<PAGE> 1
ORIGINAL
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 period ended September 30, 1997.
Transition Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934.
For the transition period from ___________ to ___________.
Commission file number 2-94209
FIRST EVERGREEN CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 36-2952700
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
3101 W. 95th Street, Evergreen Park, Illinois 60805
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 422-6700
Indicated by check mark whether the registrant (1) has filed all reports 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 for the
past 90 days.
Yes X No
---- ----
Indicate the number of shares outstanding of each issuer's class of common
stock, as of the latest practicable date.
Common Stock - $25.00 par value, 2,000,000 shares authorized, 432,842 shares
issued and 400,401 shares outstanding at October 31, 1997.
1
<PAGE> 2
FIRST EVERGREEN CORPORATION
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
Page
Numbers
-------
Consolidated Statements of Condition .......... 3
Consolidated Statements of Income ............. 4
Consolidated Statements of Cash Flows ......... 6
Notes to Consolidated Financial Statements .... 7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS ......... 8
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ............. 11
2
<PAGE> 3
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Condition
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
September 30, December 31,
ASSETS 1997 1996
-----------------------------------------
<S> <C> <C>
Cash and due from banks $ 37,933 $ 55,654
Federal funds sold 24,000 53,200
Available for sale securities 144,244 142,625
Held to maturity securities
U.S. Treasury obligations 90,944 133,514
U.S. Government agencies 424,550 403,056
Obligations of states and political subsidiaries 180,661 173,090
Mortgage-backed securities 120,578 83,719
Collateralized mortgage obligations 153,314 190,443
Other securities 7,115 1,385
---------- ---------
Total held to maturity 977,162 985,207
(Market value of $989,856 in 1997
and $999,696 in 1996)
Loans - net 655,209 615,653
Bank premises and equipment (net) 34,148 31,729
Accrued interest receivable 21,711 19,145
Goodwill and other intangibles 3,650 4,281
Other assets 2,027 2,519
---------- ----------
$1,900,084 $1,910,013
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 176,482 $ 181,115
Savings deposits and NOW accounts 572,444 588,572
Money market accounts 99,062 97,965
Time deposits 826,571 828,195
------------ ----------
Total deposits 1,674,559 1,695,847
Federal funds purchased and Securities sold
under agreements to repurchase 16,665 17,235
Accrued interest and other liabilities 15,176 10,491
------------ -----------
Total liabilities 1,706,400 1,723,573
============ ===========
Stockholders' equity
Common stock - authorized, 2,000,000 shares
of $25 par value; issued, 432,842 shares
in 1997 and 1996 10,821 10,821
Surplus 4,815 4,815
Retained earnings 187,252 180,280
Unrealized gains (losses) on Available for sale
securities, net of income taxes (483) (1,318)
----------- ----------
202,405 194,598
Less treasury stock - at cost, 32,402 shares
in 1997 and 31,205 shares in 1996 (8,721) (8,158)
----------- ----------
Total stockholders' equity 193,684 186,440
----------- ----------
$1,900,084 $1,910,013
============ ===========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended September 30
-------------------------------
1997 1996
<S> <C> <C>
Interest income
Interest and fees on loans $ 13,086 $ 12,051
Interest and dividends on investment securities
Taxable securities 13,846 15,028
Securities exempt from Federal taxes 2,486 2,456
Dividends 118 21
Interest on available for sale securities 2,006 1,827
Interest on Federal funds sold 748 256
---------- ----------
Total interest income 32,290 31,639
---------- ----------
Interest expense
Interest on deposits 17,147 16,293
Interest on Federal funds purchased and Securities
Sold under Agreements to Repurchase 212 156
---------- ----------
Total interest expense 17,359 16,449
---------- ----------
Net interest income 14,931 15,190
Provision for loan losses 300 200
Net interest income after provision ---------- ----------
for loan losses 14,631 14,990
Other operating income ---------- ----------
Service charges on deposit accounts 832 865
Trust department income 656 466
Other income 351 367
Net security gains (losses) 97 (73)
---------- ----------
Total other operating income 1,936 1,625
Other operating expenses
Salaries and employee benefits 5,911 5,693
Net occupancy expense of bank premises 965 881
Equipment depreciation, rentals and maintenance 777 673
Insurance 114 70
Outside fees and services 578 460
Data processing 581 498
Other expenses 1,575 1,565
---------- ----------
Total other operating expenses 10,501 9,840
---------- ----------
Income before income tax expense 6,066 6,775
Income tax expense 1,415 1,684
---------- ----------
NET INCOME $ 4,651 $ 5,091
========== ==========
Net income per share $ 11.61 $ 12.65
---------- ----------
Weighted average number of shares outstanding 400,592 402,487
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30
------------------------------
1997 1996
<S> <C> <C>
Interest income
Interest and fees on loans $ 38,344 $ 34,420
Interest and dividends on investment securities
Taxable securities 43,123 45,432
Securities exempt from Federal taxes 7,428 7,016
Dividends 159 62
Interest on available for sale securities 5,755 5,413
Interest on Federal funds sold 1,445 1,057
---------- ----------
Total interest income 96,254 93,400
---------- ----------
Interest expense
Interest on deposits 50,551 48,355
Interest on Federal funds purchased and Securities
Sold under Agreements to Repurchase 616 426
---------- ----------
Total interest expense 51,167 48,781
---------- ----------
Net interest income 45,087 44,619
Provision for loan losses 750 200
---------- ----------
Net interest income after provision
for loan losses 44,337 44,419
---------- ----------
Other operating income
Service charges on deposit accounts 2,424 2,535
Trust department income 2,001 1,355
Other income 1,048 1,029
Net security gains 82 963
---------- ----------
Total other operating income 5,555 5,882
Other operating expenses
Salaries and employee benefits 18,187 17,120
Net occupancy expense of bank premises 2,890 2,598
Equipment depreciation, rentals and maintenance 2,199 2,063
Insurance 357 195
Outside fees and services 1,612 1,430
Data processing 1,686 1,417
Other expenses 4,966 4,736
---------- ----------
Total other operating expenses 31,897 29,559
---------- ----------
Income before income tax expense 17,995 20,742
Income tax expense 4,196 5,266
---------- ----------
NET INCOME $ 13,799 $ 15,476
=========== ==========
Net income per share $34.39 $38.44
---------- ----------
Weighted average number of shares outstanding 401,194 402,594
---------- ----------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
(UNAUDITED)
<TABLE>
<CAPTION>
Nine months ended September 30,
---------------------------------
1997 1996
<S> <C> <C>
Cash flows from operating activities :
Net income $13,799 $15,476
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 2,808 2,684
Provision for loan losses 750 200
Amortization of investment security discounts/premiums 4,376 6,084
Net security losses gains (82) (963)
Deferred income taxes (160) (204)
Increase decrease in accrued interest receivable (2,566) (2,647)
Decrease in other assets 200 27,906
Net increase (decrease) in accrued interest and other liabilities 4,685 (26,525)
-------- ---------
Net cash provided by operating activities 23,810 22,011
Cash flows from investing activities :
Capital expenditures (4,595) (3,516)
Proceeds from maturity of securities held to maturity 206,604 234,151
Purchases of securities held to maturity (202,468) (153,273)
Proceeds from sales of securities available for sale 211,261 501,366
Purchases of securities available for sale (211,978) (503,685)
Net increase in loans (40,306) (75,472)
-------- ---------
Net cash used by investing activities (41,482) (429)
Cash flows from financing activities :
Net decrease in demand, money market, savings and NOW accounts (19,664) (46,806)
Net (decrease) increase in time deposits (1,624) 37,658
Net (decrease) increase in Federal funds purchased and Securities
sold under agreements to repurchase (570) 1,755
Cash dividends paid (6,828) (6,040)
Acquisition of treasury stock (563) (188)
-------- ---------
Net cash used by financing activities (29,249) (13,621)
-------- ---------
(Decrease) increase in cash and cash equivalents (46,921) 7,961
Cash and cash equivalents at beginning of period 108,854 58,998
-------- ---------
Cash and cash equivalents at end of period $61,933 $66,959
======== =========
Supplemental disclosure of cash flow information :
Cash paid during the period for :
Interest $51,187 $48,525
Income taxes 3,950 5,000
</TABLE>
The accompanying notes are an integral part of these statements.
6
<PAGE> 7
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
September 30, 1997
Unaudited - Dollars in Thousands
NOTE A
The unaudited interim consolidated financial statements of First Evergreen
Corporation ("First Evergreen") include the accounts of First Evergreen and its
subsidiary bank, First National Bank of Evergreen Park.
The unaudited interim consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices. The more significant policies are incorporated in the Notes to
Financial Statements in the 1996 Annual Report and Form 10-K and should be read
in conjunction herewith.
In the opinion of management, all adjustments necessary for fair presentation
of the financial position and the results of operations for the interim
periods, all of which were recurring and normal, have been made. The results
of operations for the interim period are not necessarily indicative of results
that may be expected for the entire fiscal year.
NOTE B
The preparation of financial statements in conformance with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C
In June, 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities, which
requires an entity to recognize the financial and servicing assets it controls
and the liabilities it has incurred and to derecognize financial assets when
control has been surrendered in accordance with the criteria provided in the
Statement. SFAS No. 125 is effective for transactions occurring after December
31, 1996, however, the FASB has issued an amendment that would delay until 1998
the effective date of some of the Statement's provisions. The adoption of the
Statement did not have a material effect on the consolidated financial
statements.
In June, 1997, the FASB issued SFAS No. 130, Reporting Comprehensive Income,
which requires comprehensive income and its components to be reported as part
of the financial statements. SFAS No. 130 is effective for fiscal years
beginning after December 15, 1997. The adoption of this Statement will not
materially change the company's statement presentation.
In June, 1997, the FASB issued SFAS No. 131, Disclosure about Segments of an
Enterprise and Related Information, which requires public entities to disclose
financial and descriptive information about segments of their operations using
a management approach. SFAS No. 131 is effective for fiscal years beginning
after December 15, 1997. The adoption of this Statement will not materially
change the company's statement presentation.
7
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in Thousands Except Share Data)
FINANCIAL CONDITION
During the nine month period ended September 30, 1997, the deposit base
declined 1.3% or $21,288. In the period, the volume of savings, demand and, to
a limited extent, time deposits, declined $16,128, $4,633 and $1,624,
respectively. Also in the current nine month period, money market accounts
increased $1,097. Despite growing pressures from other financial markets and
interest rates on mid and short term deposits remaining nearly unchanged, the
bank has not experienced any significant deposit runoff. During the same 1996
period, deposits also decreased $9,148 or .55%. In 1996, deposits from
savings, NOW and demand accounts were repricing into higher yielding time
accounts, which increased $37,658.
Interest earning assets increased by $3,930 during 1997. The combined held to
maturity and available for sale securities portfolios decreased $6,426. Net
loans continued to show strength rising 6.4% or $39,556. This growth was in
part funded by a $29,200 decrease in Federal Funds sold.
For the nine month period ended September 30, 1997, the average interest rate
spread expressed on a tax equivalent basis (net interest margin) was 2.96%, a
decline of 13 basis points from the same 1996 period. During the same period,
the return on interest earning assets decreased one basis point to 7.39%, while
the average cost of funds increased 12 basis points to 4.43%. Financial market
conditions generally dictate the return realized on average earning assets and
the rates paid to depositors. However, management has a discretionary
influence on the investment of assets and rates paid on deposits.
Annual return on average equity decreased from 11.58% for the year ended
December 31, 1996 to 9.80% at September 30, 1997. The reduction is due to
lower company earnings and increased average equity resulting from First
Evergreen's continuing trend of equity growth. The annualized return on
average assets declined 15 basis points to .96%.
Total shareholders' equity increased $7,244 from $186,440 at December 31, 1996
to $193,684 at September 30, 1997. During this period, the net unrealized loss
on Available for Sale Securities improved $835, while treasury stock grew by
$563. On January 9, 1997, a $17.00 per share dividend totaling $6,828 was paid
to stockholders of record as of January 2, 1997.
The Tier I leveraged capital ratio increased 20 basis points to 9.90%, while
the total risk-based capital ratio increased to 25.93%. Both capital ratios
are monitored by Federal agencies which require minimums of 5% for Tier I
leveraged ratio and 10% for total risk-based ratio to receive the highest
classification of "well capitalized."
8
<PAGE> 9
LIQUIDITY
The objective of liquidity management is to ensure that First Evergreen can
meet its cash flow requirements and capitalize on opportunities on a timely
basis. Liquidity is secured by managing the mix of items on the statement of
condition and expanding sources of liquidity. At September 30, 1997, First
Evergreen's sources of liquidity totaled $541,252, consisting of $272,688 in
held to maturity securities maturing within one year, $24,000 in Federal Funds
sold, $100,320 in estimated mortgage backed security prepayments within the
next year and $144,244 in available for sale securities. Deposits totaled
$1,674,559, yielding a liquidity ratio of 32.32%.
Earning assets with maturities of less than one year, one to five years and in
excess of five years as a percentage of total earning assets totaled 36.7%,
41.9% and 21.4%, respectively. Similarly, approximately 47.1% of interest
sensitive liabilities could be repriced within one year, 27.3% within one to
five years and 25.6% in excess of five years.
Cash and cash equivalents decreased $46,921 during the nine months ended
September 30, 1997, reaching $61,933. These funds were redeployed to the loan
portfolio and to fund deposit outflows. Operating activities contributed
$23,810 primarily due to net income of $13,799. Investing activities used
$41,482, due to the increase in gross loans noted above and capital
expenditures totaling $4,595. Financing activities other than deposits
consisted of a $6,828 cash dividend paid to shareholders, purchases of treasury
stock totaling $563, and a $570 reduction in repurchase agreements.
As of September 30, 1997, the market value of the held to maturity investment
portfolio exceeded book value by $12,694. Management has the positive intent
and ability to hold these securities until maturity.
RESULT OF OPERATIONS - Quarter Ended September 30, 1997 Compared to Quarter
Ended September 30, 1996.
Net interest income, before provision for loan losses, of $14,931 for the
quarter ended September 30, 1997 represents a $259 decrease from the same
quarter last year. Net interest income (on a tax equivalent basis) also
decreased by $247 from the prior year's quarter. The average volume of
interest earning assets increased $57,989, while their yield decreased 10 basis
points to 7.31%. The average volume of interest sensitive liabilities
increased $28,173, while the average cost of funds increased 15 basis points to
4.46%. The net interest margin decreased 25 basis points to 2.85% with a
corresponding 17 point decrease in net yield on earning assets.
Other operating income increased $311 from the third quarter of 1996. The
increase is attributable to Trust Department income which increased $190 due to
the implementation of a new fee schedule and asset growth. Additionally, in
the current period, security gains realized totaled $97, while a loss of $73
was recorded in 1996. Service charges on deposit accounts and other income
categories showed little change.
Other operating expense increased $661. Salaries and employee benefits
increased $218. Salaries increased $222 due to annual salary adjustments and
an increase in the number of employees necessitated by the opening of a new
facility. Medical insurance decreased $51 as accruals were reduced slightly in
relationship with claims paid. Net occupancy of bank
9
<PAGE> 10
premises increased $84 due to additional depreciation and real estate taxes
relating to the new facility. Equipment and outside service fees increased
$104 and $118, respectively. These increases relate to product technology
enhancements, profitability initiatives and legal costs associated with loan
and deposit collection activities.
Current period income tax decreased $269 due to a $709 decrease in pretax
income. The effective tax rate declined from 24.86 % in 1996 to 23.33% in 1997
as tax exempt interest represented a greater percentage of pretax income in the
latter period.
RESULT OF OPERATIONS - Nine Months ended September 30, 1997 Compared to Nine
Months Ended September 30, 1996.
Net interest income, before provision for loan losses, of $45,087 represents a
$468 increase from the same 1996 period. The provision for loan losses
increased by $550 in 1997 reaching $750. In the nine month 1997 period, net
interest income (on a tax equivalent basis) increased $675. The average volume
of interest earning assets increased $61,103, while their yield was virtually
unchanged at 7.39%. The average volume of interest sensitive liabilities
increased $34,614, while the average cost of funds increased 12 basis points
reaching 4.43%. The net interest margin, therefore, declined 13 basis points
to 2.96%, while the net yield on earning assets declined five basis points to
3.64%.
Other operating income decreased $327 from the same 1996 period. The decrease
is attributable to net security gains which declined from $963 to $82 in the
current period. This decline was largely offset by trust fees which increased
$646. Increased Trust Department revenues are the result of volume increases
and modified fee schedules. Fees realized on deposit services and other
operating fee categories recorded a nominal decline.
Other operating expenses increased $2,338. Salaries and employee benefits
accounted for 45.6% of this increase or $1,067. Salaries increased $725 due to
annual salary adjustments and an increase of 12 full-time equivalent employees
as necessitated in part by the opening of a new facility. Medical insurance
expense increased $136 due to an increase in claims filed. Additionally,
contributions to employee retirement plans increased by $105. Net occupancy
expense rose $292 relating to higher depreciation and operating costs resulting
from facility expansion and related real estate tax expense which is further
impacted by county reassessments. Management actively seeks to control costs
which are directly related to its facilities. Insurance costs increased $162
entirely due to the company's FDIC insurance program assessment. Premium costs
for all other insurance coverages remained virtually unchanged. All other
operating expenses increased $499 due to higher data processing costs relating
to an expansion of technology delivery channels and increased charitable
community contributions.
Current period income tax decreased $1,070 due to a $2,747 decrease in pretax
income. The effective tax rate declined from 25.39% in 1996 to 23.32% in 1997.
The decline is the result of slightly higher exempt revenue which now
represents a greater share of pretax dollars.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Financial Data Schedule - Article 9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST EVERGREEN CORPORATION
Dated: November 10, 1997 BY: /s/ Stephen M. Hallenbeck
-------------------------------------
Stephen M. Hallenbeck
Secretary/Treasurer
Signing on behalf of the Registrant and
as Principal Financial Officer.
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 37,932,891
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 24,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 144,244,216
<INVESTMENTS-CARRYING> 977,161,781
<INVESTMENTS-MARKET> 989,856,000
<LOANS> 658,361,596
<ALLOWANCE> 3,152,349
<TOTAL-ASSETS> 1,900,084,333
<DEPOSITS> 1,674,559,162
<SHORT-TERM> 16,665,000
<LIABILITIES-OTHER> 15,176,082
<LONG-TERM> 0
0
0
<COMMON> 193,684,089
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,900,084,333
<INTEREST-LOAN> 38,343,735
<INTEREST-INVEST> 56,465,238
<INTEREST-OTHER> 1,444,578
<INTEREST-TOTAL> 96,253,551
<INTEREST-DEPOSIT> 50,550,840
<INTEREST-EXPENSE> 51,166,497
<INTEREST-INCOME-NET> 45,087,054
<LOAN-LOSSES> 750,000
<SECURITIES-GAINS> 81,609
<EXPENSE-OTHER> 31,896,659
<INCOME-PRETAX> 17,994,786
<INCOME-PRE-EXTRAORDINARY> 17,994,786
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13,798,786
<EPS-PRIMARY> 34.49
<EPS-DILUTED> 34.49
<YIELD-ACTUAL> 3.64
<LOANS-NON> 2,601,341
<LOANS-PAST> 3,175,561
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 4,132,053
<ALLOWANCE-OPEN> 3,041,637
<CHARGE-OFFS> 836,596
<RECOVERIES> 197,309
<ALLOWANCE-CLOSE> 3,152,350
<ALLOWANCE-DOMESTIC> 3,152,350
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 7,709
</TABLE>
