The Corporate Funds Management Division, First of American Bank Corporation: Bank Profitability and the national Economy

Abstract

The paper discusses my internship experience in the Funds Management Division of First of America Bank Corporation during the fall quarter of 1993. The paper is divided into five primary sections: 1.) A history of First of America Bank Corporation, 2.) An examination of Gross Domestic Product and Unemployment as they relate to FOABC's financial performance and profitability, 3.) An examination of the effects of inflation using the Consumer Price Index and the Producer Price Index as they relate to FOABC's financial performance and profitability, 4.) An examination of the effects of money supply changes and selected interest rates on FOABC's financial performance and profitability, 5.) A description of the author's work experience, and 6.) The author's future plans and goals, and how they relate to his academic experience at Kalamazoo College, as well as his internship at First of America. The purpose of my internship was three-fold. First, I was to organize and document the numerous economic publications and resources the bank had on file. Second, I was to design, collect data for, document, and create two databases; one with the economic information used by the department for their monthly and quarterly economic newsletters, and the other with historical (1972 - 1992) data on the corporation's financial performance, specifically, earnings, loan, deposit, and dividend growth. Finally, from these databases I was to perform correlation analysis using Lotus 123 to determine which, if any, of the selected economic indicators influenced or displayed trends in First of America's financial performance. This project is designed to give the bank an idea of what to expect given various economic environments, both regionally and nationally. Although First of America operates banks in Michigan, Indiana, and Illinois, we chose to concentrate our analysis on the national economy and that of Michigan. First of America has not been in Illinois and Indiana for a long enough period of time to generate significant data for a statistical examination. The project being undertaken is one of an exploratory nature, that is, the director of our division and myself are not necessarily expecting black and white results. Rather, what we are looking for is an indication of what economic factors may be more relevant than others to focus on for the bank's future planning and strategies. Also, due to the large number of acquisitions that have occurred over the past 8 years for First of America, there is likely to be a great deal of volatility in the bank's balance sheet and income statement; and consequently, we have used their variables excluding acquisitions where possible. The results of this analysis will be presented in two ways, graphically and statistically, using simple regression to determine the statistical correlation that exists between First of America's numbers and the economic variables. It was decided that although there is not a great deal of statistical significance to many of the regressions that were done, there is still significant correlation between the variables which is why we chose to show them graphically in addition to statistically. With the large amount of acquisitions that have taken place, many of the numbers have been skewed, thus adding a great deal of statistical "noise" to the analysis that graphs tend not to recognize.