,957) Net premises and equipment $ 68,667 $ 68,551
Note 7. Mortgage Loan Servicing Mortgage loans serviced for others are not included in the accompanying consolidated balance sheets. The total unpaid principal balance of mortgage loans serviced for others was $815,367,834 and $709,385,980 at December 31, 1996 and 1995, respectively. Custodial escrow balances maintained in connection with the foregoing loan servicing are included in demand deposits and amounted to $942,060 and $1,189,389 at December 31, 1996 and 1995, respectively. Beginning January 1, 1996, FMB began to account for the rights to service mortgage loans that the Banks have originated and sold to others under SFAS No. 122. A summary of the activity relating to mortgage servicing rights is as follows (dollars in thousands): December 31, 1996 Book value, at beginning of year ............... $ -- Originated mortgage servicing rights capitalized 1,934 Amortization of mortgage servicing rights ...... (158) Book value, at end of year ..................... 1,776 Impairment valuation allowance ................. (69) Carrying value, at end of year ................. $ 1,707
11 Note 8. Other Borrowed Funds Other borrowed funds consist of the following (dollars in thousands): December 31, 1996 1995 Short-term borrowings: Securities sold under agreements to repurchase .................... $ 78,543 $108,110 Other ........................................ 5,009 12,713 Total short-term borrowings .................. 83,552 120,823 Federal Home Loan Bank advances .............. 79,668 13,500 Total ........................................ $163,220 $134,323
FMB's only significant category of short-term borrowings during the year is securities sold under agreements to repurchase, of which over 95% are one-day retail repurchase agreements. The securities underlying all of these repurchase agreements remain under FMB's control for the duration of the agreement. The amounts and interest rates for this category for the applicable periods are as follows (dollars in thousands): 1996 1995 1994 End of period: Balance ..................... $ 78,543 $108,110 $122,758 Weighted average interest rate .............. 4.14% 3.47% 3.51% Daily average: Balance ..................... $ 98,904 $110,216 $109,029 Interest rate ............... 3.82% 3.84% 2.88% Maximum amount outstanding at any month-end .............. $119,419 $114,630 $122,758
At both December 31, 1995 and 1994, other short-term borrowings included $10,000,000 that had been advanced under a line of credit and standby loan agreement with another financial institution. Advances on the agreement bore interest at seven-tenths of a percent over the daily federal funds rate. This replaces the previous $10,000,000 line of credit. All amounts advanced on the loan agreement were converted to a term note as of August 15, 1996, which is recorded as long-term debt. Various of the Banks have obtained advances from the Federal Home Loan Bank of which they are members. The advances are secured by blanket collateral agreements covering certain unpledged assets of the respective bank. Federal Home Loan Bank advances for all of the Banks consist of the following (dollars in thousands):
December 31, 1996 1995 Weighted- Weighted- Average Average Total Interest Total Interest Year of Maturity Outstanding Rate Outstanding Rate 1997 $27,500 5.65% $ 4,000 5.82% 1998 47,500 5.77 8,500 5.63 1999 -- -- -- -- 2000 773 5.86 1,000 5.86 2001 1,000 6.36 -- -- After 2001 2,895 6.58 -- -- Total $79,668 5.77% $13,500 5.70%
12 Note 9. Long-Term Debt Long-term debt consists of the following (dollars in thousands):
December 31, 1996 1995 Term note .................................... $25,000 $ -- 10% Subordinated debentures .................. 4,537 4,537 Other ........................................ -- 1,141 Total ........................................ $29,537 $ 5,678
The term note is payable to another financial institution. The note bears interest at seven-tenths of a percent over the daily federal funds rate and is scheduled to mature on August 15, 2002. The term note is unsecured and provides for various restrictions related to nonperforming loans, equity, regulatory capital, total indebtedness and dividend payments. FMB is in compliance with all requirements of the note as of December 31, 1996. The 10% subordinated debentures are payable to former shareholders of Northwestern Bank Corporation. Interest is payable semiannually on January 30 and July 30 of each year. The debentures are scheduled to mature on May 31, 2001. The debentures may not be called for redemption by FMB prior to May 31, 1998. FMB does not have any long-term debt maturing until 2001, at which time $4,537,000 will become due. Note 10. Shareholders' Equity Common stock consists of 50,000,000 shares authorized, at $1 par value, of which 26,304,157 and 18,848,338 were outstanding at December 31, 1996 and 1995, respectively. On June 13, 1996, the Board of Directors declared a four-for-three stock split to shareholders of record on July 1, 1996, payable July 26, 1996. There are 1,904,553 common shares reserved for issuance under the dividend reinvestment, employee stock purchase and stock option plans, and the deferred compensation, deferred stock and current stock purchase plan for non-employee directors. Preferred stock consists of 1,000,000 shares authorized, at no par value, none of which are issued. There are 120,000 shares reserved for issuance under the Shareholder Protection Rights Plan (Plan) Under the Plan, one preferred share right (Right) was distributed as a dividend on each outstanding share of common stock. The Plan is designed to protect shareholders against unsolicited attempts to acquire control of FMB in a manner that does not offer a fair price to all shareholders. Each right will entitle shareholders to buy one one-hundredth of a share of preferred stock from FMB at an exercise price of $20.99. The Rights will be exercisable only if a person or group acquires 15 percent or more of the common stock. If any person or group does acquire 15 percent or more of FMB common stock, each Right will entitle its holder to purchase, for the exercise price, shares of FMB's common stock having a market value of twice the exercise price. Also, if any person or group acquires between 15 percent and 50 percent of FMB's common stock, the Board of Directors may elect to exchange one share of FMB's common stock or one one-hundredth of a share of preferred stock for each Right. FMB will be entitled to redeem the Rights at one cent per Right at any time before a 15 percent position has been acquired. 13 Note 11. Stock Option Plan At December 31, 1996, 1,069,326 shares of common stock were reserved for issuance in connection with FMB's stock option plan. Options may be granted to certain executives and key employees at the fair market value of the stock on the date of grant. The plan provides that 100% of the shares become exercisable one year following the date granted and expire 10 years following the grant date. The activity in FMB's stock option plan is as follows:
Year ended December 31, 1996 1995 1994 Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise Shares Price Shares Price Shares Price Outstanding, at beginning of year 816,605 $10.75 721,834 $9.34 676,713 $7.80 Granted ............. 162,106 20.08 161,586 16.33 182,289 13.42 Exercised ........... (65,895) 10.15 (62,626) 8.62 (133,652) 7.09 Forfeited ........... (3,780) 20.00 (4,189) 16.33 (3,516) 9.74 Outstanding, at end of year ..... 909,036 $12.42 816,605 $10.75 721,834 $9.34 Exercisable, at end of year ..... 750,681 $10.80 659,109 $9.41 539,441 $7.96
Stratification and additional detail regarding the options outstanding at December 31, 1996 is as follows:
Options Outstanding Options Exercisable Excercise Number Weighted-Average Weighted-Average Number Weighted-Average Price Range Outstanding Remaining Life Exercise Price Exercisable Exercise Price $4.49-$7.16 230,972 2.84 years $ 6.22 230,972 $ 6.22 $8.60-$13.24 358,179 6.10 years 11.29 358,179 11.29 $15.48-$23.25 319,885 8.48 years 18.15 161,530 16.25
The weighted-average grant-date fair value of stock options granted to employees during the year and the weighted-average significant assumptions used to determine those fair values, using a modified Black-Sholes option pricing model, and the pro forma effect on earnings of the fair value accounting for stock options under SFAS No. 123 are as follows:
Year ended December 31, 1996 1995 Grant-date fair value per share ........... $ 5.01 $ 5.76 Significant assumptions (weighted-average): Risk-free interest rate at grant date ....................... 5.50% 7.79% Expected stock price volatility ............................... 22.01 23.64 Expected dividend payout .................. 3.00 2.90 Expected option life* ..................... 7.5 years 10.0 years Net income (in thousands): As reported ............................... $ 42,168 $ 37,312 Pro forma ................................. 41,375 36,405 Net income per share: As reported ............................... $ 1.57 $ 1.40 Pro forma ................................. 1.55 1.37
*The expected option life considers historical option exercise patterns and future changes to those exercise patterns anticipated at the date of grant. 14 Note 12. Income Taxes Income tax components are as follows (dollars in thousands):
Year ended December 31, 1996 1995 1994 Income tax expense: Current ................ $ 17,153 $ 14,177 $ 10,718 Deferred ............... (874) (853) 58 Total .................. $ 16,279 $ 13,324 $ 10,776 Income tax expense (credit) included above which relates to security transactions . $ (30) $ 114 $ (105)
The tax effect of temporary differences which give rise to a significant portion of FMB's deferred tax assets (liabilities) are as follows (dollars in thousands):
December 31, 1996 1995 1994 Allowance for loan losses .. $ 10,963 $ 9,563 $ 8,318 Accumulated depreciation ... (3,755) (3,607) (3,146) Net prepaid retirement plans (1,680) (1,709) (1,863) Capitalized mortgage servicing rights .......... (598) -- -- Deferred loan fees ......... (327) (394) (316) Deferred compensation ...... 1,015 895 1,001 Available-for-sale securities valuation ...... (344) (977) 1,554 Other ...................... 166 162 63 Net deferred tax assets included in other assets .. $ 5,440 $ 3,933 $ 5,611
The amounts shown for income tax expense on the consolidated statements of income are less than amounts computed by applying the statutory federal income tax rate to income before taxes. A reconciliation of such amounts is as follows (dollars in thousands): Year ended December 31, 1996 1995 1994
Income taxes at statutory rate ......... $ 20,456 $ 17,723 $ 15,574 Tax-exempt interest income ................. (4,477) (4,729) (4,918) Goodwill amortization ... 103 103 103 Other ................... 197 227 17 Income tax expense ...... $ 16,279 $ 13,324 $ 10,776 Effective income tax rate 27.9% 26.3% 24.2% Statutory income tax rate 35.0 35.0 35.0
15 Note 13. Employees' Benefit Plans Net pension cost includes the following components (dollars in thousands):
Year ended December 31, 1996 1995 1994 Service cost ................. $ 1,750 $ 1,535 $ 1,558 Interest cost ................ 2,535 2,152 1,959 Return on plan assets ........ (2,828) (2,339) (2,260) Net amortization and deferral 209 367 252 Net periodic pension cost .... $ 1,666 $ 1,715 $ 1,509 Major actuarial assumptions: Weighted-average discount rate 7.75% 7.5% 7.5% Rate of increase in future compensation levels ......... 4.5 5.0 5.0 Expected long-term rate of return on plan assets ....... 9.0 9.0 9.0
The pension plan's funded status and amounts recognized in FMB's consolidated balance sheets are as follows (dollars in thousands):
December 31, 1996 1995 Accumulated benefit obligation, including vested benefits of $25,674,000 and $23,120,000, respectively ........................ $ 27,412 $ 25,054 Projected benefit obligation for service rendered to date ........ $ 33,562 $ 31,671 Plan assets at fair value, primarily corporate and governmental obligations and mutual funds ........ 36,806 32,046 Plan assets in excess of projected benefit obligation .................. 3,244 375 Unrecognized prior service cost ...... (2,013) (2,152) Unrecognized net loss ................ 5,776 7,630 Unrecognized net transition obligation 26 40 Prepaid pension cost included in other assets ............................... $ 7,033 $ 5,893
The matching contributions to FMB's defined contribution 401(k) plan amounted to $933,000 for 1996, $769,000 for 1995 and $568,000 for 1994. Net periodic postretirement benefit cost includes the following components (dollars in thousands):
Year ended December 31, 1996 1995 1994 Service cost ................. $ 144 $ 18 $ 114 Interest cost ................ 124 60 76 Return on plan assets ........ (2) (2) (2) Net amortization and deferral 76 36 61 Net periodic postretirement benefit cost ................ $ 342 $ 112 $ 249 Major actuarial assumptions: Weighted-average discount rate 7.75% 7.5% 7.5% Health care cost trend rate .. 10.0 10.5 12.5
Changes to, and refinement of, the retirement age assumptions during 1995 and 1996 also had a significant impact on the net periodic postretirement benefit cost from year to year. 16 The postretirement benefit plan's funded status and amounts recognized in FMB's consolidated balance sheet are as follows (dollars in thousands):
December 31, 1996 1995 Accumulated postretirement benefit obligation: Retirees ........................... $ 238 $ 168 Fully eligible active plan participants ................. 291 562 Other active plan participants ..... 1,301 115 Total .............................. 1,830 845 Plan assets at fair value, primarily cash .................... (55) 26 Accumulated postretirement benefit obligation in excess of plan assets .................... 1,885 819 Unrecognized transition obligation . (838) (908) Unrecognized gain (loss) ........... (345) 539 Accrued other postretirement benefit cost included in other liabilities . $ 702 $ 450
The health care cost trend rate is assumed to decrease 0.5% annually through the year 1997 and 1.0% annually through the year 2002 to a rate of 5.0% and remain at that level thereafter. The health care cost trend rate assumption has a significant effect on the amounts reported. An increase of 1.0% each year in the assumed health care cost trend rate would increase the accumulated postretirement benefit obligation at December 31, 1996 by $388,000 and the aggregate of the service and interest cost components of the net periodic postretirement benefit cost for 1996 by $71,000. Note 14. Data Processing Commitments FMB is a party to an agreement with a service company under which the latter furnishes data processing services and equipment to FMB and certain of its subsidiaries. FMB is required to pay minimum charges under the agreement and additional service fees depending on the volume of accounts. FMB furnishes the facilities to house the service center and is responsible for utilities, maintenance and other related costs. Total expense for services under this agreement was $4,754,000 for 1996, $3,888,000 for 1995 and $3,503,000 for 1994, including charges for data processing and professional services and amortization of software costs. The remaining minimum charges are payable as follows (dollars in thousands): 1997 $ 4,510 1998 4,446 1999 792 Total $ 9,748
Note 15. Supplemental Income Statement Information The components of other operating expenses that are detailed pursuant to various reporting requirements are as follows (dollars in thousands):
Year ended December 31, 1996 1995 1994 Other operating expenses: Printing and supplies ... $3,704 $3,279 $2,814 Computer processing ..... 4,604 4,197 3,768 Professional services ... 1,867 2,580 2,350 Advertising and promotion 2,500 2,486 2,250
17 Note 16. Financial Instruments with Off-Balance-Sheet Risk FMB is party to financial instruments with off-balance-sheet risk, all of which are entered into for purposes other than trading. These instruments are used in the normal course of business to meet the financing needs of its customers and reduce its own exposure to fluctuations in interest rates and include commitments to extend credit, letters of credit, foreign exchange forward contracts, interest rate forward contracts and interest rate swap agreements. To varying degrees, they involve elements of credit and interest rate risk in excess of the amounts recognized in the consolidated balance sheets. The contract or notional amounts of these instruments reflect the extent of involvement FMB has in these particular categories of financial instruments. Commitments to extend credit are agreements to lend to customers as long as there are no violations of any conditions established in the contracts. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. Letters of credit are conditional commitments issued by the Banks to guarantee the performance of customers to third parties. Letters of credit are written for a fixed period of time, usually one year or less, and generally require payment of a fee. The credit risk involved in issuing letters of credit is essentially the same as that involved in extending loan facilities to customers. For both commitments to extend credit and letters of credit, the Banks evaluate each customer's credit worthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary by the Banks upon extension of credit, is based on management's credit evaluation. Collateral held varies but may include accounts receivable, inventory, property, plant and equipment, and income-producing commercial properties. FMB enters into foreign exchange forward contracts to purchase or sell foreign currencies at a future date at a predetermined exchange rate. These contracts are used to assist customers with international transactions based upon foreign denominated currencies. There is credit risk and exposure to foreign currency exchange fluctuations inherent in these transactions to the extent that the customer would fail to fulfill its purchase or delivery responsibility and FMB would execute the transaction at the prevailing currency valuation, which may be different than the value of the original contract. Interest rate forward contracts are utilized by FMB in its mortgage banking operations to hedge the value of residential real estate loans that are being underwritten for anticipated sale to secondary market investors. Changes in market interest rates, between the time that a customer receives a rate-lock commitment and the sale of the fully-funded loan, can change the sale value of the loan. FMB enters into forward contracts to sell exchange traded instruments whose change in value, due to the same change in market interest rates, substantially offsets the change in sale value of the underlying rate-locked loans which are anticipated to be funded. FMB and its subsidiaries enter into interest rate swap agreements as part of the asset/liability management process to hedge its short-term interest sensitivity position against the impact of changes in interest rates. Interest rate swap agreements generally involve the exchange of fixed and floating interest payment obligations without the exchange of the underlying principal amounts. The interest rate differential to be paid or received is recognized in interest income over the life of the agreements. The exposure to credit loss in the event of nonperformance by the other party to the financial instruments for commitments to extend credit and letters of credit written is represented by the contractual amount of those instruments. The Banks use the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. For foreign exchange and interest rate forward contracts and interest rate swap agreements, the notional or contract amounts do not represent exposure to credit loss. FMB controls the credit risk for these instruments through credit approvals, limits and monitoring procedures. Substantially all of FMB's business during the years presented is with customers in the State of Michigan with no group concentration of credit. The contract or notional amounts of financial instruments with off-balance-sheet risk, held for purposes other than trading, are as follows (dollars in thousands):
December 31, 1996 1995 Financial instruments whose contract amounts represent credit risk: Commitments to extend credit ........... $718,951 $588,727 Letters of credit ...................... 101,432 38,233 Financial instruments whose notional or contract amounts exceed the amount of credit risk: Foreign exchange forward contracts ..... 924 -- Interest rate forward contract ......... 15,000 -- Interest rate swap agreements .......... 50,000 30,000
Note 17. Disclosures About Estimated Fair Value of Financial Instruments Most of FMB's assets and liabilities are considered financial instruments. Many of FMB's financial instruments lack an available trading market, and it is the intent and general practice of FMB to hold its financial instruments to maturity. As a result, significant assumptions and present value calculations were used in determining estimated fair values. For financial instruments bearing a variable interest rate, it is presumed that recorded book values are reasonable estimates of fair value. For all other financial instruments, the following methods and assumptions were used to estimate fair values: Cash and cash equivalents Recorded book value of cash and due from banks and federal funds sold is a reasonable estimate of fair value. Interest bearing deposits with banks The present value of future cash flows from interest bearing deposits with banks is used to determine estimated fair value. The discount rates used are the current rates that FMB would receive for similar deposits. Securities Quoted market prices for the specific instruments owned, or for similar securities, are used to determine estimated fair value. Loans FMB holds in its portfolio few loans of the type that are readily salable in the secondary market, or that are commonly used to collateralize investment securities. Therefore, the present value of estimated future cash flows from the loan portfolio is used to determine fair value. The discount rates used are the current rates at which loans with similar terms would be made to borrowers with similar credit ratings. Mortgage servicing rights The estimated fair value of mortgage servicing rights is computed by discounting the projected future net cash flows relating to mortgage loans sold with servicing retained given period-end assumptions regarding, among other things, market servicing costs and estimated long-term prepayments. Deposits without stated maturities Recorded book value of non-interest bearing demand deposits and savings and NOW account deposits, representing the amount payable on demand at the reporting date, is a reasonable estimate of fair value. The relationship value of these instruments, commonly referred to as the core deposit intangible, is not considered a financial instrument and is not included in the fair value disclosure. The value of the core deposit intangible would significantly increase the estimated fair value of FMB's financial assets. Deposits with stated maturities The present value of future cash flows for time deposits is used to determine estimated fair value. The discount rates used are the current rates offered for time deposits with similar maturities. Other borrowed funds For short-term borrowings, recorded book value is a reasonable estimate of fair value due to the relatively short period between origination and expected repayment of these instruments. For Federal Home Loan Bank advances, the present value of future cash flows is used to determine estimated fair value. The discount rates used are the current rates offered for advances with similar maturities. Long-term debt The present value of future cash flows for long-term debt issues is used to determine estimated fair value. The discount rate used is the average of quoted yields to maturity on trades of similarly-rated financial institution debt issues. Accrued interest Accrued interest receivable and payable on financial instruments is included in the reported values of the underlying instruments. For accrued interest receivable and payable, the recorded book values are reasonable estimates of fair value. Off-balance-sheet financial instruments held for purposes other than trading For foreign exchange and interest rate forward contracts and interest rate swap agreements, dealer quotes for the specific instruments owned are used to determine estimated fair value. These values represent the estimated amount FMB would pay to terminate the agreements, taking into account the current interest rates. For 18 commitments to extend credit and letters of credit, the fees currently charged for similar agreements are used to determine estimated fair value. Given the market in which it operates, FMB seldom charges fees on commitments to extend credit. The estimated fair values of FMB's financial instruments are as follows (dollars in thousands):
December 31, 1996 December 31, 1995 Carrying Fair Carrying Fair Value Value Value Value Financial Assets Cash and cash equivalents ............. $ 168,675 $ 168,675 $ 245,268 $ 245,319 Interest bearing deposits with banks ........................... 1,716 1,731 5,370 5,348 Securities ............................ 760,012 768,915 688,590 702,149 Loans, net of allowance ............... 2,482,394 2,498,122 2,203,054 2,224,673 Mortgage servicing rights ............. 1,707 1,769 -- -- Total financial assets ................ $ 3,414,504 $ 3,439,212 $ 3,142,282 $ 3,177,489 Financial Liabilities Deposits without stated maturities .... $ 1,373,565 $ 1,373,565 $ 1,231,982 $ 1,231,982 Deposits with stated maturities ....... 1,652,668 1,658,253 1,592,096 1,600,953 Other borrowed funds .................. 163,512 163,006 134,412 134,412 Long-term debt ........................ 29,726 29,968 5,869 6,228 Total financial liabilities ........... $ 3,219,471 $ 3,224,792 $ 2,964,359 $ 2,973,575 Off-Balance-Sheet Financial Instruments Held For Purposes Other Than Trading Interest rate swap agreements ......... $ (3) $ 70 $ (4) $ (607) Foreign exchange forward contracts .... n/a 20 n/a -- Interest rate forward contracts ....... n/a 35 n/a -- Commitments to extend credit .......... n/a -- n/a -- Letters of credit ..................... n/a (347) n/a (173) Total off-balance-sheet financial instruments .......................... $ (3) $ (222) $ (4) $ (780)
The remaining balance sheet assets and liabilities of FMB are not considered financial instruments and have not been valued differently than is customary under historical cost accounting. Since assets and liabilities that are not financial instruments are excluded above, the difference between total financial assets and financial liabilities does not, nor is it intended to, represent the market value of FMB. Furthermore, the estimated fair value information may not be comparable between financial institutions due to the wide range of valuation techniques permitted, and assumptions necessitated, in the absence of an available trading market. 19 Note 18. First Michigan Bank Corporation (Parent Company Only) Financial Information
Balance Sheets (dollars in thousands) December 31, 1996 1995 Assets Cash and cash equivalents .......... $ 1,976 $ 811 Interest bearing deposits with banks 17,100 15,200 Investment in subsidiaries ......... 265,755 232,730 Net premises and equipment ......... 18,899 18,684 Other assets ....................... 14,352 11,600 Total assets ....................... $318,082 $279,025 Liabilities and Shareholders' Equity Liabilities: Short-term borrowings .............. $ 11 $ 10,011 Long-term debt ..................... 29,537 4,883 Other liabilities .................. 14,390 10,303 Total liabilities .................. 43,938 25,197 Shareholders' equity ............... 274,144 253,828 Total liabilities and shareholders' equity ............... $318,082 $279,025
Statements of Income (dollars in thousands, except per share data)
Year ended December 31, 1996 1995 1994 Income From subsidiaries: Dividends ................. $ 22,287 $ 27,600 $ 16,550 Centralized support service fees ............. 19,853 15,696 12,093 Interest on notes receivable ............... -- -- 17 Investment interest ....... 861 451 534 Other ..................... (8) 15 (6) Total income .............. 42,993 43,762 29,188 Expense Salaries and employee benefits ................. 16,548 13,325 10,576 Interest on long-term debt ..................... 993 508 643 Other ..................... 12,917 9,241 6,927 Total expense ............. 30,458 23,074 18,146 Income before income tax benefit and equity in undistributed net income of subsidiaries ... 12,535 20,688 11,042 Income tax benefit ........ 3,210 2,225 1,723 Income before equity in undistributed net income of subsidiaries ... 15,745 22,913 12,765 Equity in undistributed net income of subsidiaries 26,423 14,399 20,962 Net Income ................ $ 42,168 $ 37,312 $ 33,727 Net Income Per Share ...... $ 1.57 $ 1.40 $ 1.27
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Statements of Cash Flows (dollars in thousands) Year ended December 31, 1996 1995 1994 Cash Flows From Operating Activities Net income ......................... $ 42,168 $ 37,312 $ 33,727 Adjustments to reconcile net income to net cash provided by operating activities: Provision for depreciation, amortization and accretion ........ 3,178 2,378 1,914 Deferred income taxes .............. (350) (53) 428 Other-net .......................... 1,902 2,102 (536) Equity in undistributed net income of subsidiaries ............ (26,423) (14,399) (20,962) Total adjustments .................. (21,693) (9,972) (19,156) Net cash provided by operating activities .............. 20,475 27,340 14,571 Cash Flows From Investing Activities Net (increase) decrease in interest bearing deposits with banks ........................ (1,900) (8,200) 8,000 Purchase of premises and equipment and other assets ........ (4,492) (3,525) (959) Proceeds from sale of premises and equipment ............ -- 293 2,034 Contribution to capital of subsidiaries ................... (7,500) (4,250) (8,900) Net cash provided by (used in) investing activities ........................ (13,892) (15,682) 175 Cash Flows From Financing Activities Increase (decrease) in short-term borrowings ............. 15,000 -- (3) Repayment of long-term debt ........ (346) (598) (1,497) Cash dividends and fractional shares ................. (16,073) (13,386) (10,703) Proceeds from issuance of common stock ................... 5,256 4,278 3,641 Common stock repurchased ........... (9,255) (1,911) (6,311) Net cash used in financing activities ........................ (5,418) (11,617) (14,873) Increase (decrease) In Cash and Cash Equivalents .............. 1,165 41 (127) Cash and Cash Equivalents, At Beginning of Year .............. 811 770 897 Cash and Cash Equivalents, At End of Year .................... $ 1,976 $ 811 $ 770
Note 19. Regulatory Restrictions The Banks may, from time to time, be required to maintain certain average reserve balances with the Federal Reserve Bank. During 1996 and 1995, these reserves were $9,021,000 and $7,594,000, respectively. Federal and state banking laws and regulations place certain restrictions on the amount of dividends and loans that a bank must pay to its parent company. Of the $263,349,000 in net assets of the Banks, $49,311,000 is available for dividends to the parent company in 1997 (before considering 1997 net income), and the remaining $214,038,000 is restricted based on minimum risk-based capital requirements now in effect. Note 20. Regulatory Capital Requirements FMB and the Banks individually are subject to various regulatory capital requirements administered by the federal banking agencies. Failure to meet minimum capital requirements can initiate certain mandatory and possibly additional discretionary actions by the regulators that could have a direct material effect on the financial statements of the Banks and of FMB as a whole. Under the capital adequacy guidelines and the regulatory framework for prompt corrective action, the Banks must meet specific capital guidelines that involve quantitative measures the Banks' assets, liabilities, and certain off-balance-sheet items as calculated under regulatory accounting practices. In addition, the Banks' capital amounts and classifications are subject to qualitative judgments by the regulators about components, risk weightings and other factors. 21 The table below sets forth the quantitative measures established by regulation to ensure capital adequacy for FMB and the Banks which are considered significant subsidiaries (dollars in thousands):
To Be Well Capitalized Under Minimum Prompt Corrective For Capital Actual Action Provisions: Adequacy Purposes: Amount Ratio Amount Ratio Amount Ratio As of December 31, 1996 Total Capital (to risk weighted assets): FMB ..................................... $300,186 11.1% $269,505 10.0% $215,604 8.0% FMB-First Michigan Bank ................. 114,563 10.1 113,071 10.0 90,456 8.0 FMB-First Michigan Bank- Grand Rapids ............................ 47,311 10.5 45,096 10.0 36,077 8.0 FMB-Lumberman's Bank .................... 35,184 10.3 34,037 10.0 27,230 8.0 Tier 1 Capital (to risk weighted assets): FMB ..................................... $264,836 9.8% $161,703 6.0% $107,802 4.0% FMB-First Michigan Bank ................. 102,449 9.1 67,842 6.0 45,228 4.0 FMB-First Michigan Bank- Grand Rapids ............................ 42,102 9.3 27,057 6.0 18,038 4.0 FMB-Lumberman's Bank .................... 31,095 9.1 20,422 6.0 13,615 4.0 Tier 1 Capital (to average assets): FMB ..................................... $264,836 7.6% $173,252 5.0% $103,951 3.0% FMB-First Michigan Bank ................. 102,449 7.9 64,680 5.0 38,808 3.0 FMB-First Michigan Bank- Grand Rapids ............................ 42,102 8.0 26,300 5.0 15,780 3.0 FMB-Lumberman's Bank .................... 31,095 7.1 21,867 5.0 13,120 3.0 As of December 31, 1995 Total Capital (to risk weighted assets): FMB ..................................... $278,229 11.9% $233,308 10.0% $186,646 8.0% FMB-First Michigan Bank ................. 99,606 10.3 96,800 10.0 77,440 8.0 FMB-First Michigan Bank- Grand Rapids ............................ 40,042 11.0 36,284 10.0 29,027 8.0 FMB-Lumberman's Bank .................... 31,494 10.7 29,367 10.0 23,494 8.0 Tier 1 Capital (to risk weighted assets): FMB ..................................... $245,625 10.5% $139,985 6.0% $ 93,323 4.0% FMB-First Michigan Bank ................. 88,571 9.2 58,080 6.0 38,720 4.0 FMB-First Michigan Bank- Grand Rapids ............................ 35,614 9.8 21,771 6.0 14,514 4.0 FMB-Lumberman's Bank .................... 28,011 9.5 17,620 6.0 11,747 4.0 Tier 1 Capital (to average assets): FMB ..................................... $245,625 7.8% $157,980 5.0% $ 94,788 3.0% FMB-First Michigan Bank ................. 88,571 7.4 59,597 5.0 35,758 3.0 FMB-First Michigan Bank- Grand Rapids ............................ 35,614 7.9 22,646 5.0 13,587 3.0 FMB-Lumberman's Bank .................... 28,011 7.1 19,658 5.0 11,795 3.0
As of December 31, 1996, the most recent notifications from the Federal Deposit Insurance Corporation have respectively categorized the Banks as well-capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that, in the opinion of management, have changed the categories under which any of the Banks would be classified. 22 First Michigan Bank Corporation Holland, Michigan We have audited the accompanying consolidated balance sheets of First Michigan Bank Corporation and subsidiaries as of December 31, 1996 and 1995, and the related consolidated statements of income, shareholders' equity and cash flows for each of the three years in the period ended December 31, 1996. These financial statements are the responsibility of FMB's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material aspects, the financial position of First Michigan Bank Corporation and subsidiaries at December 31, 1996 and 1995, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1996 in conformity with generally accepted accounting principles. /s/ BDO Seidman, LLP BDO Seidman, LLP January 16, 1997 Grand Rapids, Michigan EX-99.D 3 EXHIBIT 99(D) 1 Exhibit 99(d) CONSOLIDATED BALANCE SHEETS
June 30, December 31, June 30, 1997 1996 1996 (dollars in thousands) Assets Cash and due from banks $ 152,132 $ 155,725 $ 126,942 Federal funds sold 200 12,950 1,450 Total cash and cash equivalents 152,332 168,675 128,392 Interest bearing deposits with banks 2,163 1,713 1,310 Securities: Available-for-sale 490,042 465,460 418,194 Held-to-maturity (market values $247,584, $293,593 and $319,723 respectively) 239,191 284,691 312,374 Loans 2,692,453 2,499,038 2,345,385 Allowance for loan losses (35,178) (31,720) (30,183) Premises and equipment 67,967 68,667 69,489 Other assets 64,185 63,909 59,799 ---------- ---------- ---------- Total assets $3,673,155 $3,520,433 $3,304,760 ========= ========= ========= Liabilities and Shareholders' Equity Deposits: Non-interest bearing $ 367,301 $ 361,692 $ 332,384 Interest bearing: Savings and NOW accounts 1,024,757 1,011,153 942,028 Time 1,652,310 1,643,124 1,565,525 --------- --------- --------- Total deposits 3,044,368 3,015,969 2,839,937 Short-term borrowings 272,268 163,220 168,534 Other liabilities 37,311 37,563 33,532 Long-term debt 29,537 29,537 4,714 ---------- ---------- ----------- Total liabilities 3,383,484 3,246,289 3,046,717 --------- --------- --------- Shareholders' equity: Preferred stock - no par value; 1,000,000 shares authorized -- -- -- Common stock - $1 par value; 50,000,000 shares authorized; issued and outstanding: 27,812,979, 26,304,157 and 19,736,038 respectively 27,813 26,304 19,736 Surplus 203,673 163,828 170,902 Retained earnings 57,672 83,374 69,951 Securities valuation, net of tax 513 638 (2,546) ----------- ----------- ----------- Total shareholders' equity 289,671 274,144 258,043 --------- --------- ---------- Total liabilities and shareholders' equity $3,673,155 $3,520,433 $3,304,760 ========== ========== ==========
See accompanying notes to financial statements. 2 CONSOLIDATED STATEMENTS OF INCOME
Three months ended Six months ended June 30, June 30, 1997 1996 1997 1996 (in thousands, except for per share data) Interest Income Interest and fees on loans $ 62,960 $ 53,984 $122,170 $106,896 Interest on securities: Taxable 8,705 8,163 17,332 15,494 Tax-exempt 2,985 3,239 6,104 6,497 Other interest income 140 291 537 1,561 Total interest income 74,790 65,677 146,143 130,448 Interest Expense Interest on deposits 32,245 29,213 64,242 59,039 Interest on short-term borrowings 3,321 1,721 5,484 3,175 Interest on long-term debt 518 122 1,017 255 Total interest expense 36,084 31,056 70,743 62,469 Net Interest Income 38,706 34,621 75,400 67,979 Provision for loan losses 4,449 2,317 7,937 4,689 Net interest income after provision for loan losses 34,257 32,304 67,463 63,290 Non-Interest Income Service charges on deposits 3,877 3,562 7,447 6,816 Trust income 2,302 1,996 4,576 4,016 Other operating income 4,851 3,275 9,532 6,608 Securities gains (losses) -- (100) 121 (84) Total non-interest income 11,030 8,733 21,676 17,356 Non-Interest Expense Salaries and employee benefits 16,067 14,524 31,409 29,182 Occupancy 1,778 1,772 3,679 3,613 Equipment 1,915 1,737 3,755 3,401 Other operating 9,921 8,878 19,763 17,248 Total non-interest expense 29,681 26,911 58,606 53,444 Income Before Income Taxes 15,606 14,126 30,533 27,202 Income taxes 4,549 3,925 8,747 7,422 Net Income $ 11,057 $ 10,201 $ 21,786 $ 19,780 Net income per share $.39 $.36 $.77 $.70 Cash dividends declared per share .18 .15 .35 .29 Average shares outstanding (in thousands) 28,313 28,164 28,270 28,124
See accompanying notes to financial statements. 3 CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Six months ended June 30, 1997 1996 Cash Flows From Operating Activities Net income $ 21,786 $ 19,780 -------- -------- Adjustments to reconcile net income to net cash provided by operating activities: Provision for loan losses 7,937 4,689 Origination of loans for sale in secondary market (94,484) (125,472) Proceeds from sale of loans 95,078 126,144 Gain on sale of loans (594) (672) Origination of mortgage servicing rights (774) -- Realized securities (gains) losses (121) 84 Provision for depreciation, amortization and accretion 4,048 1,236 Deferred income taxes (435) (737) Increase in interest receivable (643) (193) Increase (decrease) in interest payable 572 (847) Other - net 1,111 (539) -------- -------- Total adjustments 11,695 3,693 ------- ------- Net cash provided by operating activities 33,481 23,473 ------- ------- Cash Flows From Investing Activities Net (increase) decrease in interest bearing deposits with banks (450) 4,051 Purchase of securities available-for-sale (92,998) (189,209) Proceeds from sales of securities available-for-sale 33,681 27,906 Proceeds from maturities and prepayments of securities available-for-sale 32,208 68,137 Purchase of securities held-to-maturity (1,783) (6,959) Proceeds from maturities and prepayments of securities held-to-maturity 50,247 43,984 Net increase in loans (197,743) (130,677) Purchase of premises and equipment and other assets (4,570) (6,139) -------- -------- Net cash used in investing activities (181,408) (188,906) ------- ------- Cash Flows From Financing Activities Net increase in non-interest bearing demand, savings and NOW deposit accounts 19,212 43,262 Net increase (decrease) in time deposits 9,187 (17,065) Net increase in short-term borrowings 109,048 34,211 Repayment of long-term debt -- (964) Cash dividends and fractional shares (9,528) (7,696) Proceeds from sales of stock 3,665 2,928 Common stock repurchased -- (6,119) ----------- Net cash provided by financing activities 131,584 48,557 ------- ------- Decrease in Cash and Cash Equivalents (16,343) (116,876) Cash and Cash Equivalents, beginning of period 168,675 245,268 ------- ------- Cash and Cash Equivalents, end of period $152,332 $128,392 ======= =======
See accompanying notes to financial statements. 4 Notes to Consolidated Financial Statements The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. 1. In the opinion of management of the Company, the unaudited consolidated financial statements contained herein include all adjustments (consisting of only normal recurring accruals) necessary to present fairly the consolidated financial position of the Company as of June 30, 1997, June 30, 1996 and December 31, 1996 and consolidated results of operations for the three months and six months ended June 30, 1997 and 1996. 2. The results of operations for the three months and six months ended June 30, 1997 are not necessarily indicative of the results to be expected for the full year. 3. The accompanying unaudited consolidated financial statements should be read in conjunction with the Notes to Consolidated Financial Statements contained in the Registrant's Form 10-K for the year ended December 31, 1996. -----END PRIVACY-ENHANCED MESSAGE-----