UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
- OR -
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-20987
Grand Premier Financial Inc.
(Exact Name of Registrant as Specified in its Charter)
Delaware 36-4077455
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
486 W. Liberty St., Wauconda, IL 60084-2489
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (847) 487-1818
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 (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X
or No
The number of shares of the registrant's Common Stock outstanding on
July 30, 1999 was 22,293,658 shares.
GRAND PREMIER FINANCIAL INCORPORATED
FORM 10-Q - QUARTERLY REPORT
FOR QUARTER ENDED JUNE 30, 1999
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets (unaudited)
June 30, 1999 and December 31, 1998. 3 - 4
Consolidated Statements of Income (unaudited)
Six Months Ended June 30, 1999 and 1998 5 - 6
Three Months Ended June 30, 1999 and 1998 7 - 8
Consolidated Statements of Cash Flow (unaudited)
Six Months Ended June 30, 1999 and 1998 9 - 10
Notes to Unaudited Consolidated Financial Statements 11 - 13
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations. 14 - 22
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 23
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 24
Item 6. A. Exhibits 22 - 26
B. Reports on Form 8-K 26
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
ASSETS
(000's omitted
except share data)
June 30, December 31,
1999 1998
Cash and non-interest bearing deposits $ 41,622 $ 52,994
Interest bearing deposits 713 1,718
Federal funds sold 12,500 48,000
Cash and cash equivalents 54,835 102,712
Securities available for sale, at fair value 396,112 516,083
Securities purchased under agreements to resell 19,450 10,195
Loans 1,042,136 957,153
Less: Unearned discount (1,360) (953)
Allowance for possible loan losses (12,885) (12,443)
Net loans 1,027,891 943,757
Bank premises and equipment 31,685 34,099
Excess cost over fair value of
net assets acquired, net 14,479 15,281
Accrued interest receivable 10,255 11,573
Other assets 20,252 14,541
Total assets $1,574,959 $1,648,241
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(continued)
LIABILITIES AND STOCKHOLDERS' EQUITY
(000's omitted
except share data)
June 30, December 31,
1999 1998
Liabilities
Non-interest bearing deposits $ 177,726 $ 199,084
Interest bearing deposits 1,104,860 1,161,936
Total deposits 1,282,586 1,361,020
Short-term borrowings 12,936 11,887
Long-term borrowings 70,000 70,000
Other liabilities 21,709 21,945
Total liabilities 1,387,231 1,464,852
Stockholders' equity
Preferred stock - $1 par value, 2,000,000
shares authorized:
Series B convertible, $1,000 stated value,
8.00%, 7,250 shares authorized, issued
and outstanding 7,250 7,250
Series C perpetual, $1,000 stated value,
8.00%, 2,000 shares authorized, issued
and outstanding 2,000 2,000
Common stock - $.01 par value
Number of Shares 6/30/99 12/31/98
Authorized 30,000,000 30,000,000
Issued 22,180,658 22,047,672
Outstanding 22,114,525 21,981,739 222 220
Surplus 79,325 79,056
Retained earnings 97,937 88,756
Accumulated other comprehensive income 1,692 6,794
Treasury stock, at cost (66,133 shares
at 6/30/99 and 65,933 shares at 12/31/98) (698) (687)
Stockholders' equity 187,728 183,389
Total liabilities &
stockholders' equity $1,574,959 $1,648,241
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(000's omitted
except per share data)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Interest income
Interest and fees on loans $41,580 $44,637
Interest and dividends on
investment securities:
Taxable 7,699 8,661
Exempt from federal income tax 4,438 4,129
Other interest income 818 961
Total interest income 54,535 58,388
Interest expense
Interest on deposits 21,399 24,239
Interest on short-term borrowings 306 606
Interest on long-term borrowings 2,152 2,152
Total interest expense 23,857 26,997
Net interest income 30,678 31,391
Provision for possible loan losses 1,300 1,800
Net interest income after provision
for possible loan losses 29,378 29,591
Other income
Service charges on deposits 2,308 2,841
Trust fees 1,854 1,698
Investment securities gains, net 129 1,926
Gains on sales of branches and deposits 7,869 -
Other income 2,563 1,983
Total other income 14,723 8,448
Other expenses
Salaries 9,006 9,501
Pension, profit sharing and other
employee benefits 2,544 2,516
Net occupancy of bank premises 2,249 2,173
Furniture and equipment 1,952 1,990
Amortization of excess cost over fair
value of net assets acquired 802 802
Other 7,530 7,156
Total other expenses $24,083 $24,138
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
(000's omitted
except per share data)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Earnings before income taxes $20,018 $13,901
Income tax expense 6,481 4,482
Net income $13,537 $ 9,419
Earnings per share
Basic $ .60 $ .41
Diluted $ .58 $ .40
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(000's omitted
except per share data)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Interest income
Interest and fees on loans $21,227 $22,322
Interest and dividends on
investment securities:
Taxable 3,672 4,147
Exempt from federal income tax 2,192 2,044
Other interest income 376 673
Total interest income 27,467 29,186
Interest expense
Interest on deposits 10,577 12,143
Interest on short-term borrowings 186 160
Interest on long-term borrowings 1,082 1,082
Total interest expense 11,845 13,385
Net interest income 15,622 15,801
Provision for possible loan losses 450 900
Net interest income after provision
for possible loan losses 15,172 14,901
Other income
Service charges on deposits 1,122 1,451
Trust fees 927 849
Investment securities gains, net 85 1,743
Other income 1,087 746
Total other income 3,221 4,789
Other expenses
Salaries 4,537 4,732
Pension, profit sharing and other
employee benefits 1,283 1,324
Net occupancy of bank premises 1,087 1,082
Furniture and equipment 1,024 1,007
Amortization of excess cost over fair
value of net assets acquired 401 401
Other 3,650 3,789
Total other expenses $11,982 $12,335
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
(000's omitted
except per share data)
THREE MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Earnings before income taxes $ 6,411 $ 7,355
Income tax expense 1,822 2,394
Net income $ 4,589 $ 4,961
Earnings per share
Basic $ .20 $ .22
Diluted $ .20 $ .21
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(000's omitted)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Cash flows from operating activities:
Net income $ 13,537 $ 9,419
Adjustments to reconcile net earnings to
net cash from operating activities:
Amortization net, related to:
Investment securities 211 844
Excess of cost over net assets acquired 802 802
Other 598 152
Depreciation 1,998 2,067
Provision for possible loan losses 1,300 1,800
Gain on sale related to:
Branches and deposits (7,869) -
Investment securities (129) (1,926)
Loans sold to secondary market (289) (185)
Other real estate owned (22) (124)
Bank premises and equipment (388) -
Loans originated for sale (20,361) (36,794)
Loans sold to secondary market 20,650 36,794
Change in:
Other assets (1,114) 6,618
Other liabilities (248) 324
Net cash from operating activities 8,676 19,791
Cash flows from investing activities:
Purchase of securities available for sale (97,203) (109,028)
Proceeds from:
Maturities of securities available for sale 186,317 93,933
Sales of securities available for sale 22,318 14,660
Sales of other real estate owned 414 2,044
Sales of bank premises and equipment 1,317 -
Net (increase) decrease in loans (86,341) 28,191
Purchases of bank premises and equipment (520) (2,183)
Net (increase) decrease in securities
under agreements to resell (9,255) 6,196
Net cash from investing activities $ 17,047 $ 33,813
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
(000's omitted)
SIX MONTHS ENDED JUNE 30, 1999 AND 1998
1999 1998
Cash flows from financing activities:
Net increase (decrease) in deposits $ 6,689 $ (996)
Payments for deposits included in branch sales (77,254) -
Net increase (decrease) in short term borrowings 1,049 (33,891)
Dividends paid (4,343) (3,972)
Other financing activities 259 (423)
Net cash from financing activities (73,600) (39,282)
Net increase (decrease) in cash and
cash equivalents (47,877) 14,322
Cash and cash equivalents at beginning of period 102,712 63,661
Cash and cash equivalents at end of period $ 54,835 $ 77,983
The accompanying unaudited notes are an integral
part of these consolidated financial statements.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements include
the financial information of Grand Premier Financial, Inc., and its
subsidiaries, all of which are wholly owned. Significant intercompany
balances and transactions have been eliminated. The consolidated
financial statements for the six months ended June 30, 1999 and 1998
are unaudited. In the opinion of management, the interim financial
statements reflect all adjustments (consisting only of adjustments of
a normal recurring nature) necessary for a fair presentation of Grand
Premier's financial position, results of operations and cash flows for
the interim periods presented. The results for such interim periods
are not necessarily indicative of the results for the full year. The
consolidated financial statements and notes to the consolidated
financial statements contained in the Annual Report on Form 10-K for
the year ended December 31, 1998, should be read in conjunction with
these consolidated financial statements.
All 1998 share and per share information has been restated for a 10%
common stock dividend distributed December 1, 1998 to shareholders of
record on November 15, 1998.
2. Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, "Reporting Comprehensive Income" ("SFAS 130") which
establishes standards for reporting and the display of comprehensive
income and its components in a full set of general purpose financial
statements. SFAS 130 requires all items to be recognized under
accounting standards as components of comprehensive income be reported
in a financial statement that is displayed in equal prominence with
other financial statements. The Company is required to classify items
of "other comprehensive income" by their nature in the financial
statement and display the balance of other comprehensive income
separately in the stockholders' equity section of the balance sheet.
For interim reporting purposes, the disclosure of other comprehensive
income may be included in the notes to the interim financial
statements.
The Company's comprehensive income includes net income and other
comprehensive income comprised entirely of unrealized gains or losses
on securities available for sale, net of tax.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
2. Comprehensive Income (continued)
Six months ended
June 30,
1999 1998
Net income $13,537 $ 9,419
Other comprehensive income, net of tax
Unrealized gains (losses) on securities:
Unrealized holding gain (loss)
arising during the period (4,925) 2,870
Reclassification adjustment for
gains included in net income (177) (1,030)
Other comprehensive income (loss) (5,102) 1,840
Comprehensive income $ 8,435 $11,259
Three months ended
June 30,
1999 1998
Net income $ 4,589 $ 4,961
Other comprehensive income, net of tax
Unrealized gains (losses) on securities:
Unrealized holding gain (loss)
arising during the period (3,645) 355
Reclassification adjustment for
gains included in net income (109) (1,195)
Other comprehensive income (loss) (3,754) (840)
Comprehensive income $ 835 $ 4,121
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
(continued)
3. Earnings Per Share
The following schedule reconciles net income to income available to
common stockholders and the number of average shares used in the
computation of basic and diluted earnings per share (in thousands
except share and per share data).
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30, June 30,
1999 1998 1999 1998
<S> <C> <C> <C> <C>
Basic:
Net income $ 4,589 $ 4,961 $13,537 $ 9,419
Less: Dividends on
preferred stock (185) (185) (370) (370)
Income available to
common stockholders $ 4,404 $ 4,776 $13,167 $ 9,049
Average common
shares outstanding 22,084,787 22,019,822 22,047,370 22,015,334
Basic earnings per share $ .20 $ .22 $ .60 $ .41
Diluted:
Net income $ 4,589 $ 4,961 $13,537 $ 9,419
Less: Dividends on
preferred stock (185) (185) (370) (370)
Add: Dividends on convertible
preferred stock 145 145 290 290
Income available to
common stockholders $ 4,549 $ 4,921 $13,457 $ 9,339
Average common
shares outstanding 22,084,787 22,019,822 22,047,370 22,015,334
Dilutive effect of:
Stock options 114,198 343,406 161,182 333,940
Convertible preferred stock 936,852 936,852 936,852 936,852
Total average shares and
assumed conversions 23,135,837 23,300,080 23,145,404 23,286,126
Diluted earnings per share $ .20 $ .21 $ .58 $ .40
</TABLE>
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
This discussion provides an analysis of the Company's financial condition
and results of operations, and is intended to cover significant factors
affecting the Company's overall performance during the interim periods
presented. It is designed to provide shareholders with a more
comprehensive review of the operating results and financial condition
that are not otherwise apparent from the consolidated financial
statements included in this report, and should be read in conjunction
with the consolidated financial statements, accompanying notes and other
financial information included elsewhere in this report and in the 1998
Annual Report on Form 10-K.
Statements or comments contained in the following discussion and analysis
of financial condition and results of operations that are not historical
facts may contain forward looking information that involve substantial
risks and uncertainties. Actual results, performance or achievements
could differ materially from the results, performance or achievements
expressed or implied by these forward looking statements. For a
discussion of these risks and uncertainties, see the "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
in the 1998 Annual Report on Form 10-K.
The Company declared a 10% stock dividend on September 28, 1998. Share
and per share amounts for all 1998 periods presented have been adjusted
to reflect the stock dividend.
Results of Operations
For the six months ended June 30, 1999 net income was $13.5 million, or
$.58 diluted earnings per share. For the similar period of 1998, net
income was $9.4 million, or $.40 diluted earnings per share. Excluding an
after tax gain of approximately $4.7 million realized on the sale of four
rural offices in the first quarter 1999 and after tax securities gains of
$78,000 and $1.2 million in 1999 and 1998, respectively, net income
totaled $8.7 million, or $.38 diluted earnings per share, in 1999
compared to $8.3 million, or $.35 diluted earnings per share, in 1998.
For the quarter ended June 30, net income was $4.6 million in 1999
compared to $5.0 million in 1998. Net after tax securities gains realized
during the quarter totaled $51,000 in 1999 compared to $1.1 million in
the second quarter 1998. Excluding securities gains, net income was $4.5
million, or $.20 diluted earnings per share, for the three months ended
June 30, 1999 compared to $3.9 million, or $.17 diluted earnings per
share, for the similar quarter of 1998.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
Taxable equivalent net interest income for the first six months of 1999
totaled $33.1 million, 1.7% lower than $33.7 million for the first six
months of 1998. Year-to-date taxable equivalent interest income was $57.0
million in 1999, $3.7 million less than $60.7 million earned in 1998. The
reduction in interest income was partially offset by a $3.1 million
reduction in interest expense from $27.0 million in 1998 to $23.9 million
in 1999. The spread between the average rate earned and average rate paid
decreased from 3.95% in 1998 to 3.81% in 1999. The Company's net yield on
interest earning assets was 4.59% for the first six months of 1999
compared to 4.66% for the same period one year earlier (see Average
Balances, Interest and Average Interest Rates for the six months ended
June 30).
For the quarter ended June 30, 1999, taxable equivalent net interest
income totaled $16.8 million, slightly lower than $16.9 million for the
similar period one year earlier. Average earning assets totaled $1.45
billion and earned $28.7 million interest income for the second quarter
1999 compared to average earning assets that totaled $1.46 billion and
earned $30.3 million interest income in 1998. Interest bearing
liabilities decreased $48 million to $1.17 billion in 1999 from $1.22 in
1998. A $1.5 million decrease in interest expense to $11.8 million in
1999 from $13.3 million in 1998 is partially attributable to the
reduction in total interest bearing liabilities as a result of the branch
sales in the first quarter 1999. The spread between average rates earned
and average rates paid decreased 6 basis points to 3.87% for the second
quarter 1999 when compared to 3.93% for the second quarter of 1998.
Overall, the net yield on interest earning assets was 4.65% for the
second quarter of 1999 compared to 4.66% for the same quarter one year
earlier (see Average Balances, Interest and Average Interest Rates for
the three months ended June 30).
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
<TABLE>
Average Balances, Interest and Average Interest Rates
(dollars in thousands)
<CAPTION>
Six months ended June 30: 1999 1998
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in other banks $ 1,370 $ 32 4.71% $ 378 $ 10 5.33%
Federal funds sold and securities
purchased under agreements to resell 30,528 786 5.19% 30,144 944 6.32%
Investment securities <F1>:
Taxable 274,391 7,699 5.66% 283,710 8,661 6.16%
Exempt from federal income tax <F2> 155,672 6,828 8.84% 138,732 6,353 9.23%
Loans net of unearned income <F2><F3> 990,622 41,610 8.47% 1,004,539 44,686 8.97%
Total earning assets 1,452,583 56,955 7.91% 1,457,503 60,654 8.39%
Cash and noninterest bearing deposits 36,497 48,703
Allowance for possible loan losses (13,138) (14,415)
Premises and equipment 32,738 35,269
Available for sale securities valuation 8,970 27,309
Other assets 42,482 55,216
Total assets $ 1,560,132 $ 1,609,585
Interest Bearing Deposits:
Transaction $ 183,308 1,835 2.02% $ 188,272 2,103 2.25%
Money market and savings 406,392 6,530 3.24% 384,926 6,521 3.42%
Time 501,172 13,034 5.24% 558,767 15,615 5.64%
Short-term borrowings 13,946 306 4.42% 23,485 606 5.20%
Long-term borrowings 70,000 2,152 6.20% 70,000 2,152 6.20%
Total interest bearing liabilities 1,174,818 23,857 4.10% 1,225,450 26,997 4.44%
Average interest rate spread 3.81% 3.95%
Other liabilities and stockholders' equity:
Noninterest bearing deposits 171,912 178,764
Other liabilities 25,276 27,674
Shareholder equity 188,126 177,697
Total average liabilities
and stockholders' equity $ 1,560,132 $ 1,609,585
Net interest income / margin $33,098 4.59% $33,657 4.66%
<FN>
<F1> Average balances and yields exclude the effects of unrealized gains or losses on available for sale
securities.
<F2> Interest and yields are on a taxable equivalent basis assuming a 35% tax rate.
<F3> Average balances include nonaccrual loans.
</FN>
</TABLE>
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
<TABLE>
Average Balances, Interest and Average Interest Rates
(dollars in thousands)
<CAPTION>
Three months ended June 30: 1999 1998
Average Average Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Interest bearing deposits in other banks $ 1,074 $ 15 5.60% $ 475 $ 7 5.91%
Federal funds sold and securities
purchased under agreements to resell 27,794 361 5.21% 43,953 659 6.01%
Investment securities <F1>:
Taxable 258,177 3,672 5.70% 284,578 4,147 5.84%
Exempt from federal income tax <F2> 150,782 3,373 8.97% 134,353 3,145 9.39%
Loans net of unearned income <F2><F3> 1,012,049 21,241 8.42% 994,485 22,348 9.01%
Total earning assets 1,449,876 28,662 7.93% 1,457,844 30,306 8.34%
Cash and noninterest bearing deposits 36,391 43,167
Allowance for possible loan losses (13,423) (13,753)
Premises and equipment 32,076 35,402
Available for sale securities valuation 7,642 26,322
Other assets 43,476 54,739
Total assets $ 1,556,038 $ 1,603,721
Interest Bearing Deposits:
Transaction $ 183,123 896 1.96% $ 191,277 1,069 2.24%
Money market and savings 407,183 3,311 3.26% 392,122 3,370 3.45%
Time 492,759 6,370 5.19% 550,896 7,704 5.61%
Short-term borrowings 16,562 186 4.50% 13,396 160 4.79%
Long-term borrowings 70,000 1,082 6.20% 70,000 1,082 6.20%
Total interest bearing liabilities 1,169,627 11,845 4.06% 1,217,691 13,385 4.41%
Average interest rate spread 3.87% 3.93%
Other liabilities and stockholders' equity:
Noninterest bearing deposits 171,466 179,404
Other liabilities 24,905 28,330
Shareholder equity 190,040 178,296
Total average liabilities
and stockholders' equity $ 1,556,038 $ 1,603,721
Net interest income / margin $16,817 4.65% $16,921 4.66%
<FN>
<F1> Average balances and yields exclude the effects of unrealized gains or losses on available for sale
securities.
<F2> Interest and yields are on a taxable equivalent basis assuming a 35% tax rate.
<F3> Average balances include nonaccrual loans.
</FN>
</TABLE>
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
The Company reduced it provision for possible loan losses to $1.3 million
for the first six months of 1999 compared to $1.8 million in 1998.
Provisions for the second quarter 1999 totaled $450 thousand, as compared
to $900 thousand in the second quarter 1998. The Company's provisions are
based on periodic evaluations by management of the adequacy of the
allowance for possible loan losses. These evaluations consider numerous
factors including, but not limited to, current economic conditions, loan
portfolio composition, prior loan loss experience, and an estimation of
potential losses. The reduction in the 1999 provision is reflective of
the substantial improvement in asset quality when compared to one year
earlier. Non-performing loans (non-accrual loans, accruing loans past due
90 days or more and renegotiated loans) totaled $6.1 million compared to
$7.5 million at December 31, 1998 and $10.7 million one year earlier at
June 30, 1998. Net charge-offs for the first six months of 1999 totaled
$859,000; substantially less than $4.0 million recorded in the first six
months of 1998. Approximately $3.2 million of the net charge-offs in 1998
were from the indirect segment of the portfolio for which the Company
made a provision for possible loan losses of approximately $6 million
during the final quarter of 1997. The allowance for possible loan losses
was $12.9 million at June 30, 1999 and $12.4 million at December 31, 1998
or 1.24% and 1.30% of gross loans, respectively.
Other income for the six month period ended June 30, 1999 was $14.7
million, sharply higher than $8.4 million recorded in the similar period
of 1998. The increase is primarily the result of gains totaling $7.9
million realized on the sales of four rural branch offices and their
associated deposit liabilities totaling $85.1 million during the first
quarter of 1999. Net securities gains totaled $1.9 million in 1998
compared to $129,000 in 1999. Excluding gains on the sales of branches
and net securities gains, total other income increased 3% from $6.5
million in 1998 to $6.7 million in 1999. Service charges on deposits
decreased from $2.8 million in 1998 to $2.3 in 1999 million mainly due to
the reduction of deposit balances as a result of the branch sales
combined with planned fee waivers during the data processing conversion.
Trust fees increased 9% to $1.9 million in 1999. All other income
increased 29% from $2.0 million in 1998 to nearly $2.6 million in 1999
primarily from gains totaling $388,000 from the sale of a two bank
properties.
For the quarter ended June 30, 1999 other income was $3.2 million
compared to $4.8 million in 1998. Excluding net securities gains totaling
$85,000 and $1.7 million in 1999 and 1998, respectively, other income
increased to $3.1 million in 1999 from $3.0 million in 1998. A $329,000
reduction in service charges on deposits from $1.5 million in 1998 to
$1.1 million in 1999 was more than offset by increased trust fees and
other income including a gain of approximately $200,000 from the sale of
a bank property. All other income, excluding the gain on the sale of bank
property, increased to $887,000 in 1999 from $746,000 in 1998.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
Total other expenses aggregating to $24.1 million for the six months
ended June 30, 1999 remained comparable to the similar period of 1998.
Salaries and benefits, the largest portion of other expense, totaled
$11.6 million in 1999, a decrease of $467,000 compared to 1998. The
Company employed 560 full time equivalent employees at June 30, 1999
versus 614 one year earlier. The decrease in salary and benefits is the
result of the reduction in the number of full time equivalent employees
partially offset by normal salary increases. Total occupancy and
equipment expenses were essentially unchanged at $4.2 million for both
years. The decrease in salaries and benefits was largely offset by an
increase in all other expenses totaling $7.5 million in 1999 compared to
$7.2 million in 1998. The increase in other expenses is mainly
attributable to operational losses from forgeries and other fraudulent
activities.
For the second quarter 1999, other expenses totaled $12.0 million and
were $353,000 lower than $12.3 million in the second quarter of 1998. A
decrease in salaries and benefits from $6.1 million in 1998 to $5.8
million in 1999 accounted for most of the reduction in other expenses.
Total occupancy and equipment expenses remained stable at $2.1 million
for both quarters. All other expenses decreased approximately $139,000 to
$3.7 million when compared to 1998.
Income tax expense was $6.5 million and $4.5 million for the six months
ended June 30, 1999 and 1998, respectively. Effective tax rates were
32.4% and 32.2% for the corresponding periods. The increases in tax
expense and effective rate were primarily attributable to the fully
taxable gains realized on the sales of the four rural branches and their
associated deposits in 1999. For the quarters ended June 30, tax expense
was $1.8 million in 1999 and $2.4 million in 1998 resulting in effective
tax rates for the quarters of 28.4% and 32.5%, respectively. The
reductions in tax expense and effective rate were mainly attributable to
the substantial reduction in fully taxable securities gains realized in
1999 when compared to 1998. The effective tax rate for all periods is
also affected by the amount of interest income exempt from federal income
taxes as a percentage of income before taxes.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
Financial Condition
Total assets were $1.57 billion at June 30, 1999, $73 million lower than
$1.65 billion at December 31, 1998. The reduction in total assets was
nearly matched by a $78 million reduction in deposit liabilities from
$1.36 billion at year-end 1998 to $1.28 billion at June 30, 1999. The
reductions in total assets and total deposits were largely the results of
the sales of four rural branch offices and their associated deposit
liabilities totaling $85.1 million. Proceeds from maturities of short-
term investment securities were the main source of funding of the branch
sales.
Gross loans increased $85 million (8.8%) to $1.04 billion during the
first six months of 1999. Proceeds from sales and maturities of
investment securities combined with a reduction in short term investments
in federal funds sold were the primary sources of funding for the
Company's strong loan growth. Overall, total securities decreased $120
million to $396 million at June 30, 1999 and federal funds sold decreased
from $48 million at December 31, 1998 to $12.5 million at June 30, 1999.
Total stockholders' equity increased $4.3 million during the six months
ended June 30, 1999 mainly as a result of comprehensive income net of
dividends paid.
Year 2000 ("Y2K")
Many existing computer programs use only two digits to identify a year in
a date field. These programs were designed and developed without
considering the impact of a change in century. If not corrected, many
computer programs could fail or create erroneous results, which could
affect a company's ability to do business prior to, at, or after
December 31, 1999.
Financial service organizations such as Grand Premier are heavily reliant
upon computer systems for processing transactions and accounting for
services provided to customers.
In April, 1999 the Company converted its core data processing system
(used to process transactions and maintain customer records) to licensed
software operated "in-house". The software was originally designed with
four digit date fields and accordingly, the vendor has asserted that the
system is fully "year 2000 ready". In June, 1999 the Company conducted
its own testing in order to validate the vendor's assertions. The
testing was monitored and reviewed by an independent third party.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
As a part of the June 1999 testing, the Company leased a computer
identical to that used by the Company for daily processing. The leased
machine was loaded with the Company's operating system, application
software, and databases. The computer and software dates were advanced
to those outlined by the Federal Financial Institutions Examination
Council, and normal processing occurred. The Company did not find any Y2K
related exceptions on any of the systems. Based on the test results, the
Company believes the systems will continue to function properly into the
next millennium. In addition, the Company will continue to monitor the
testing efforts of other licensees for any Y2K related issues that could
potentially affect the Company.
Other than its core data processing system, the Company contracts with
third party providers for many other systems. Although the contracted
vendors bear the responsibility for making their systems "year 2000
compliant", assuming the costs associated with necessary changes, keeping
the Company apprised of their progress in meeting established benchmarks,
and certifying to the Company that the systems are in fact "year 2000
ready", the Company bears ultimate responsibility for testing, due
diligence and assurance that its major vendors will continue to provide
service without interruption due to the change in century at year-end
1999.
In mid 1997, the Company established an internal task force to identify
and/or resolve issues related to the year 2000 change. In addition to the
internal task force, the Company employs one full-time project manager as
well as outside consultants dedicated to the year 2000 project. The task
force has completed a comprehensive inventory of all systems used by the
Company. These systems include not only data processing and technology
driven systems, but also systems which may have embedded chips such as
elevators, security systems, building controls, and various office
handling equipment. Further, the Company has identified those systems,
which are deemed "mission critical" to its business.
The Company maintains regular communications with vendors who provide
mission critical systems to the Company to verify that 1) their time-lines
and benchmarks are met, 2) testing is performed regularly and
according to schedule, and 3) necessary changes are being identified and
addressed. Similarly, the task force has established its own benchmarks
and timelines for managing the "year 2000 project", for evaluating and
changing (if necessary) other systems used internally by the Company, and
for prioritizing efforts with regard to overall year 2000 issues as they
apply to the Company.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
In addition to the core data processing system test discussed above, the
Company has successfully completed testing of in-house mission critical
systems. The timing and extent of mission critical testing for third
party systems is partially dependent on the vendor and accomplished
mostly through user group and/or proxy testing. Based on the testing
completed, management believes that the systems identified as mission
critical will continue to process through the millennium.
Management has developed contingency plans in the event that systems fail
to perform as expected. The contingency plans primarily include the use
of substitute third party service providers and/or a shift to manual
processes.
As a part of its credit analysis process, the Company has also developed
a project plan for assessing the Year 2000 readiness of its significant
credit customers. Information has been obtained from significant
borrowers relative to their year 2000 preparedness. The Company will
continue correspondence with these significant customers to ensure
continued progress and preparedness for year 2000.
The projected total cost of the year 2000 project is currently estimated
to be $300,000, consisting primarily of the internal project manager's
salary and external consulting fees. As of June 30, 1999, a cumulative
total of approximately $200,000 had been spent on the Year 2000 project.
All costs associated with the year 2000 project are being charged to
expense as incurred. The estimate does not include the time that internal
staff and user departments are devoting to task force meetings, planning,
and testing relative to Year 2000. These costs are not anticipated to
have a material impact on operations.
Other Matters
Under the terms of the Agreement and Plan of Merger dated January 22,
1996, among Northern Illinois Financial Corporation, Premier Financial
Services, Inc., and the Company, as amended, the term of Richard L. Geach
as Chief Executive Officer of the Company will end no later than
December 31, 1999. The Board of Directors has appointed a search
committee comprised of 5 Directors, namely, Jean M. Barry,
James Esposito, R. Gerald Fox, John Simcic and Steven J. Schostok to
identify and interview potential candidates. In turn, the committee has
retained an independent professional search firm to assist in its efforts
and to effect an orderly transition. Mr. Geach has agreed to continue as
Chief Executive Officer until December 31, 1999 or a successor is
nominated and approved.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
The Company's exposure to market risk arises from changes in interest
rates. Managing interest rate risk is the responsibility of the Company's
Asset/Liability Management Committee ("ALCO") established by the Board of
Directors. ALCO meets periodically, at least quarterly, to evaluate the
Company's market risk exposure.
Based upon ALCO's most recent evaluation, management does not believe the
Company's risk position at June 30, 1999 has changed materially from
year-end 1998 as disclosed in the Company's Annual Report on Form 10-K.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The following matter was submitted to a vote of security holders,
through solicitation of proxies or otherwise, during the quarter ended
June 30, 1999, at the Annual Meeting of Grand Premier Financial, Inc.,
held on May 26, 1999.
1. Election of five (5) Class III directors for a term of three
years. There was no solicitation in opposition to management's
nominees as listed in the proxy statement. Stockholders voted and
elected the following five nominees to serve until the 2002 Annual
Stockholders Meeting.
Withheld
Authority to
Nominee Votes For Vote For
Frank J. Callero 18,852,142 836,314
Alan J. Emerick 18,615,723 1,072,733
Richard L. Geach 10,905,342 8,744,528
Howard A. McKee 18,363,734 1,324,722
H. Barry Musgrove 18,859,646 828,810
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits as follows:
The following exhibits are filed with, or incorporated by reference in,
this report. Each management contract or compensatory plan or
arrangement required to be filed as an exhibit to this report has been
marked with an asterisk.
2.1 Agreement and Plan of Merger, dated January 22, 1996, among
Northern Illinois Financial Corporation, Premier Financial
Services, Inc and the Company (incorporated by reference to
Exhibit 2.1 to the Company's Registration Statement on Form S-4,
as amended, File No. 333-03327), as amended by the First Amendment
thereto, dated March 18, 1996 (incorporated by reference to
Exhibit 2.2 to the Company's Registration Statement on Form S-4,
as amended, File No. 333-03327), and the Second Amendment thereto
(incorporated by reference to Exhibit 2.3 to the Company's Current
Report on Form 8-K, dated August 22, 1996, Commission File
No. 0-20987).
<PAGE>
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
3.1 Amended and Restated Certificate of Incorporation of the Company
(incorporated by reference to Appendix F to the final proxy
statement prospectus included in the Company's Registration
Statement on Form S-4, as amended, File No. 333-03327).
3.2 By-laws of the Company (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4, as amended,
File No. 333-03327).
4 Rights Agreement, dated as of July 8, 1996, between Grand Premier
Financial, Inc. and Premier Trust Services, Inc. (incorporated by
reference to the Company's Registration Statement on Form S-4, as
amended, File No. 333-03327).
10.1* Form of Change in Control Agreement, dated October (2)/(8), 1996,
entered into between the Company and each of Richard L. Geach,
David L. Murray, Kenneth A. Urban and Scott Dixon (incorporated by
reference to the Company's Quarterly Report on Form 10-Q dated
September 30, 1996, Commission file No. 0-20987).
10.2* Form of Change in Control Agreement, dated October (2)/(8), 1996,
entered into between the Company and each of Alan Emerick, Jack
Emerick, Joseph Esposito, William Theobald, Reid French, Larry
O'Hara and Ralph Zicco (incorporated by reference to the Company's
Quarterly Report on Form 10-Q dated September 30, 1996, Commission
file No. 0-20987).
10.3* Grand Premier Financial, Inc. 1996 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.3 of the
Company's Annual Report on Form 10-K dated December 31, 1997,
Commission file No. 0-20987).
10.4* Premier Financial Services, Inc. 1995 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.4 of the
Company's Annual Report on Form 10-K dated December 31, 1997,
Commission file No. 0-20987).
10.5* Premier Financial Services, Inc. 1988 Non-Qualified Stock Option
Plan, as amended (incorporated by reference to Exhibit 10.5 of the
Company's Annual Report on Form 10-K dated December 31, 1997,
Commission file No. 0-20987).
10.6* Premier Financial Services, Inc. Senior Leadership and Directors
Deferred Compensation Plan, as amended (incorporated by reference
to Exhibit 4.1 to the Company's Registration Statement on Form
S-8, File No. 333-11645).
10.7* Grand Premier Financial, Inc. Deferred Compensation Plan
(incorporated by reference to Exhibit 10.8 of the Company's 1996
Annual Report on Form 10-K, Commission File No. 0-20987).
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
10.8* Grand Premier Financial, Inc. Savings and Stock Plan and Trust
(incorporated by reference to Exhibit 10.9 of the Company's 1996
Annual Report on Form 10-K, Commission File No. 0-20987).
10.9* Employment and Consulting Agreement, dated May 1, 1997, between
Grand Premier Financial, Inc., and Howard A. McKee (incorporated
by reference to Exhibit 10.10 to the Company's Quarterly Report on
Form 10-Q dated June 30, 1997, Commission file No. 0-20987.)
10.10* Grand Premier Financial, Inc. Non-Employee Directors Stock Option
Plan (incorporated by reference to Appendix A of the Company's
Definitive Proxy Statement dated April 13, 1998).
10.11* Form of Change in Control Agreement, dated July 22, 1999, entered
into between the Company and Nanette K. Donton in same form as
Change in Control Agreements dated October (2)/(8), 1996
(incorporated by reference to the Company's Quarterly Report on
Form 10-Q dated September 30, 1996, Commission file No. 0-20987).
11. Statement re computation of per share earnings (See Note 3 to the
Consolidated Financial Statements for the six months ended
June 30, 1999).
27. Financial Data Schedule, for the six months ended June 30, 1999.
(B) Reports on Form 8-K
No Current Report of Form 8-K was filed during the quarter ended
June 30, 1999.
GRAND PREMIER FINANCIAL, INC.
AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
GRAND PREMIER FINANCIAL, INC
(Registrant)
August 9, 1999 /s/ David L. Murray
Date David L. Murray, Senior Executive Vice
President and Chief Financial Officer
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<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 41,622,000
<INT-BEARING-DEPOSITS> 713,000
<FED-FUNDS-SOLD> 12,500,000
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<INVESTMENTS-HELD-FOR-SALE> 396,112,000
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