<PAGE> 1
ORIGINAL
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
X Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange
- --- Act of 1934. (Fee Required)
For the fiscal year ended December 31, 1997.
or
Transition Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934. (No Fee Required)
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
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: None
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 by check mark if the disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
The aggregate market value of common stock outstanding held by nonaffiliates of
the registrant as of March 17, 1998, (based upon the closing price as of such
date) was approximately $121,100,000. Shares of common stock held by Directors
and executive officers of the registrant and by each person who owns 5% or more
of the outstanding common stock have been excluded.
The number of shares outstanding of the registrant's common stock, $25.00 par
value, as of March 17, 1998, was 400,261.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the annual report to stockholders for the year ended December 31,
1997 are incorporated by reference into Part I and Part II.
Portions of the proxy statement for the annual stockholders meeting to be held
April 23, 1998, are incorporated by reference into Part III.
<PAGE> 2
PART I
ITEM 1 - BUSINESS
FIRST EVERGREEN CORPORATION
First Evergreen Corporation ("First Evergreen") is a bank holding
company organized in 1977 under the laws of the State of Delaware. First
Evergreen owns all the outstanding common stock of First National Bank of
Evergreen Park ("Evergreen Bank"), a national banking association organized in
1948 under the laws of the United States. First Evergreen does not engage in
any activities other than providing administrative services for and acting as a
holding company for its subsidiary bank.
SUBSIDIARY BANK
Evergreen Bank provides a complete range of retail banking services to
individuals and small and medium-size businesses at each of its six banking
locations--Evergreen Park (main office), Evergreen Bank-Oak Lawn Office,
Evergreen Bank-Clearing Office, Evergreen Bank-Orland Park Office, Evergreen
Bank-Physician's Pavilion, and Evergreen Bank- Auburn/Highland Office. These
services include checking, savings and Money Market deposit accounts, business
loans, personal loans, residential mortgage loans, home improvement loans,
loans for education, other consumer oriented financial services including IRA
and Keogh accounts, and safe deposit and night depository facilities.
Additionally, Evergreen Bank provides 24-hour banking services to its
customers.
Evergreen Bank's Trust Department offers fiduciary, investment
management and advisory services to individuals and small corporations. It
also administers (as trustee and in other fiduciary and representative
capacities) pension, profit-sharing and other employee benefit plans and
personal trusts and estates.
Evergreen Bank employs 598 people on a full time equivalent basis and
provides a variety of employment benefits. Management believes that
relationships with employees are good.
SUPERVISION AND REGULATION
FIRST EVERGREEN
First Evergreen is a bank holding company within the meaning of the
Bank Holding Company Act of 1956, as amended (the "Act"), and is registered as
such with the Board of Governors of the Federal Reserve System (the "Federal
Reserve"). The Act requires every bank holding company to obtain prior
approval of the Federal Reserve before merging with or consolidating into
another bank holding company, acquiring substantially all the assets of any
bank or acquiring direct or indirect ownership or control of more than 5% of
the voting shares of any bank. However, the Federal Reserve may not approve
any acquisition if it is prohibited by State law.
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The Illinois Bank Holding Company Act of 1957, as amended, permits
bank holding companies located in states other than Illinois to acquire banks
and bank holding companies in Illinois, if such other states have passed
legislation granting similar privileges to Illinois banks and bank holding
companies. On the federal level, in September 1994 Congress passed the
Interstate Banking and Branching Efficiency Act, which authorizes after
September 29, 1995, a bank holding company to acquire a bank located outside of
its home state so long as certain criteria are satisfied. After June 1, 1997,
this enactment authorizes the merger of banks located in different states so
long as certain criteria are satisfied. States are currently evaluating the
ramifications and issues which arise from the enactment of this law. Moderate
activity by out-of-state entities has occurred in First Evergreen's market
area.
The Act also prohibits a bank holding company, with certain
exceptions, from acquiring direct or indirect ownership or control of more than
5% of the voting shares of any company which is not a bank and from engaging in
any business other than that of banking, managing and controlling banks or
furnishing services to banks and their subsidiaries. Bank holding companies,
however, may engage in, and may own shares of companies engaged in certain
businesses determined by the Federal Reserve to be so closely related to
banking or managing or controlling banks as to be properly incident thereto.
The Act does not place territorial restrictions on the activities of bank
holding companies or their non-bank subsidiaries.
Under the Act, First Evergreen is required to file annual reports of
its operations and such additional information as the Federal Reserve may
require and is subject, along with its subsidiary, to examination by the
Federal Reserve. The Federal Reserve has jurisdiction to regulate the terms of
certain debt issues of bank holding companies, including the authority to
impose reserve requirements.
SUBSIDIARY BANK
Evergreen Bank is a national bank and is a member of the Federal
Deposit Insurance Corporation ("FDIC"), and as such, is subject to the
provisions of the Federal Deposit Insurance Act. All national banks are
members of the Federal Reserve System and are subject to applicable provisions
of the Federal Reserve Act. Evergreen Bank is subject to regulation and
regular examination by the Comptroller of the Currency.
The federal and state laws and regulations generally applicable to
banks regulate, among other things, the scope of their business, their
investments, their reserves against deposits, the nature and amount of
collateral for loans, and include restrictions on the number of banking offices
and activities which may be performed at such offices.
Subsidiary banks of bank holding companies are subject to certain
restrictions under the Federal Reserve Act and the Federal Deposit Insurance
Act on loans and extensions of credit to the bank holding company or to its
other subsidiaries, investments in the stock or other securities of the bank
holding company or its other subsidiaries, or advances to any borrower
collateralized by such stock or other securities.
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GOVERNMENTAL MONETARY POLICIES
Revenue of Evergreen Bank, and therefore a majority of First
Evergreen's revenue, is affected by general economic conditions and also by the
fiscal and monetary policies of the Federal Government and its agencies,
particularly the Federal Reserve. The Federal Reserve regulates the reserve
requirements of member and non-member banks and the discount rate on bank
borrowings. Its policies have a direct effect on the amount of bank loans and
deposits and interest rates charged and paid thereon. Consequently, federal
regulations have a significant impact on banking revenue.
First Evergreen cannot fully predict the nature or the extent of any
effect which such fiscal and monetary policies may have on its business and
earnings.
COMPETITION
Evergreen Bank encounters intense competition in all aspects of its
business. Evergreen Bank competes vigorously with other financial institutions
in its local communities, and banks in downtown Chicago. The historical
restrictions in Illinois applicable to the ability of an Illinois located bank
to establish bank offices have been virtually eliminated. Accordingly, any
bank capable of doing business in Illinois has the legal right to establish an
office in Evergreen Bank's market area. Thus, banking competition has
increased, and will continue to increase, within First Evergreen's market.
DIVIDENDS
First Evergreen uses funds derived primarily from payment of dividends
by Evergreen Bank for, among other things, the cost of operations and payment
of dividends to its stockholders. Various contractual and statutory
limitations exist with respect to the ability of Evergreen Bank to pay
dividends to First Evergreen. Under certain circumstances, Evergreen Bank
would need the approval of the Comptroller of the Currency to pay dividends.
All dividends are restricted by capital adequacy requirements imposed by
federal regulations.
FINANCIAL INFORMATION
Disclosure of financial information, including assets, revenue and
operating gain or loss, on pages 4 and 5 of the annual report to stockholders
for the year ended December 31, 1997, is incorporated herein by reference.
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ITEM 2 - PROPERTIES
First Evergreen owns no properties and requires minimal office space
in one of the facilities of Evergreen Bank. All but one of the facilities of
Evergreen Bank are owned. Evergreen Bank's sole leased facility, which
accounts for less than 2% of total deposits, is leased through May, 2001. Each
facility is sufficient to meet its operations and is periodically remodeled to
meet and exceed customer service demands.
<TABLE>
<CAPTION>
OFFICE LOCATION OWNERSHIP SQUARE FOOTAGE
------ -------- --------- --------------
<S> <C> <C> <C>
Main Office 3101 W. 95th Street Owned 64,000
Evergreen Park, Illinois
Oak Lawn 9400 S. Cicero Avenue Owned 85,000
Oak Lawn, Illinois
4900 W. 95th Street Owned 24,000
Oak Lawn, Illinois
9430 S. Cicero Avenue Owned 8,500
Oak Lawn, Illinois
Chicago 5235 W. 63rd Street Owned 23,000
Chicago, Illinois
8140 S. Ashland Avenue Owned 6,450
Chicago, Illinois
Orland Park 15330 S. Harlem Ave. Owned 15,000
Orland Park, Illinois
Physician's 4400 W. 95th Street Leased 1,700
Pavilion Oak Lawn, Illinois
</TABLE>
ITEM 3 - LEGAL PROCEEDINGS
There are no material legal proceedings pending against First
Evergreen. However, as Evergreen Bank acts as a depository of funds, it is
named as a defendant in numerous lawsuits (such as garnishment proceedings)
involving claims to the ownership of funds in particular accounts. Evergreen
Bank is also involved in litigation brought by it to collect delinquent loans
and enforce collateral provisions of security documents. All such litigation
is in the ordinary course of business. Management of the bank believes that no
litigation is threatened which will materially affect the bank's financial
position as presented herein.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(DURING THE FOURTH QUARTER OF 1997)
None
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PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS
Common Stock Information and Dividends on page 23 of the annual report
to stockholders for the year ended December 31, 1997 is incorporated herein by
reference.
ITEM 6 - SELECTED FINANCIAL DATA
Financial Review and Selected Financial Data on pages 23 and 24 of the
annual report to stockholders for the year ended December 31, 1997, are
incorporated herein by reference.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Management's Discussion and Analysis of Financial Condition and
Results of Operations on pages 25 through 34 of the annual report to
stockholders for the year ended December 31, 1997, are incorporated herein by
reference.
ITEM 7A- QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Information related to interest rate sensitivity and market risk in
Management's Discussion and Analysis of Financial Condition and Results of
Operations on page 27 of the annual report to stockholders for the year ended
December 31, 1997 is incorporated herein by reference.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated Financial Statements and Notes thereto on pages 4 through
21 of the annual report to stockholders for the year ended December 31, 1997,
are incorporated herein by reference.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None
6
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PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information concerning Directors of the Registrant on page two of the
proxy statement for the annual stockholders' meeting to be held on April 23,
1998 is incorporated herein by reference.
EXECUTIVE OFFICERS
KENNETH J. OZINGA
Mr. Ozinga has been President and a Director of First Evergreen since 1985 and
President of First National Bank of Evergreen Park since 1985. Additionally,
Mr. Ozinga has served as a Director of First National Bank of Evergreen Park or
a subsidiary bank since 1982. Mr. Ozinga is 46 years old.
STEPHEN M. HALLENBECK
Mr. Hallenbeck is Secretary/Treasurer and Chief Financial Officer of First
Evergreen. Additionally, he is an Executive Vice President of First National
Bank of Evergreen Park since 1985, and Secretary/Director of First National
Bank of Evergreen Park. Mr. Hallenbeck joined First Evergreen as a Director of
a subsidiary bank in 1979. Mr. Hallenbeck is 56 years old.
ROBERT C. WALL
Mr. Wall is Vice President of First Evergreen. Additionally, he is an
Executive Vice President of First National Bank of Evergreen Park and a
Director of First National Bank of Evergreen Park since 1975. Mr. Wall joined
First National Bank of Evergreen Park in 1977. Mr. Wall is 62 years old.
RICHARD H. BROWN
Mr. Brown is an Executive Vice President of First National Bank of Evergreen
Park. Mr. Brown joined First National Bank of Evergreen Park in 1986. Mr.
Brown is 43 years old.
ROBERTA BAUER-MICETIC
Mrs. Bauer-Micetic is a Senior Vice President of First National Bank of
Evergreen Park. Mrs. Bauer-Micetic joined First National Bank of Evergreen
Park in 1983. Mrs. Bauer-Micetic is 47 years old.
JEFFREY A. BLANCHETTE
Mr. Blanchette is a Senior Vice President of First National Bank of Evergreen
Park. Mr. Blanchette joined First National Bank of Evergreen Park in 1985.
Mr. Blanchette is 37 years old.
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BARBARA HEIDEGGER
Mrs. Heidegger is a Senior Vice President of First National Bank of Evergreen
Park. Mrs. Heidegger joined First National Bank of Evergreen Park in 1968.
Mrs. Heidegger is 64 years old.
BARRY N. VOORN
Mr. Voorn is a Senior Vice President of First National Bank of Evergreen Park.
Mr. Voorn joined First National Bank of Evergreen Park in 1983. Mr. Voorn is
41 years old.
GAINES D. WILSON
Mr. Wilson is a Senior Vice President of First National Bank of Evergreen Park.
Mr. Wilson joined First National Bank of Evergreen Park in 1972. Mr. Wilson is
48 years old.
REID J. SMEDA
Mr. Smeda is a Vice President of First National Bank of Evergreen Park. Mr.
Smeda joined First National Bank of Evergreen Park in 1992. Mr. Smeda is 30
years old.
DAVID J. VEURINK
Mr. Veurink is a Vice President of First National Bank of Evergreen Park. Mr.
Veurink joined First National Bank of Evergreen Park in 1987. Mr. Veurink is
33 years old.
ITEM 11 - EXECUTIVE COMPENSATION
COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS
A director who is an employee of Evergreen Bank is not compensated for
service as a member of First Evergreen's Board of Directors or any committee of
the Board. During 1997, the two outside directors each received retainers
totaling $20,000.
The following "Summary of Compensation Table" provides shareholders a
concise, comprehensive overview of compensation awarded, earned and paid in the
reporting period.
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SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Name and Principal Position Year Salary All Other Compensation *
- --------------------------- ---- -------- ------------------------
<S> <C> <C> <C>
Kenneth J. Ozinga 1997 $603,750 $22,843
Chief Executive Officer 1996 $575,000 $21,098
1995 $552,500 $21,931
Stephen M. Hallenbeck 1997 $401,625 $22,843
Secretary/Treasurer 1996 $373,500 $21,098
1995 $334,750 $21,931
Robert C. Wall 1997 $348,750 $22,843
Vice President 1996 $334,750 $21,098
1995 $309,750 $21,931
Richard H. Brown 1997 $155,000 $23,250
Executive Vice President 1996 $143,900 $21,750
(subsidiary) 1995 $133,000 $19,950
Barry N. Voorn 1997 $106,000 $15,494
Senior Vice President 1996 $ 96,500 $14,475
(subsidiary) 1995 $ 92,000 $13,800
Roscoe N. Rush 1997 $140,000 $22,013
Senior Vice President 1996 $136,000 $21,672
(subsidiary) 1995 $131,000 $20,147
Ronald J. Homa 1997 $114,000 $17,100
Senior Vice President 1996 $111,000 $16,650
(subsidiary) 1995 $109,000 $16,350
</TABLE>
* Other annual compensation received by Messrs. Ozinga, Hallenbeck, Wall,
Brown, Voorn, Rush and Homa represent company contributions to a defined
contribution plan.
Messrs. Ozinga, Hallenbeck, Wall, Brown, Voorn, Rush and Homa are
compensated by Evergreen Bank and not First Evergreen. Compensation
considerations include, but are not limited to, industry standards and
practices as well as practical issues such as affordability and financial
impact. Compensation of the Chief Executive Officer also follows industry
standards and practices and is not directly correlated with First Evergreen's
or Evergreen Bank's financial performance. Neither First Evergreen nor
Evergreen Bank provides an equity incentive program.
9
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COMPENSATION INTERLOCKS AND INSIDER PARTICIPATION
First Evergreen has no compensation committee or committees performing
the functions of such. The entire Board of Directors of First Evergreen
engages in the process and is responsible for setting compensation of First
Evergreen's Chief Executive Officer. The directors of First Evergreen during
1997 were Alfred E. Bleeker, James R. Cismoski, Jerome J. Cismoski, Stephen M.
Hallenbeck, Kenneth J. Ozinga and Martin F. Ozinga. Kenneth J. Ozinga was,
during 1997, the President, Chief Executive Officer and Chairman of the Board
of Directors of First Evergreen. Stephen M. Hallenbeck was, during 1997, the
Secretary and Treasurer of First Evergreen. The entire Board of Directors of
Evergreen Bank engages in the process of, and is responsible for, setting the
compensation of Messrs. Hallenbeck, Wall, Brown, Voorn, Rush and Homa. The
directors of Evergreen Bank, during 1997, were Daniel Butler, Jr., James R.
Cismoski, Stephen M. Hallenbeck, Kenneth J. Ozinga, Martin F. Ozinga, Ronald
W. Ozinga, Thomas Palmisano and Robert C. Wall. Kenneth J. Ozinga was, during
1997, the President and Chairman of the Board of Evergreen Bank. Stephen M.
Hallenbeck, during 1997, was the Secretary and Executive Vice President of
Evergreen Bank. Robert C. Wall, during 1997, was a Vice President of First
Evergreen and an Executive Vice President of Evergreen Bank. Martin F. Ozinga,
during 1997, was a Sr. Vice President of Evergreen Bank.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information concerning Security Ownership of Certain Beneficial Owners
and Management of the Registrant on page 3 of the proxy statement for the
annual stockholders' meeting to be held on April 23, 1998 is incorporated
herein by reference.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Directors and officers of First Evergreen and their associates were
customers of and had transactions with First Evergreen and Evergreen Bank in
the ordinary course of business during 1997. It is anticipated that similar
transactions may occur in the future. Such transactions in 1997 included
payments by First Evergreen and Evergreen Bank for services furnished and were
not material relative to the gross revenues of either First Evergreen or the
directors' companies. In management's opinion, all loans and commitments
included in such transactions were made at substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with other persons and did not involve more than normal
risk of collectibility or present any unfavorable features.
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PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON FORM 8-K
1.(a) The following exhibits are filed as part of this report:
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
First Evergreen Corporation
We have audited the accompanying consolidated statements of condition
of First Evergreen Corporation and subsidiary as of December 31, 1997 and 1996
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for the years then ended. These financial statements
are the responsibility of the Company'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 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Evergreen Corporation and subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years
then ended, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
January 21, 1998
11
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders of First Evergreen Corporation:
We have audited the accompanying consolidated statements of income,
changes in stockholders' equity and cash flows of First Evergreen Corporation
(a Delaware corporation) and subsidiary for the year ended December 31, 1995.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the results of operations and
cash flows of First Evergreen Corporation and subsidiary for the year ended
December 31, 1995, in conformity with generally accepted accounting principles.
Arthur Andersen LLP
Chicago, Illinois
January 24, 1996
1.(b) The following consolidated financial statements of First Evergreen and
subsidiary, included in the annual report of the Registrant to its stockholders
for the year ended December 31, 1997, are incorporated by reference in Item 8:
Consolidated statements of condition - December 31, 1997 and 1996
Consolidated statements of income - Years ended December 31, 1997,
1996 and 1995
Consolidated statements of changes in stockholders' equity - Years
ended December 31, 1995, 1996 and 1997
Consolidated statements of cash flows - Years ended December 31, 1997,
1996 and 1995
Notes to consolidated financial statements - December 31, 1997, 1996
and 1995
2. Schedules to the consolidated financial statements required by Article
9 of Regulation S-X are omitted because they are either not applicable or the
required information is shown in the financial statements or notes thereto.
3. Exhibits
Exhibit 13 - Annual report to stockholders for the year ended
December 31, 1997
Exhibit 27 - Financial Data Schedule
12
<PAGE> 13
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the Village of
Evergreen Park, State of Illinois, on March 23, 1998.
First Evergreen Corporation
(The Registrant)
/s/ KENNETH J. OZINGA Chairman of the Board of Directors and President
- ---------------------------- (Principal Executive Officer)
Kenneth J. Ozinga
/s/ STEPHEN M. HALLENBECK Secretary/Treasurer
- ---------------------------- (Principal Financial and Accounting Officer)
Stephen M. Hallenbeck
/s/ JAMES R. CISMOSKI Director
- ----------------------------
Jerome J. Cismoski
/s/ MARTIN F. OZINGA Director
- ----------------------------
Martin F. Ozinga
Being a majority of the Registrant's Board of Directors
13
<PAGE> 14
NOTICE OF ANNUAL MEETING OF
STOCKHOLDERS OF FIRST EVERGREEN CORPORATION
MEETING DATE: APRIL 23, 1998
The Annual Meeting of Stockholders of First Evergreen Corporation ("First
Evergreen") will be held at the Evergreen Park facility of the First National
Bank of Evergreen Park located at 3101 West 95th Street in Evergreen Park,
Illinois, on Thursday, April 23, 1998 at 2:00 p.m., Central Daylight Savings
Time, for the following purposes:
1. TO ELECT A BOARD OF DIRECTORS, each Director to hold office until the
next Annual Meeting of the Stockholders and until a successor shall be
elected and shall qualify;
2. TO RATIFY THE SELECTION OF ERNST & YOUNG LLP as independent auditors
for First Evergreen; and
3. TO TRANSACT ANY OTHER BUSINESS that properly may be brought before the
Meeting or any adjournment thereof.
The Board of Directors has fixed the close of business on March 17, 1998 as the
record date for the determination of Stockholders entitled to notice of and a
vote at the Meeting. If you are unable to attend the Meeting in person, please
sign the enclosed proxy form and mail it promptly in the envelope provided.
By Order of the Board of Directors
Dated: March 17, 1998
/s/ STEPHEN M. HALLENBECK
- ------------------------------------------
Stephen M. Hallenbeck, Secretary/Treasurer
IMPORTANT NOTICE:
WHETHER OR NOT YOU EXPECT TO BE PRESENT AT THE MEETING, PLEASE DATE AND SIGN
THE ENCLOSED PROXY IN ORDER THAT THERE MAY BE PROPER REPRESENTATION AT THE
MEETING. NO POSTAGE IS REQUIRED IF MAILED IN THE UNITED STATES. IF YOU ATTEND
THE MEETING, YOU MAY REVOKE THE PROXY AND VOTE YOUR SHARES IN PERSON.
<PAGE> 15
PROXY STATEMENT
The enclosed proxy is solicited by the Board of Directors of First Evergreen
Corporation ("First Evergreen"), a Delaware corporation, for use at the Annual
Meeting of Stockholders to be held on April 23, 1998 (the "Meeting") at 2:00
p.m., Central Daylight Savings Time, at the Evergreen Park facility of the
First National Bank of Evergreen Park, 3101 West 95th Street in Evergreen Park,
Illinois. All expenses of this solicitation will be paid by First Evergreen.
A proxy may be revoked by delivering a written notice of revocation to First
Evergreen's office or in person at the Meeting at any time prior to the voting
thereof.
Stockholders of record at the close of business on March 17, 1998 are entitled
to notice of and to vote at the Meeting. Each share of Common Stock of First
Evergreen outstanding on the record date is entitled to one vote. (See VOTING
RIGHTS) At the close of business on Tuesday, March 17, 1998, 400,261 shares of
Common Stock of First Evergreen were outstanding.
The proxy statement and the accompanying proxy are first being mailed to First
Evergreen Stockholders on or about April 1, 1998.
The proxy also may be voted with discretionary authority in any other matters
properly presented before the Meeting unless a contrary specification is made.
ANNUAL REPORT TO STOCKHOLDERS
The First Evergreen Annual Report to Stockholders will be mailed on or about
April 1, 1998.
VOTING RIGHTS
All voting rights are vested in the Stockholders of First Evergreen Common
Stock, each share being entitled to one vote. There are no cumulative voting
rights in the election of directors.
ELECTION OF DIRECTORS
At the Meeting, First Evergreen Stockholders will be asked to elect a Board of
five (5) Directors for a term extending until the 1998 Annual Meeting of First
Evergreen Stockholders, and their respective successors are elected and shall
qualify. The following individuals have been nominated for election to the
First Evergreen Board of Directors:
James R. Cismoski
Stephen M. Hallenbeck
Kenneth J. Ozinga
Martin F. Ozinga
Thomas Palmisano
<PAGE> 16
The following table contains certain information with respect to each of the
nominees:
<TABLE>
<CAPTION>
Name, age, year became a Director of First Evergreen or a Common Stock of First Evergreen
Subsidiary Bank, principal occupation during last five years. beneficially owned as of March 17, 1998
OTHER DIRECTORSHIPS: NUMBER OF PERCENT
SHARES OF CLASS
<S> <C> <C> <C>
1. JAMES R. CISMOSKI, 53 5,270 (1) 1.32%
Director of First Evergreen or a Subsidiary
Bank since 1976; President, Val-A Company,
Inc., distributors of agricultural products.
2. STEPHEN M. HALLENBECK, 56 15,071 (2) 3.76%
Director of First Evergreen or a Subsidiary Bank since
1979; Executive Vice President of First National Bank
of Evergreen Park (7) since 1985; Secretary/Treasurer
of First Evergreen since 1991.
3. KENNETH J. OZINGA, 46 (5) 14,822 (3) 3.70%
Director of First Evergreen or a Subsidiary Bank since
1982; Chairman and President, First Evergreen and
First National Bank of Evergreen Park. (7)
4. MARTIN F. OZINGA, 56 (5) 4,989 (4) 1.25%
Director of First Evergreen or a Subsidiary Bank since
1984. Senior Vice President of First National Bank of
Evergreen Park (7) through 1997.
5. THOMAS PALMISANO, 52 19,801 (6) 4.95%
Director of First Evergreen or a Subsidiary Bank since
1984; V.P. & Secretary, Suburban Development Resources,
Ltd., a land development company.
</TABLE>
(1) Includes 2,602 shares held jointly with Mr. Cismoski's wife;
149 shares held by Mr. Cismoski's wife; and 861 shares held by
Mr. Cismoski's minor children.
(2) Includes 3,051 shares held jointly with Mr. Hallenbeck's wife;
10,276 shares held by Mr. Hallenbeck's wife; and 1,704 shares
held by Mr. Hallenbeck's children.
(3) Includes 14,782 shares held jointly with Mr. Ozinga's wife.
(4) Includes 2,873 shares held jointly with Mr. Ozinga's wife.
(5) Messrs. Kenneth J. Ozinga and Martin F. Ozinga are cousins.
(6) Includes 19,381 shares held in trust for the benefit of Mr.
Palmisano's wife; and 380 shares held in trust for the benefit
of Mr. Palmisano.
(7) First National Bank of Evergreen Park is a subsidiary bank of
First Evergreen.
<PAGE> 17
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company held a total of ten meetings during the
year ended December 31, 1997. No director attended less than seventy-five
percent of the meetings.
One director of the Company, James R. Cismoski, is a member of the Internal
Audit Committee of First National Bank of Evergreen Park, the Company's sole
subsidiary. The Committee is comprised of three other non-employee subsidiary
directors and met six times during 1997. The Audit Committee recommends
engagement of the Company's independent auditors and is primarily responsible
for the scope and adequacy of the Company's internal control functions.
The Board of Directors has no nominating or compensation committee or
committees performing the functions of such.
OWNERSHIP OF FIRST EVERGREEN COMMON STOCK BY CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth all persons known to First Evergreen to be the
beneficial owner of more than five percent of First Evergreen Common Stock as
of March 17, 1998. Beneficial ownership of securities generally means the
power to vote or dispose of securities, regardless of any economic interest.
<TABLE>
<CAPTION>
Number of Shares
and Nature of Percent
Name and Address of Beneficial Owner Beneficial Ownership of Class
<S> <C> <C>
Alfred E. Bleeker 31,474 7.86%
Trust Dated 12/5/89
9514 South Springfield Avenue
Evergreen Park, Illinois 60805
Daniel Butler, Jr. 23,036 (1) 5.76%
340 Lakeland Drive
Palos Park, Illinois 60464
First National Bank of Evergreen Park 36,753 (2) 9.18%
(a subsidiary of First Evergreen)
in various fiduciary capacities
3101 West 95th Street
Evergreen Park, Illinois 60805
All directors and officers as a group 61,198 15.29%
(eight persons)
</TABLE>
Notes (1) and (2) appear on the following page
<PAGE> 18
NOTES FROM PRECEDING PAGE - BENEFICIAL OWNERSHIP
(1) Includes 11,254 shares held jointly with Mr. Butler's wife,
8,051 shares held by Mr. Butler's wife, 71 shares and 259
shares held in trust for the benefit of Mr. Butler and his
wife, respectively, and 3,205 shares held by Mr. Butler's
minor children.
(2) First National Bank of Evergreen Park's Trust Department does
not exercise voting power over any of these shares. No single
beneficiary accounts for more than five percent of First
Evergreen Common Stock. Excludes 330 shares controlled by
beneficial owners herein listed.
APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors recommends the appointment of Ernst & Young LLP to
express an independent opinion on the financial statements and controls over
financial reporting of First Evergreen in 1998. It is anticipated that a
representative of Ernst & Young LLP will be present at the Meeting. If
present, that representative will have an opportunity to make a statement on
behalf of the accounting firm, if it desires, and will be available to respond
to appropriate questions. In the absence of contrary directions from our
stockholders, the proxies will be voted in favor of the election of Ernst &
Young LLP as independent auditors of First Evergreen in 1998.
PROPOSALS OF STOCKHOLDERS
Proposals of Stockholders intended to be presented at the 1999 Annual
Stockholders Meeting must be received by First Evergreen's President prior to
January 6, 1999 for inclusion in the 1999 proxy statement and form of proxy.
GENERAL
The Board of Directors knows of no other matters to be acted upon at the
Meeting. However, if any other matter is lawfully brought before the Meeting,
the shares covered by your proxy will be voted thereon in accordance with the
best judgement of the persons acting under such proxy.
First Evergreen is filing with the Securities and Exchange Commission Form 10-K
for the year ended December 31, 1997. Copies of First Evergreen's Form 10-K
will be sent to Stockholders without charge upon written request. That request
should be directed to:
Chairman
FIRST EVERGREEN CORPORATION
3101 West 95th Street
Evergreen Park, IL 60805
<PAGE> 19
PROXY
This proxy is solicited by First Evergreen Corporation ("First Evergreen"),
Evergreen Park, Illinois, for the Annual Meeting of Stockholders of First
Evergreen to be held on the 23rd day of April, 1998, at 2:00 p.m. Central
Daylight Savings Time, at the First National Bank of Evergreen Park, located at
3101 West 95th Street, Evergreen Park, Illinois.
The undersigned hereby appoints Ronald J. Homa and Robert C. Wall, with full
power of substitution and revocation, to vote all the stock of First Evergreen
owned by the undersigned and entitled to vote at the Annual Meeting of
Stockholders of First Evergreen on the 23rd day of April, 1998, or any
adjournment thereof, as effectively as the undersigned could so do if
personally present.
1. Election of Directors
[ ] FOR all nominees listed below (except as marked to the contrary)
[ ] WITHHOLD AUTHORITY to vote for all nominees listed below
(Instruction: To withhold authority to vote for any individual
nominee, strike a line through the nominee's name in the list
below.)
James R. Cismoski, Stephen M. Hallenbeck, Kenneth J. Ozinga,
Martin F. Ozinga, Thomas Palmisano
2. Proposal to approve the appointment of Ernst & Young LLP as
independent auditors for First Evergreen.
[ ] FOR [ ] AGAINST [ ] ABSTAIN
3. In their discretion, the proxies are authorized to vote upon such
other business as may properly come before the Meeting.
This proxy, when properly executed, will be voted in the manner directed herein
by the undersigned Stockholder. If no direction is made, this proxy will be
voted for Proposal No. 1, Proposal No. 2, and Proposal No. 3, above.
--------------------------------------
--------------------------------------
--------------------------------------
Dated
--------------------------------
Please sign exactly as your names appear on the First Evergreen stock
certificates. When signing as attorney, executor, administrator, trustee, etc.,
please give full title as such.
PLEASE MARK, SIGN, DATE AND RETURN THE PROXY PROMPTLY, USING THE ENVELOPE
PROVIDED.
<PAGE> 1
EXHIBIT 13
First Evergreen Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CONDITION
Dollars in thousands except share data
<TABLE>
<CAPTION>
December 31,
ASSETS 1997 1996
<S> <C> <C>
Cash and due from banks (Note B) $ 45,977 $ 55,654
Federal funds sold 79,000 53,200
Available for sale securities (Notes A and C) 149,466 142,625
Held to maturity securities (Notes A and C)
U.S. Treasury obligations 70,663 133,514
U.S. Government agencies 381,078 403,056
Obligations of states and political subdivisions 184,938 173,090
Mortgage-backed securities 97,217 83,719
Collateralized mortgage obligations 188,007 190,443
Other securities 7,265 1,385
----------- -----------
Total held to maturity securities 929,168 985,207
(Market value of $945,930 in 1997 and $999,696 in 1996)
Loans - net (Notes A, D and N) 670,925 615,653
Bank premises and equipment (Notes A and E) 35,849 31,729
Accrued interest receivable 17,669 15,999
Goodwill and other intangibles--net (Note A) 3,439 4,281
Other assets (Note A) 1,603 5,665
----------- -----------
$ 1,933,096 $ 1,910,013
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 197,448 $ 181,115
Savings deposits 562,654 588,572
Money market accounts 97,062 97,965
Time deposits 843,456 828,195
----------- -----------
Total deposits (Note F) 1,700,620 1,695,847
Federal funds purchased and securities sold under
agreements to repurchase (Note G) 15,305 17,235
Accrued interest and other liabilities 19,029 10,491
----------- -----------
Total liabilities 1,734,954 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 (Note J) 191,566 180,280
Unrealized losses on AFS securities, net of tax (318) (1,318)
----------- -----------
206,884 194,598
Less treasury stock - at cost, 32,446 shares
in 1997 and 31,205 shares in 1996 (8,742) (8,158)
----------- -----------
Total stockholders' equity 198,142 186,440
----------- -----------
$ 1,933,096 $ 1,910,013
=========== ===========
</TABLE>
The accompanying notes are an integral part of these statements
4
<PAGE> 2
First Evergreen Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF INCOME
Dollars in thousands except share data
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Interest income
Interest and fees on loans (Note A) $ 51,674 $ 46,694 $ 40,600
Interest and dividends on investment securities
Taxable securities 55,653 59,822 65,177
Securities exempt from federal taxes 9,952 9,510 8,958
Dividends 298 83 83
Interest on available for sale securities 7,788 7,308 7,188
Interest on federal funds sold 2,579 1,815 1,435
-------- -------- --------
Total interest income 127,944 125,232 123,441
-------- -------- --------
Interest expense
Interest on deposits (Note F) 67,692 64,931 63,224
Interest on federal funds purchased and securities
sold under agreements to repurchase 805 611 520
-------- -------- --------
Total interest expense 68,497 65,542 63,744
-------- -------- --------
Net interest income 59,447 59,690 59,697
Provision for loan losses (Note D) 1,300 400 0
-------- -------- --------
Net interest income after provision
for loan losses 58,147 59,290 59,697
-------- -------- --------
Other operating income
Service charges on deposit accounts 3,305 3,403 2,977
Trust department income (Note A) 2,809 1,946 1,726
Other income 1,402 1,386 1,329
Net security gains 489 1,194 1,968
-------- -------- --------
Total other operating income 8,005 7,929 8,000
Other operating expenses
Salaries and employee benefits (Note I) 23,903 22,692 22,441
Net occupancy expense of bank premises (Notes A and E) 3,854 3,505 3,308
Equipment depreciation, rentals and maintenance (Notes A and E) 2,984 2,767 2,548
Insurance 470 265 2,212
Outside services and fees 2,171 1,956 2,059
Data processing 2,265 1,913 2,070
Other expenses 6,902 6,419 6,256
-------- -------- --------
Total other operating expenses 42,549 39,517 40,894
-------- -------- --------
Income before income tax expense 23,603 27,702 26,803
Income tax expense (Notes A and H) 5,489 7,010 6,573
-------- -------- --------
Net income $ 18,114 $ 20,692 $ 20,230
======== ======== ========
Net income per share (Note A) $ 45.17 $ 51.42 $ 50.11
======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements
5
<PAGE> 3
First Evergreen Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
Dollars in thousands except share data
<TABLE>
<CAPTION>
Years Ended December 31, 1995, 1996 and 1997
Unrealized
Common Retained Gains (Losses) Treasury
Stock Surplus Earnings on AFS securities Stock Total
<S> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER 31, 1994 $ 10,821 $ 4,815 $ 150,659 $ (1,927) $ (6,904) $ 157,464
Net income 0 0 20,230 0 0 20,230
Cash dividends ($13 per share) 0 0 (5,260) 0 0 (5,260)
Acquisition of 1,807 shares
of treasury stock 0 0 0 0 (739) (739)
Change in unrealized gains (losses)
on AFS securities 0 0 0 2,123 0 2,123
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1995 10,821 4,815 165,629 196 (7,643) 173,818
Net income 0 0 20,692 0 0 20,692
Cash dividends ($15 per share) 0 0 (6,041) 0 0 (6,041)
Acquisition of 1,140 shares
of treasury stock 0 0 0 0 (515) (515)
Change in unrealized gains (losses)
on AFS securities 0 0 0 (1,514) 0 (1,514)
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1996 10,821 4,815 180,280 (1,318) (8,158) 186,440
Net income 0 0 18,114 0 0 18,114
Cash dividends ($17 per share) 0 0 (6,828) 0 0 (6,828)
Acquisition of 1,241 shares
of treasury stock 0 0 0 0 (584) (584)
Change in unrealized gains (losses)
on AFS securities 0 0 0 1,000 0 1,000
--------- --------- --------- --------- --------- ---------
BALANCE AT DECEMBER 31, 1997 $ 10,821 $ 4,815 $ 191,566 $ (318) $ (8,742) $ 198,142
========= ========= ========= ========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements
6
<PAGE> 4
First Evergreen Corporation and Subsidiary
CONSOLIDATED STATEMENTS OF CASH FLOWS
Dollars in thousands
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 18,114 $ 20,692 $ 20,230
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for depreciation and amortization 3,767 3,589 3,369
Provision for loan losses 1,300 400 0
Amortization of investment security discounts/premiums 5,742 7,626 11,083
Net gains on investment securities (489) (1,194) (1,968)
Deferred income taxes 472 361 437
(Increase) decrease in accrued interest receivable (1,670) 4,960 3,525
(Increase) decrease in other assets 3,051 24,371 (26,684)
Net increase (decrease) in accrued interest and other liabilities 8,538 (26,763) 30,460
----------- ----------- -----------
Net cash provided by operating activities 38,825 34,042 40,452
CASH FLOWS FROM INVESTING ACTIVITIES:
Capital expenditures for premises and equipment (7,045) (4,828) (3,712)
Proceeds from maturity of securities held to maturity 375,625 353,373 294,322
Purchases of securities held to maturity (324,741) (270,261) (242,992)
Proceeds from sales of securities available for sale 367,788 642,829 1,449,220
Purchases of securities available for sale (373,188) (645,459) (1,458,453)
Net increase in loans (56,572) (89,350) (51,791)
----------- ----------- -----------
Net cash used by investing activities (18,133) (13,696) (13,406)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net decrease in demand, money market and
savings accounts (10,488) (30,903) (152,287)
Net increase in time deposits 15,261 64,804 119,616
Net increase (decrease) in federal funds purchased and
securities sold under agreements to repurchase (1,930) 2,165 1,910
Cash dividends paid (6,828) (6,041) (5,260)
Acquisition of treasury stock (584) (515) (739)
----------- ----------- -----------
Net cash provided (used) by financing activities (4,569) 29,510 (36,760)
----------- ----------- -----------
Increase (decrease) in cash and cash equivalents 16,123 49,856 (9,714)
Cash and cash equivalents at beginning of year 108,854 58,998 68,712
----------- ----------- -----------
Cash and cash equivalents at end of year $ 124,977 $ 108,854 $ 58,998
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 68,452 $ 64,905 $ 61,943
Income taxes 5,276 6,500 6,160
</TABLE>
The accompanying notes are an integral part of these statements
7
<PAGE> 5
First Evergreen Corporation and Subsidiary
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Dollars in thousands -- December 31, 1997, 1996 and 1995
NOTE A - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of First Evergreen Corporation and
subsidiary conform to generally accepted accounting principles and to general
practice within the banking industry. Certain reclassifications have been made
to the 1996 financial statements to conform with the 1997 presentation.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of First Evergreen
Corporation ("First Evergreen") and its wholly-owned subsidiary, First National
Bank of Evergreen Park (the "Bank"). All significant intercompany accounts and
transactions have been eliminated in consolidation.
NATURE OF OPERATIONS
First Evergreen is a bank holding company whose principal asset is its
investment in the Bank subsidiary. First Evergreen, through its subsidiary bank,
operates in a single segment engaging in the general retail and commercial
banking business, primarily in the southwestern suburbs of Chicago. The services
offered include demand, savings and time deposits, commercial lending
products--such as commercial loans and mortgages, and personal lending
products--such as residential mortgages, home equity lines and installment
loans. The subsidiary bank also provides trust services. The Bank operated six
facilities during 1997 in Evergreen Park, Oak Lawn, Orland Park and Chicago. An
additional facility in Orland Park opened on January 5, 1998. First Evergreen
generates the majority of its revenues from interest earned on investment
securities and loans.
USE OF ESTIMATES IN THE PREPARATION OF FINANCIAL STATEMENTS
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 these estimates.
LOANS
Loans are stated at the principal amount outstanding, net of unearned fees and
discounts, if any. Interest on commercial, real estate and installment loans is
accrued and credited to interest income based upon the principal amount
outstanding. Unearned income on discount loans is credited to interest income
over the term of the loan on the sum-of-the-months-digits method, which does not
differ significantly from the effective interest method. Loan origination fees
and direct loan origination costs are deferred and amortized into interest
income over the life of the loan as an adjustment to the yield using the
interest method. Indirect loan origination costs are charged to expense as
incurred.
Accrual of interest is discontinued on loans past due ninety days or more when
management believes, after considering economic and business conditions and
collection efforts, the borrower's financial condition is such that collection
of interest is doubtful. Interest income from such loans is recognized on the
cash basis. Past due loans that are well secured and in the process of
collection are not placed in a nonaccrual status.
For loans considered impaired, the Bank measures impairment based on the present
value of expected future cash flows, discounted at the loan's original effective
rate. As a practical expedient, impairment may be measured at the loan's
observable market price or the fair value of the collateral if the loan is
collateral dependent. Commercial credits are evaluated on an individual basis.
Smaller balance homogeneous loans such as residential real estate and consumer
installment are aggregated for evaluation. Nonaccrual loans are classified as
impaired, but may not require a valuation allowance. Any shortfall in the
estimated value of an impaired loan compared with the recorded investment in the
loan is identified as a portion of the allowance for loan losses. Payments on
loans classified as impaired and in nonaccrual status are recorded as reductions
of principal. Interest is recorded on the cash basis after all principal has
been repaid.
8
<PAGE> 6
Note A - Summary of Significant Accounting Policies -- continued
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on estimates of an amount that management
believes is adequate to absorb losses on existing loans that may become
uncollectible, although ultimate losses may vary from the current estimates.
These estimates are reviewed quarterly and are based on evaluations of
collectibility of loans and prior loan loss experience. As adjustments become
necessary, they are reported in earnings in the periods in which they become
known. Evaluations take into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans and current economic conditions that may affect the borrower's
ability to pay. Loans are charged off when management determines there has been
permanent impairment of the related carrying values. Recoveries on loans
previously charged off are credited directly to the allowance for loan losses.
INVESTMENT SECURITIES
First Evergreen maintains a held to maturity portfolio recorded at cost adjusted
for amortization of premiums and accretion of discounts in accordance with
management's positive intent and ability to hold these securities to final
maturity. Securities not classified as held to maturity are designated as
available for sale and are reported in the Statement of Condition at fair value
with unrealized gains and losses credited or charged, net of tax effect,
directly to stockholders' equity. Premiums and discounts on securities are
amortized (deducted) and accreted (added), respectively, to interest income
using the level yield method over the period from acquisition to maturity, or
earlier call date, of the related securities. Realized gains and losses on
securities are determined on a specific identification method.
BANK PREMISES AND EQUIPMENT
Bank premises and equipment are stated at cost less accumulated depreciation.
Depreciation is computed principally on the straight-line method over the
estimated useful lives of the assets (Bank premises 10-50 years; furniture and
equipment 3-10 years). Maintenance and repairs are charged to expense when
incurred; improvements are capitalized. Gains and losses on routine disposition,
which are not significant, are reflected in current operations.
OTHER REAL ESTATE OWNED
Other real estate owned consists of properties acquired in partial or total
satisfaction of debt and is stated at the lower of cost or fair value. Losses
arising at acquisition are charged against the allowance for loan losses.
Write-downs to reflect reductions in fair value subsequent to acquisition are
recorded in other expense in the consolidated statements of income, while any
gains that are realized on the disposition of such properties are included in
other income. Other real estate owned included in other assets in 1996 was
approximately $176. At December 31, 1997 First Evergreen did not hold title to
any other real property.
INTANGIBLE ASSETS
Goodwill, representing the investment in subsidiaries in excess of the value of
net assets acquired, is amortized on a straight-line basis over ten years. First
Evergreen recorded $8,400 in goodwill from the acquisition of Oak Lawn Trust on
February 11, 1992. As of December 31, 1997 and 1996, accumulated amortization of
goodwill totalled $4,983 and $4,119 respectively. In management's opinion, no
events or circumstances have occurred that would warrant revision or place doubt
on the stated recovery of the balance.
TRUST DEPARTMENT INCOME
Trust department income is recognized on the cash basis, which is not
significantly different from amounts that would have been recognized on the
accrual basis.
INCOME TAXES
First Evergreen files a consolidated federal income tax return with its
subsidiary. The Bank pays to or receives from First Evergreen the amount of
federal income taxes it would have paid or received had the Bank filed a
separate federal income tax return.
9
<PAGE> 7
Note A - Summary of Significant Accounting Policies -- continued
NET INCOME PER SHARE
In February 1997, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share.
The Company adopted this Statement December 31, 1997. The adoption of the
Statement did not impact the Company. Net income per share is computed by
dividing net income by the weighted average number of shares outstanding during
the year. The weighted average number of shares outstanding for the years ended
December 31, 1997, 1996 and 1995 was 400,997; 402,444 and 403,727 respectively.
CONSOLIDATED STATEMENT OF CASH FLOWS
For the purposes of reporting cash flows, cash and cash equivalents include cash
and due from banks and federal funds sold.
TRANSFERS OF SERVICING FINANCIAL ASSETS AND EXTINGUISHMENTS OF LIABILITIES
In June 1996, the FASB issued SFAS No. 125, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities. The Statement
establishes new ground rules for determining whether a transfer of financial
assets such as loan participations constitutes a sale and, if so, the
determination of any resulting gain or loss. 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.
COMPREHENSIVE INCOME
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.
SEGMENT REPORTING
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.
NOTE B - CASH AND CASH EQUIVALENTS
The Federal Reserve requires the Bank to maintain certain average reserve
balances. These average reserves approximated $7,067 during 1997 and $7,979 in
1996.
NOTE C - SECURITIES
The amortized cost and approximate fair value of available for sale (AFS)
securities are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
--------------------------------------------------- -----------------------------------------------
Gross Gross Approximate Gross Gross Approximate
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $144,756 $ 0 $ (490) $144,266 $144,654 $ 0 $ (2,029) $142,625
Other securities 5,200 0 0 5,200 0 0 0 0
-------- -------- -------- -------- -------- -------- -------- --------
Total $149,956 $ 0 $ (490) $149,466 $144,654 $ 0 $ (2,029) $142,625
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
10
<PAGE> 8
Note C - Investment Securities -- continued
The amortized cost and approximate fair value of held-to-maturity (HTM)
securities are as follows at December 31:
<TABLE>
<CAPTION>
1997 1996
---------------------------------------------- ----------------------------------------------
Gross Gross Approximate Gross Gross Approximate
Amortized Unrealized Unrealized Fair Amortized Unrealized Unrealized Fair
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 70,663 $ 568 $ (5) $ 71,226 $133,514 $ 856 $ (377) $133,993
U.S. Government agencies 381,078 7,601 (171) 388,508 403,056 8,372 (653) 410,775
Obligations of states &
political subdivisions 184,938 9,102 (336) 193,704 173,090 7,426 (437) 180,079
Mortgage-backed securities 97,217 651 (1,340) 96,528 83,719 841 (1,697) 82,863
Collateralized mortgage
obligations 188,007 1,053 (361) 188,699 190,443 832 (674) 190,601
Other securities 7,265 0 0 7,265 1,385 0 0 1,385
-------- -------- -------- -------- -------- -------- -------- --------
Total $929,168 $ 18,975 $ (2,213) $945,930 $985,207 $ 18,327 $ (3,838) $999,696
======== ======== ======== ======== ======== ======== ======== ========
</TABLE>
The amortized cost and approximate fair value of securities at December 31,
1997, by contractual maturity, are shown in the chart below.
<TABLE>
<CAPTION>
HTM AFS
Amortized Approximate Amortized Approximate
Cost Fair Value Cost Fair Value
<S> <C> <C> <C> <C>
Due in one year or less $111,919 $112,821 $ 42,551 $ 42,370
Due after one year through five years 233,001 239,248 65,860 65,657
Due after five years through ten years 259,824 266,250 36,345 36,239
Due after ten years 324,424 327,611 5,200 5,200
-------- -------- -------- --------
Total maturities $929,168 $945,930 $149,956 $149,466
======== ======== ======== ========
</TABLE>
Held to maturity securities carried at approximately $103,289 and $99,083 at
December 31, 1997 and 1996 respectively, were pledged to secure public and trust
deposits and for other purposes as required or permitted by law.
Net realized security gains in 1997 totalled $489. Gross realized gains and
losses were $728 and ($239) respectively. Unrealized available for sale
portfolio losses decreased by $1,539 during the period. Net realized security
gains in 1996 totalled $1,194. Gross realized gains and losses were $1,648 and
($454) respectively. Unrealized available for sale portfolio losses increased by
($2,329) during the period. In 1995, net realized security gains totalled
$1,968. Gross realized gains and losses were $3,178 and ($1,210) respectively,
while unrealized available for sale portfolio gains increased by $3,263 during
the period. Federal income taxes (benefit) on net security gains for the years
ending December 31, 1997, 1996 and 1995 were $171, $418 and $689 respectively.
In the fourth quarter of 1995, concurrent with the adoption of its
implementation guide on SFAS No. 115, the FASB allowed a one-time reassessment
of the SFAS No. 115 classifications of all securities currently held. Any
reclassifications would be accounted for at fair value in accordance with SFAS
No. 115 and any reclassifications from the held to maturity portfolio that
resulted from this one-time reassessment would not call into question the intent
of the Company to hold other debt securities to maturity in the future. First
Evergreen used the opportunity under this one-time reassessment to reclassify
$4,400 of U.S. Government Agency securities and $3,500 of collateralized
mortgage obligations from held to maturity to the available for sale portfolio.
In connection with this reclassification, gross unrealized gains of $88 were
recorded in available for sale securities and in stockholders' equity (on a
net-of-tax basis).
11
<PAGE> 9
NOTE D - LOANS
<TABLE>
<CAPTION>
Major classifications of loans were as follows at December 31: 1997 1996
<S> <C> <C>
Commercial and industrial $ 96,188 $ 97,408
Real estate-- residential 424,698 377,368
Real estate-- commercial 113,292 108,484
Real estate-- construction 14,632 10,920
Installment 25,634 24,528
-------- --------
674,444 618,708
Unearned discount (4) (13)
Allowance for loan losses (3,515) (3,042)
-------- --------
Total $670,925 $615,653
======== ========
</TABLE>
Loans in a nonaccrual status amounted to approximately $2,283, $688 and $1,619
at December 31, 1997, 1996 and 1995 respectively. If interest on nonaccrual
loans had been accrued, such income would have approximated $161, $130 and $52
in 1997, 1996 and 1995 respectively. The amount of interest income recorded on
these loans was $68 in 1997, $50 in 1996 and $25 in 1995.
Changes in the allowance for loan losses were as follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Balance at beginning of year $3,042 $3,796 $3,852
Provision for loan losses 1,300 400 0
Recoveries on loans previously charged off 277 102 201
Loans charged off (1,104) (1,256) (257)
------ ------ ------
Balance at end of year $3,515 $3,042 $3,796
====== ====== ======
</TABLE>
As of December 31, the Bank's recorded investment in impaired loans and the
related valuation allowance are as follows:
<TABLE>
<CAPTION>
1997 1996
Recorded Valuation Recorded Valuation
Investment Allowance Investment Allowance
<S> <C> <C> <C> <C>
Valuation allowance required $ 627 $ 214 $ 0 $ 0
No valuation allowance required 1,528 0 512 0
------ ------ ------ ------
Total impaired loans $2,155 $ 214 $ 512 $ 0
====== ====== ====== ======
</TABLE>
For the years ended December 31, 1997, 1996 and 1995, the average recorded
investment in impaired loans was $1,484, $531 and $766 respectively. Interest
income on these loans was recorded on a cash basis and amounted to $35, $13 and
$8, in 1997, 1996 and 1995 respectively.
12
<PAGE> 10
NOTE E - BANK PREMISES AND EQUIPMENT
The following is a summary of bank premises and equipment at December 31:
<TABLE>
<CAPTION>
Accumulated Net Book
Cost Depreciation Value
<S> <C> <C> <C>
1997
Land $ 5,654 $ 0 $ 5,654
Bank premises 33,077 9,422 23,655
Furniture and equipment 12,977 6,437 6,540
------- ------- -------
Total $51,708 $15,859 $35,849
======= ======= =======
1996
Land $ 5,444 $ 0 $ 5,444
Bank premises 29,442 8,653 20,789
Furniture and equipment 12,151 6,655 5,496
------- ------- -------
Total $47,037 $15,308 $31,729
======= ======= =======
</TABLE>
Depreciation expense for the years ended December 31, 1997, 1996 and 1995
amounted to approximately $2,925, $2,746 and $2,527 respectively.
NOTE F - TIME DEPOSITS
Maturities of time certificates of deposit of $100 or more are summarized as
follows at December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Three months or less $ 61,274 $ 45,759
Over three through six months 29,538 30,818
Over six through twelve months 29,526 46,528
Over twelve months 50,559 31,884
-------- --------
Total $170,897 $154,989
======== ========
</TABLE>
Interest expense on time certificates of $100 or more totalled $9,427, $7,896
and $7,342 in 1997, 1996 and 1995 respectively. Maturities of time certificates
with original maturities in excess of one year at December 31, 1997 are
summarized as follows:
<TABLE>
<CAPTION>
Years Less than $100 $100 or more
<S> <C> <C>
Over one through two years $131,710 $ 31,105
Over two through three years 76,613 11,326
Over three through four years 23,589 3,327
Over four through five years 26,546 4,801
-------- --------
Total $258,458 $ 50,559
======== ========
</TABLE>
13
<PAGE> 11
NOTE G - SHORT-TERM BORROWINGS
Federal funds purchased and securities sold under agreement to repurchase
averaged $19,049, $15,323 and $10,666 during the years ending December 31, 1997,
1996 and 1995 respectively. The average interest rate was 4.23% in 1997, 3.99%
in 1996 and 4.88% in 1995. The year-end balances were $15,305, $17,235 and
$15,070, while the year end rates were 4.41% in 1997, 4.20% in 1996 and 3.67% in
1995. The highest month-end balances in 1997, 1996 and 1995 were $31,825,
$20,410 and $15,355 respectively. Federal funds purchased require no collateral
while securities sold under agreements to repurchase are collateralized by U.S.
Treasury obligations.
NOTE H - INCOME TAXES
The components of federal income tax expense for 1997, 1996 and 1995 are as
follows:
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Current $5,017 $6,649 $6,136
Deferred 472 361 437
------ ------ ------
Total $5,489 $7,010 $6,573
====== ====== ======
</TABLE>
First Evergreen and subsidiary had no state income tax expense in the above
periods, and for state income tax purposes have approximately $202 million in
accumulated net operating losses that will begin to expire in 2002.
The table below reconciles First Evergreen's deferred assets and liabilities
under SFAS No. 109 on December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
ASSETS
Deferred loan fees $ (849) $(1,020)
Allowance for loan losses (1,230) (1,065)
Unrealized security losses (172) (711)
Other assets (371) (380)
------- -------
Gross deferred tax assets $(2,622) $(3,176)
------- -------
LIABILITIES
Fair market value of assets acquired 744 744
Depreciation 924 859
Investment accretion 983 591
------- -------
Gross deferred tax liabilities 2,651 2,194
------- -------
Net deferred tax (asset) liability $ 29 $ (982)
======= =======
</TABLE>
Management has determined that a valuation allowance is not required at December
31, 1997 or 1996.
14
<PAGE> 12
Note H - Income Taxes -- continued
The table below reconciles the statutory federal income tax rate with the
effective income tax as a percent of pretax income.
<TABLE>
<CAPTION>
1997 1996 1995
<S> <C> <C> <C>
Statutory income tax rate 35.0% 35.0% 35.0%
Change in taxes resulting from
Tax-exempt interest (13.3) (11.0) (10.8)
Other - net 1.6 1.3 .3
----- ----- -----
Effective income tax rate 23.3% 25.3% 24.5%
===== ===== =====
</TABLE>
Accumulated net deferred income taxes included in other assets or accrued
interest and other liabilities in the accompanying consolidated statements of
condition and currently payable (receivable) income taxes are as follows at
December 31:
<TABLE>
<CAPTION>
1997 1996
<S> <C> <C>
Current liability $ 171 $ 353
Deferred (asset) liability - net 29 (982)
----- -----
Net payable (receivable) $ 200 $(629)
===== =====
</TABLE>
NOTE I - EMPLOYEE BENEFIT PLANS
First Evergreen has a discretionary profit sharing plan for virtually all
employees. Employees begin vesting after two years of net credited service and
become fully vested after seven years of net credited service. Contributions are
voluntary and at the discretion of the Board of Directors. Annual contributions
cannot exceed 15% of participants' earnings. Contributions were approximately
$2,350, $2,139 and $2,227 for the years ended December 31, 1997, 1996 and 1995
respectively.
NOTE J - DIVIDEND RESTRICTIONS
Banking regulations limit the amount of dividends that may be paid to First
Evergreen by its bank subsidiary without prior approval of the Bank's regulatory
agencies. Based upon these limitations, the Bank could have declared
approximately $39,010 of dividends at December 31, 1997 without prior approval.
Additionally, the Bank is 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 regulators that, if undertaken, could have a direct
material effect on the Bank's financial statements. Under capital adequacy
guidelines and the regulatory framework for prompt corrective action, the Bank
must meet specific capital guidelines that involve quantitative measures of the
Bank's assets, liabilities, and certain off-balance-sheet items as calculated
under regulatory accounting practices. The Bank's capital amounts and
reclassification are also subject to qualitative judgements by the regulators
about components, risk weightings, and other factors.
15
<PAGE> 13
Note J - Dividend Restrictions -- continued
Quantitative measures established by regulation to ensure capital adequacy
require the Bank to maintain minimum amounts and ratios (set forth in the
following table) of total and Tier I capital (as defined in the regulations) to
risk-weighted assets (as defined). Management believes, as of December 31, 1997,
that the Bank meets all capital adequacy requirements to which it is subject. As
of December 31, 1997, the most recent notification from the Office of the
Comptroller of the Currency categorized the Bank as well capitalized under the
regulatory framework for prompt corrective action. There are no conditions or
events since that notification that management believes have changed the Bank's
category.
The table below sets forth First Evergreen's consolidated regulatory capital and
ratios, as well as minimums for the adequately capitalized and well capitalized
classifications.
<TABLE>
<CAPTION>
To be Well Capitalized
For Capital Under Prompt Corrective
Actual Adequacy Purposes Action Provisions
Amount Ratio Amount Ratio Amount Ratio
<S> <C> <C> <C> <C> <C> <C>
As of December 31, 1997:
Total Capital
(to Risk Weighted Assets) $198,855 25.62% $62,094 > or = 8.0% $77,617 > or = 10.0%
Tier I Capital
(to Risk Weighted Assets) $195,339 25.17% $31,047 > or = 4.0% $46,570 > or = 6.0%
Tier I Capital
(to Average Assets) $195,339 10.17% $57,596 > or = 3.0% $95,993 > or = 5.0%
As of December 31, 1996:
Total Capital
(to Risk Weighted Assets) $186,519 24.55% $60,786 > or = 8.0% $75,983 > or = 10.0%
Tier I Capital
(to Risk Weighted Assets) $183,477 24.15% $30,393 > or = 4.0% $45,590 > or = 6.0%
Tier I Capital
(to Average Assets) $183,477 9.70% $56,731 > or = 3.0% $94,551 > or = 5.0%
</TABLE>
NOTE K - CONTINGENCIES
There are legal proceedings pending against the Bank that arise in the ordinary
course of business. Based upon opinions of legal counsel, management believes
that liabilities arising from these proceedings, if any, would not have a
material adverse effect on the consolidated financial position or results of
operations of First Evergreen Corporation and subsidiary.
16
<PAGE> 14
NOTE L - CONSOLIDATED SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
The unaudited quarterly results of operations for the years ended December 31,
1997 and 1996 are as follows:
<TABLE>
<CAPTION>
December 31 September 30 June 30 March 31
<S> <C> <C> <C> <C>
1997
Interest income $ 31,690 $ 32,290 $ 32,212 $ 31,752
Interest expense 17,330 17,359 17,078 16,730
Net interest income 14,360 14,931 15,134 15,022
Provision for loan losses 550 300 300 150
Net security gains (losses) 407 97 24 (39)
Other non-interest income 2,043 1,839 1,919 1,715
Non-interest expense 10,652 10,501 10,717 10,679
Income tax expense 1,293 1,415 1,438 1,343
Net income 4,315 4,651 4,622 4,526
Net income per share $ 10.78 $ 11.61 $ 11.51 $ 11.27
1996
Interest income $ 31,832 $ 31,639 $ 30,894 $ 30,867
Interest expense 16,761 16,449 16,040 16,292
Net interest income 15,071 15,190 14,854 14,575
Provision for loan losses 200 200 0 0
Net security gains (losses) 231 (73) (35) 1,071
Other non-interest income 1,816 1,698 1,612 1,609
Non-interest expense 9,958 9,840 9,817 9,902
Income tax expense 1,744 1,684 1,652 1,930
Net income 5,216 5,091 4,962 5,423
Net income per share $ 12.98 $ 12.65 $ 12.32 $ 13.47
</TABLE>
NOTE M - FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
First Evergreen has, through its subsidiary bank, financial instruments with
off-balance-sheet risk made in the normal course of business to meet the
financing needs of its customers. These financial instruments include
commitments to extend credit, letters of credit and financial guarantees. These
instruments involve, to varying degrees, elements of credit and interest rate
risk in excess of the amount recognized in the consolidated statements of
condition.
Exposure to credit loss in the event of nonperformance of the other party to the
financial instrument for commitments to extend credit, letters of credit and
financial guarantees is represented by the contractual amount of those
instruments. The same credit policies are used in making commitments as those
used for on-balance-sheet instruments. Collateral or other security is generally
required to support financial instruments with off-balance-sheet credit risk,
however, credit risk is controlled through credit approvals, limits and
monitoring procedures.
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Commitments
generally have fixed expiration dates or other termination clauses and may
require payment of a fee. Because a portion of the commitment is expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Each customer's credit worthiness is
evaluated on a case-by-case basis. The amount of collateral obtained, if deemed
necessary, upon extension of credit is based on management's credit evaluation
of the counterparty. Collateral held varies, but
17
<PAGE> 15
Note M - Financial Instruments with Off-Balance-Sheet Risk -- continued
may include accounts receivable, inventory, property, plant, equipment, and real
estate. Commitments to extend credit at December 31, 1997 and 1996 are
approximately $101,618 and $85,756 respectively. Rates on these commitments
ranged from 5.875% to 15% in 1997 and 6.50% to 15% in 1996.
Letters of credit and financial guarantees are issued to guarantee the
performance of a customer to a third party. The credit risk involved in issuing
letters of credit is essentially the same as that involved in extending other
credits to customers. Collateral is held to support these commitments as deemed
necessary. At December 31, 1997 and 1996, outstanding letters of credit totalled
approximately $26,830 and $5,608 respectively.
NOTE N - CONCENTRATIONS OF CREDIT RISK
According to SFAS No. 105, Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with Concentrations of
Credit Risk, group concentrations of credit risk exist if a number of borrowers
or other counterparties are engaged in similar activities and have similar
economic characteristics that would cause their ability to meet contractual
obligations to be similarly affected by economic or other conditions. Management
is of the opinion that both its investment and loan portfolios are well
diversified. However, at December 31, 1997 and 1996, substantially all
outstanding loans are with borrowers located in Cook County, Illinois and the
surrounding area. In addition, at December 31, 1997 and 1996, approximately 53%
and 61% of the obligations of state and political subdivisions were issued by
municipalities located in Cook County. Also, approximately 10% and 11% of total
outstanding loans as of December 31, 1997 and 1996, respectively, have been
issued to borrowers associated with the construction industry. These commitments
include financing to construction suppliers, contractors and developers.
Management monitors these concentrations on a regular basis and is of the
opinion that the concentrations are not significant.
NOTE O - FIRST EVERGREEN CORPORATION (PARENT COMPANY)
The Parent Company's condensed financial information, which follows, conforms
with the accounting policies described in the preceding notes.
CONDENSED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
December 31,
1997 1996
<S> <C> <C>
ASSETS
Cash at subsidiary bank $ 896 $ 785
Investment in banking subsidiary 197,225 185,580
Other assets 21 75
-------- --------
Total assets $198,142 $186,440
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities $ 0 $ 0
Stockholders' equity 198,142 186,440
-------- --------
Total liabilities and stockholders' equity $198,142 $186,440
======== ========
</TABLE>
18
<PAGE> 16
Note O - First Evergreen Corporation (Parent Company) --21 continued
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF INCOME Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Operating income
Dividends from the Bank $ 7,518 $ 6,981 $ 5,907
Other operating expenses 71 230 268
-------- -------- --------
Income before federal income tax benefit and equity
in undistributed income of subsidiary bank 7,447 6,751 5,639
Federal income tax benefit 22 76 90
-------- -------- --------
Income before equity in undistributed
income of subsidiary bank 7,469 6,827 5,729
Equity in undistributed income of subsidiary bank 10,645 13,865 14,501
-------- -------- --------
Net income $ 18,114 $ 20,692 $ 20,230
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31,
1997 1996 1995
<S> <C> <C> <C>
Cash flows from operating activities:
Net income $ 18,114 $ 20,692 $ 20,230
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiary bank (10,645) (13,865) (14,501)
(Increase) decrease in other assets 54 15 (32)
-------- -------- --------
Total adjustments (10,591) (13,850) (14,533)
-------- -------- --------
Net cash provided by operating activities 7,523 6,842 5,697
Cash flows from financing activities:
Acquisitions of treasury stock (584) (515) (739)
Dividends paid (6,828) (6,041) (5,260)
-------- -------- --------
Net cash used for financing activities (7,412) (6,556) (5,999)
-------- -------- --------
Increase (decrease) in cash 111 286 (302)
Cash at beginning of year 785 499 801
-------- -------- --------
Cash at end of year $ 896 $ 785 $ 499
======== ======== ========
Supplemental disclosures of cash flow information
Cash received during the year for:
Income taxes (net of reimbursements
from subsidiary bank) $ (76) $ (90) $ (48)
</TABLE>
19
<PAGE> 17
NOTE P - FAIR VALUE OF FINANCIAL INSTRUMENTS
The following summarizes the carrying value and estimated fair value of
financial instruments as of December 31, 1997 and 1996:
<TABLE>
<CAPTION>
1997 1996
Carrying Estimated Carrying Estimated
Value Fair Value Value Fair Value
<S> <C> <C> <C> <C>
Financial Assets
Cash and cash equivalents $ 124,977 $ 124,977 $ 108,854 $ 108,854
Securities held to maturity 929,168 945,930 985,207 999,696
Securities available for sale 149,466 149,466 142,625 142,625
Net loans 670,925 687,362 615,653 627,642
Accrued interest receivable 17,669 17,669 15,999 15,999
Financial Liabilities
Deposits 1,700,620 1,703,298 1,695,847 1,697,950
Federal funds purchased and securities
sold under agreements to repurchase 15,305 15,305 17,235 17,235
Accrued interest payable 6,575 6,575 6,531 6,531
Off-Balance-Sheet Financial Instruments
Commitments to extend credit and
standby letters of credit $ 0 $ 652 $ 0 $ 520
</TABLE>
Where readily available, quoted market prices were utilized. If quoted market
prices were not available, fair values were based on estimates using present
value calculations. As this method is significantly affected by assumptions
used, such as the discount rate and estimates of future cash flows, the
estimates cannot be substantiated by comparison to independent markets, and, in
many cases, could not be realized upon immediate settlement of the instruments.
Certain financial instruments and all nonfinancial assets and liabilities have
been omitted. Accordingly, the aggregate fair value amounts presented do not
represent the underlying value of First Evergreen. The following methods and
assumptions were used in estimating the fair value for financial instruments.
CASH AND CASH EQUIVALENTS
The fair values reported for cash and cash equivalents were estimated to be
their carrying value as they are highly liquid and short term in nature.
SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
Fair values of securities held to maturity and available for sale are determined
by reference to quoted market prices, if available. If quoted market prices are
not available, fair value is estimated using quoted prices for similar
securities.
LOANS
Fair value of the loan portfolio was estimated by discounting anticipated future
cash flows using current rates at which similar loans would be made with the
same remaining maturity. Credit risk was incorporated in the anticipated cash
flows by considering the historical loss experience for each major category of
loans. The cash flows of non-performing loans are reduced based upon estimates
of loan management.
ACCRUED INTEREST RECEIVABLE
Due to its short term nature, the fair value of accrued interest receivable was
estimated at carrying value.
20
<PAGE> 18
Note P - Fair Value of Financial Instruments -- continued
DEPOSITS
The fair value of deposits with no stated maturities is estimated to be the
carrying value. Fair value of fixed maturity certificates is estimated by
discounting future cash flows using rates currently offered for deposits of
similar remaining maturities.
FEDERAL FUNDS PURCHASED AND SECURITIES SOLD UNDER AGREEMENTS TO REPURCHASE
As these instruments are short term in nature, their fair value is estimated to
be their carrying value.
ACCRUED INTEREST PAYABLE
Due to its short-term nature, the fair value of accrued interest payable was
estimated at carrying value.
COMMITMENTS TO EXTEND CREDIT AND STANDBY LETTERS OF CREDIT
The fair value of instruments with off-balance-sheet risk is determined by
estimating the amount First Evergreen would have to pay a third party to assume
these instruments.
21
<PAGE> 19
REPORT OF INDEPENDENT AUDITORS
BOARD OF DIRECTORS AND STOCKHOLDERS
FIRST EVERGREEN CORPORATION
We have audited the accompanying consolidated statements of condition of First
Evergreen Corporation and subsidiary as of December 31, 1997 and 1996 and the
related consolidated statements of income, changes in stockholders' equity, and
cash flows for the years then ended. These financial statements are the
responsibility of the company's management. Our responsibility is to express an
opinion on these financial statements based on our audits. The consolidated
financial statements of First Evergreen Corporation and subsidiary for the year
ended December 31, 1995, were audited by other auditors whose report dated
January 24, 1996, expressed an unqualified opinion on those statements.
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 1997 and 1996 financial statements referred to above present
fairly, in all material respects, the consolidated financial position of First
Evergreen Corporation and subsidiary at December 31, 1997 and 1996, and the
consolidated results of their operations and their cash flows for the years then
ended, in conformity with generally accepted accounting principles.
Chicago, Illinois
January 21, 1998
22
<PAGE> 20
COMMON STOCK INFORMATION AND DIVIDENDS
The common stock of First Evergreen, held by 497 stockholders of record on
December 31, 1997, is not traded on any national or regional exchange or in the
over-the-counter market. First Evergreen, due to the absence of a readily
accessible market, with certain limitations, offers to purchase shares that a
stockholder cannot otherwise sell. Such transactions are subject to a stated
policy that defines the price per share as equal to the "book value" as last
established by the Board of Directors [rounded up or down to the nearest
twenty-five cents] and further defines "book value" as an amount equal to the
amount of stockholders' equity divided by the number of outstanding shares and
adjusted by adding to it the amount per outstanding share of the allowance for
loan losses of the Bank [net of the statutory federal tax rate of 35%].
Individual purchases by First Evergreen in excess of 500 shares in a
twelve-month period are made at a declining percentage of "book value" and any
shares purchased by First Evergreen are subject to a one-year holding period by
the stockholder. Federal Reserve regulations place limitations on a bank holding
company's purchase and redemption of its own stock without prior notice to the
Federal Reserve and its approval thereof. The following table sets forth the
high and low price by quarter for trades known to First Evergreen.
<TABLE>
<CAPTION>
1997 Fourth Third Second First
<S> <C> <C> <C> <C>
High $496.75 $483.75 $471.25 $459.75
Low $488.75 $471.25 $462.00 $452.00
</TABLE>
<TABLE>
<CAPTION>
1996 Fourth Third Second First
<S> <C> <C> <C> <C>
High $467.25 $451.25 $438.00 $433.25
Low $456.25 $443.00 $431.75 $422.75
</TABLE>
For the year ended December 31, 1997, there were, to the knowledge of First
Evergreen, 25 trades involving 1,241 shares. For the year ended December 31,
1996, there were 19 trades involving 1,140 shares. See Selected Financial Data
for information relating to dividend payments. In January 1998, a $20 per share
cash dividend was declared to stockholders of record on January 2, 1998. Future
dividend payments on common stock will depend upon such factors as cash
position, earnings and capital requirements.
FINANCIAL REVIEW
The following Selected Financial Data are not covered by the report of
independent auditors and should be read in conjunction with Management's
Discussion and Analysis of Financial Condition and Results of Operations, which
follows, and the financial statements and notes of First Evergreen appearing
elsewhere in this report. As average daily balances for all reported figures
were not available, monthly average balances were used in preparation of some
average consolidated amounts presented. In the opinion of First Evergreen's
management, the use of monthly averages would not be substantially different
from the use of daily averages.
23
<PAGE> 21
SELECTED FINANCIAL DATA
In Thousands of Dollars Except Per Share Data
<TABLE>
<CAPTION>
Years Ended December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Total interest income $ 127,944 $ 125,232 $ 123,441 $ 117,070 $ 120,417
Total interest expense 68,497 65,542 63,744 54,200 59,954
---------- ---------- ---------- ---------- ----------
Net interest income 59,447 59,690 59,697 62,870 60,463
Provision for loan losses 1,300 400 0 0 0
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 58,147 59,290 59,697 62,870 60,463
Other income 8,005 7,929 8,000 4,470 6,288
Other expenses 42,549 39,517 40,894 39,491 36,627
---------- ---------- ---------- ---------- ----------
Income before income tax expense 23,603 27,702 26,803 27,849 30,124
Applicable income taxes 5,489 7,010 6,573 7,434 8,154
---------- ---------- ---------- ---------- ----------
Net income $ 18,114 $ 20,692 $ 20,230 $ 20,415 $ 21,970
========== ========== ========== ========== ==========
DIVIDENDS
Cash dividends declared $ 6,828 $ 6,041 $ 5,260 $ 5,286 $ 3,691
Stock dividends declared 0 0 0 0 0
PER SHARE DATA
Net income $ 45.17 $ 51.42 $ 50.11 $ 50.29 $ 53.77
Cash dividends declared 17.00 15.00 13.00 13.00 9.00
SELECTED BALANCES - END OF YEAR
Total assets $1,933,096 $1,910,013 $1,888,088 $1,872,035 $1,870,758
Total investments 1,078,634 1,127,832 1,217,075 1,265,022 1,331,347
Total loans 674,440 618,695 530,499 478,764 416,341
Total deposits 1,700,620 1,695,847 1,661,946 1,694,617 1,718,071
Stockholders' equity 198,142 186,440 173,818 157,464 145,026
RATIOS
Net income to:
Average total deposits 1.07% 1.25% 1.22% 1.20% 1.30%
Average total assets 0.94 1.11 1.10 1.10 1.19
Average stockholders' equity 9.51 11.58 12.29 13.68 16.17
Cash dividends to net income 37.69 29.19 26.00 25.89 16.80
Average loans to average deposits 37.85 35.50 30.06 26.54 22.71
Average equity to average assets 9.92 9.57 8.91 8.00 7.39
</TABLE>
24
<PAGE> 22
Management's Discussion and Analysis
FINANCIAL CONDITION & RESULTS OF OPERATIONS
LIQUIDITY
Liquidity is the ability to meet deposit withdrawals, provide for customers'
credit needs, acquire and develop technologies to deliver customer services and
service First Evergreen's financial obligations when due. Principal sources of
liquidity are cash and assets that can be readily converted to cash. Such assets
include interest bearing deposits in banks, federal funds sold, securities
available for sale and the maturity of loans and securities held to maturity.
Historically, First Evergreen's strong earnings flow has provided a solid source
of liquidity as well. An additional source of liquidity used by First Evergreen
is the purchase of federal funds. The need for liquidity has become more
important in the banking industry in recent years as the growth in interest
bearing transaction accounts has increased the amount of deposit liabilities
that are interest rate sensitive and have maturities of less than one year.
Additionally, the maturity of certificates of deposit at Evergreen Bank are
primarily in the less than one year category. First Evergreen and its subsidiary
bank are able to meet the funding gap between earning assets and interest
sensitive liabilities with their relatively stable core base of demand and
savings deposits. The maintenance of a proper balance between earning assets and
interest sensitive liabilities is the primary function of asset and liability
management. First Evergreen intends to continue its objective of matching
maturities of deposit liabilities with maturities of earning assets as closely
as possible.
In the opinion of First Evergreen's management, First Evergreen's market does
not demonstrate any evolving trends, nor does First Evergreen have any
commitments that currently would require actions to place First Evergreen in a
position of greater liquidity. First Evergreen's consolidated statements of cash
flows should be read in conjunction with any assessment of liquidity.
INTEREST RATE SENSITIVITY
Interest rate sensitivity is closely related to liquidity. Interest sensitivity
gaps result from maturity mismatches between earning assets and interest
sensitive liabilities. First Evergreen continues to be at risk from rising
interest rates due to the systematic negative gap. Management monitors the
effect of that risk by simulation modeling, through gap analysis and monitoring
portfolio duration.
Total liabilities maturing or repricing within one year exceeded assets maturing
or repricing within one year by $68 million and $208 million at December 31,
1997 and 1996 respectively. The decrease in the negative gap position in the one
year or less period resulted from a decrease of seven months in the average life
of the investment portfolio and depositors repositioning of funds into longer
term time deposits to take advantage of greater yield opportunities. Repricing
of certain categories of assets and liabilities is subject to market conditions
and other influences that are beyond the Company's control. As a result, certain
assets and liabilities indicated above as maturing or repricing within a stated
period may in fact mature or reprice in other periods or at different volumes.
Additionally, 56% of First Evergreen's total assets are in marketable,
highly-liquid securities with laddered maturities to reduce the effect of
interest rate changes.
The table which appears on the next page, sets forth the balances in the major
categories of interest earning assets and interest sensitive liabilities (in
thousands) as of December 31, 1997. This data is at a particular point in time;
significant changes can occur daily in the sensitivity relationships.
Footnote for chart on following page
* Although savings and interest bearing checking accounts do not reprice
on a pre-established contract, they are subject to immediate
withdrawal. It has been First Evergreen's experience that a portion of
these deposits are relatively insensitive to interest rates and
generally behave like deposits with longer maturities. To recognize
this, historic core deposits are reported in the over five years
category. Funds considered to be non-core have been distributed based
on a look back period of thirty-six months.
25
<PAGE> 23
<TABLE>
<CAPTION>
Remaining Maturity or Earliest Possible Repricing
0 - 3 4 - 12 1 Year to Over
Months Months 5 Years 5 Years Total
<S> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Securities $ 93,038 $ 260,043 $ 552,276 $ 173,277 $1,078,634
Loans 104,882 96,555 217,428 255,575 674,440
Federal funds sold 79,000 0 0 0 79,000
---------- ---------- ---------- ---------- ----------
Total interest earning assets 276,920 356,598 769,704 428,852 1,832,074
---------- ---------- ---------- ---------- ----------
Percent of interest earning assets 15.12% 19.46% 42.01% 23.41% 100.00%
INTEREST SENSITIVE LIABILITIES
Money market accounts $ 97,062 $ 0 $ 0 $ 0 $ 97,062
Time deposits of $100 or more 61,274 59,064 50,559 0 170,897
All other time deposits 144,942 266,615 261,002 0 672,559
Savings and interest bearing checking* 15,849 41,847 114,170 390,788 562,654
Securities sold under
agreements to repurchase 15,305 0 0 0 15,305
---------- ---------- ---------- ---------- ----------
Total interest sensitive liabilities 334,432 367,526 425,731 390,788 1,518,477
---------- ---------- ---------- ---------- ----------
Percent of interest sensitive liabilities 22.02% 24.20% 28.04% 25.74% 100.00%
Interest sensitivity gap (57,512) (10,928) 343,973 38,064 313,597
Cumulative interest sensitivity gap (57,512) (68,440) 275,533 313,597 313,597
Ratio of interest earning assets
to interest sensitive liabilities 0.83 0.97 1.81 1.10 1.21
</TABLE>
FINANCIAL CONDITION
The deposit base, the main source for funds employed in earning assets,
increased by $4,773 from December 31, 1996 to $1,700,620 at December 31, 1997.
During the period, little change occurred between categories, as demand deposits
and time deposits increased by $16,333 and $15,261 respectively, while the
savings deposits and money market accounts experienced declines of $25,918 and
$903 respectively. Funding was also provided by securities sold under agreement
to repurchase, which declined by $1,930. In 1996, total deposits increased by
$33,901. Rates on time deposits increased during the period, while the savings
rate remained at 3%. As a result, the volume of time deposits increased by
$64,804, while the savings category declined by $43,601. Over the same period,
demand deposits and money market accounts increased by $11,367 and $791
respectively. Additional funding was provided by securities sold under
agreements to repurchase, which increased by $2,165.
Management closely monitors the rates being offered on all its deposit products
in response to changes in the short-term markets. During 1997, earning assets
increased by $32,347. Due to continued demand, the loan portfolio increased by
$55,745 or 9.01%. This increase was funded by a decline in the held to maturity
investment portfolio which decreased by $56,039. Also during the same period,
the available for sale portfolio grew by $6,841 and federal funds sold increased
$25,800. In 1997, the average interest rate spread expressed on a tax-equivalent
basis (net interest margin) declined 17 basis points to 2.89%. In the period,
the return on average earning assets decreased 6 basis points while the average
cost of funds increased 11 basis points. Net interest margins related to 1996
and 1995 were 3.06% and 3.17% respectively.
26
<PAGE> 24
Return on average equity declined to 9.51% from 1996 and 1995 levels of 11.58%
and 12.29% respectively. This reduction is due to lower earnings and the
company's earnings retention trend. Return on average assets decreased from
1.11% to .94%. In 1995, the return was 1.10%. Total stockholders' equity
increased $11,702 from $186,440 at December 31, 1996. A cash dividend of $17 per
share ($6,828) was paid to stockholders of record on January 2, 1997. A dividend
of $15 per share ($6,041) was paid during 1996. Capital ratios are strong and
remain well above regulatory guidelines. First Evergreen's tier-one leveraged
capital ratio increased 47 basis points, reaching 10.17%, while the ratio for
total risk-based capital increased 107 basis points, reaching 25.62%.
MARKET RISK TABLE
<TABLE>
<CAPTION>
Principal cash flow Estimated
1998 1999 2000 2001 2002 Thereafter Total Fair Value
<S> <C> <C> <C> <C> <C> <C> <C> <C>
RATE SENSITIVE ASSETS:
Investment securities 353,081 299,891 134,715 80,829 36,841 173,277 1,078,634 1,095,396
Average interest rate 6.60% 6.70% 6.50% 6.02% 6.15% 6.36% 6.52%
Fixed rate loans 90,316 68,033 58,446 49,286 41,663 251,214 558,958 572,925
Average interest rate 7.97% 7.66% 7.60% 7.57% 7.52% 7.33% 7.54%
Variable rate loans 58,057 4,102 4,450 4,188 4,010 40,675 115,482 114,437
Average interest rate 9.20% 9.01% 8.97% 8.63% 8.62% 8.34% 8.84%
Federal funds sold 79,000 0 0 0 0 0 79,000 79,000
Average interest rate 5.62% 0.00% 0.00% 0.00% 0.00% 0.00% 5.62%
RATE SENSITIVE LIABILITIES:
Money market accounts 10,100 10,100 10,100 0 0 66,762 97,062 97,062
Average interest rate 2.74% 2.74% 2.74% 0.00% 0.00% 2.74% 2.74%
Time deposits 531,895 167,438 90,436 27,681 26,006 0 843,456 846,134
Average interest rate 5.52% 5.90% 6.55% 5.94% 6.12% 0.00% 5.74%
Savings Deposits 57,696 55,796 54,629 3,745 0 390,788 562,654 562,654
Average interest rate 2.95% 2.95% 2.95% 2.95% 0.00% 2.95% 2.95%
Federal Funds Purchased
and Securities Sold under
Agreements to Repurchase 15,305 0 0 0 0 0 15,305 15,305
Average interest rate 4.50% 0.00% 0.00% 0.00% 0.00% 0.00% 4.50%
</TABLE>
The table above presents information about the Company's financial instruments
that are sensitive to changes in interest rates. For loans, securities and
liabilities with contractual maturities, the table presents principal cash flows
and related weighted - average interest rates by contractual maturities as well
as the Company's historical experience of the impact of interest rate
fluctuations on the prepayment of residential loans and mortgage - backed
securities. For core deposits that have no contractual maturity, the table
presents principal cash flows and related weighted - average interest rates
based on the Company's historical experience concerning their most likely
withdrawal behaviors.
27
<PAGE> 25
RESULTS OF OPERATIONS
FISCAL 1997 COMPARED TO 1996 AND 1995
In 1997, net interest income before provision for loan loss decreased slightly
to $59,447 from 1996 and 1995 levels of $59,690 and $59,697 respectively. During
1997, the average balance of earning assets increased $52,805 or 2.99%, while
their yield (on a tax- equivalent basis) decreased by 6 basis points to 7.33%.
In 1995, this tax equivalent yield was 7.38%. Interest income on a
tax-equivalent basis increased $2,754 and $2,074 in 1997 and 1996 respectively.
In 1997, the average volume in interest-bearing liabilities increased $26,755 or
1.77%, while their cost increased 11 basis points to 4.44%. These factors
combined to produce a $2,955 increase in interest expense. In 1996 and 1995,
interest expense increased $1,798 and $9,545 respectively. In 1997 management
provided $1,300 to the loan loss reserve. The 1996 provision was $400,
reinstated after a three year absence. Overall quality of the loan portfolio
continues to be good. On a regular basis, management reviews the loan portfolio
to identify probable losses inherent in the portfolio and to determine the
appropriate level for the loan loss reserve. Strong loan growth in 1997
totalling nearly $55 million will likely require additional funding for reserves
in future periods. The volume of loans charged off as a percentage of average
loans outstanding in 1997 was .13%, well below the Company's peers. In 1996 and
1995, this ratio was .20% and .01% respectively.
Total other operating income, excluding securities gains and losses increased
$781 in 1997 due to additional trust department income resulting from volume
increases and modified fee schedules. Net security gains of $489 were realized
in 1997. Management continues to closely monitor the Bank's available for sale
portfolio and repositions securities based on market conditions.
Total other operating expenses increased $3,032 or 7.67% in 1997. Salaries and
employee benefits,which represent the largest category of non-interest expense,
increased $1,211 or 5.34%. The salaries component rose $775 or 4.60% due to
annual salary adjustments and an increase of 21 full time equivalent employees,
while benefits rose $436, or 7.44% due to increases in profit sharing
contributions and insurance costs. Net occupancy of bank premises rose $349
relating to higher depreciation and operating costs driven by facility
expansion. Equipment expense increased $217 due to the Bank's commitment to
customer service technologies. Data processing expense increased $352 due to an
expansion of technology delivery channels. Other expenses increased $483 due to
increases in advertising and contribution expenses relating to community
outreach programs.
In 1996, total other operating expenses decreased $1,377 due to a $1,947
decrease in FDIC insurance costs. Employee salaries and benefits increased $251,
while equipment and net occupancy expenses increased $219 and $197 respectively.
The Year 2000 issue is the inability of computer systems to accurately calculate
dates after December 31, 1999 due to software which may recognize the date "00"
as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculation causing disruptions of operations including a
temporary inability to process transactions, invoices or engage in other banking
activities.
In 1997, the Company formed a Year 2000 task force to develop and implement a
strategic Year 2000 plan. The Company's plan is expected to be completed by
April 1, 1998 and be disseminated by the Risk Management Committee. The Company
presently believes that with limited modifications to existing hardware and
software applications, the Year 2000 issue will not pose a significant
operational problem. To date, the Company is reviewing all corporate systems to
accommodate all Year 2000 data. Additionally, all future system acquisitions and
upgrades will be tested prior to installation to ensure compliance. The Company
plans to test and verify all systems in 1999. The total Year 2000 project cost
is estimated to be less than $100,000.
28
<PAGE> 26
First Evergreen Corporation and Subsidiary
SELECTED STATISTICAL INFORMATION
Dollars in thousands -- Unaudited
SECURITIES HELD TO MATURITY
BOOK VALUES
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
U.S. Treasury obligations $ 70,663 $ 133,514 $ 251,116
U.S. Government agencies and mortgage-backed securities 478,295 486,775 462,665
Obligations of states and political subdivisions 184,938 173,090 151,295
Collateralized mortgage obligations 188,007 190,443 208,345
Other securities 7,265 1,385 1,385
---------- ---------- ----------
Total $ 929,168 $ 985,207 $1,074,806
========== ========== ==========
</TABLE>
SECURITIES AVAILABLE FOR SALE
CARRYING VALUES
<TABLE>
<CAPTION>
December 31,
1997 1996 1995
<S> <C> <C> <C>
U.S. Treasury obligations $ 144,266 $ 142,625 $ 138,888
Collateralized mortgage obligations 5,200 0 3,381
---------- ---------- ----------
$ 149,466 $ 142,625 $ 142,269
========== ========== ==========
</TABLE>
SECURITIES HELD TO MATURITY
REMAINING MATURITY AND AVERAGE YIELD
<TABLE>
<CAPTION>
December 31, 1997
One Year or Less One to Five Years Five to Ten Years Over Ten Years
Book Yield Book Yield Book Yield Book Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 50,231 6.77% $ 20,432 6.31% $ 0 0.00% $ 0 0.00%
U.S. Government agencies
and mortgage-backed securities 36,891 7.06 147,746 7.29 182,576 7.37 111,082 6.29
Obligations of states and
political subdivisions (2) 17,215 5.66 58,694 5.78 60,541 5.63 48,488 5.52
Other securities (1) 7,582 6.83 6,129 6.42 16,707 6.71 164,854 6.92
-------- -------- -------- --------
Total maturities (3) $111,919 $233,001 $259,824 $324,424
======== ======== ======== ========
</TABLE>
(1) Includes Federal Reserve and Federal Home Loan Bank stocks.
(2) The interest on non-taxable investment securities has been
adjusted and is calculated on a tax-equivalent basis using a
federal tax rate of 35%.
(3) No securities of any issuer are held, exclusive of U.S. Treasury
obligations and U.S. Government agencies, which exceed 10% of
stockholders' equity.
29
<PAGE> 27
Selected Statistical Information -- continued
SECURITIES AVAILABLE FOR SALE
REMAINING MATURITY AND AVERAGE YIELD
<TABLE>
<CAPTION>
December 31, 1997
One Year or Less One to Five Years Five to Ten Years Over Ten Years
Carrying Value Yield Carrying Value Yield Carrying Value Yield Carrying Value Yield
<S> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $42,370 4.98% $65,657 5.44% $36,239 6.69% $ 0 0.00%
Other securities 0 0.00 0 0.00 0 0.00 5,200 7.81
------- ------- ------- -------
Total Maturities $42,370 $65,657 $36,239 $ 5,200
======= ======= ======= =======
</TABLE>
LOANS
<TABLE>
<CAPTION>
TYPES OF LOANS December 31,
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Commercial and industrial $ 96,188 $ 97,408 $ 78,181 $ 73,051 $ 62,542
Real estate-- residential 424,698 377,368 332,293 286,587 233,544
Real estate-- commercial 113,292 108,484 91,353 81,344 76,198
Real estate-- construction 14,632 10,920 4,290 714 3,006
Installment 25,634 24,528 24,404 37,116 41,149
--------- --------- --------- --------- ---------
674,444 618,708 530,521 478,812 416,439
Unearned discount (4) (13) (22) (48) (98)
Allowance for loan losses (3,515) (3,042) (3,796) (3,852) (3,764)
--------- --------- --------- --------- ---------
Total $ 670,925 $ 615,653 $ 526,703 $ 474,912 $ 412,577
========= ========= ========= ========= =========
</TABLE>
<TABLE>
<CAPTION>
MATURITIES AND SENSITIVITIES TO CHANGES IN INTEREST RATES December 31, 1997
1 Year 1 to 5 Over
or Less Years 5 Years Total
<S> <C> <C> <C> <C>
Commercial and industrial $ 58,682 $ 30,035 $ 7,471 $ 96,188
Real estate - construction 13,145 1,487 0 14,632
-------- -------- -------- --------
Total $ 71,827 $ 31,522 $ 7,471 $110,820
======== ======== ======== ========
</TABLE>
INTEREST SENSITIVITIES
<TABLE>
<CAPTION>
LOANS MATURING IN ONE YEAR AND OVER 1 to 5 Over
Years 5 Years Total
<S> <C> <C> <C>
Fixed rate $ 24,280 $ 6,066 $ 30,346
Floating rate 7,242 1,405 8,647
-------- -------- --------
Total $ 31,522 $ 7,471 $ 38,993
======== ======== ========
</TABLE>
30
<PAGE> 28
Selected Statistical Information -- continued
NONPERFORMING ASSETS (1)
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Nonaccrual loans (2) $2,283 $ 688 $1,619 $ 414 $1,316
Past due 90 days or more (3) 3,272 3,316 2,351 1,852 1,337
Restructured loans (4) 0 0 0 0 0
Other real estate owned 0 176 224 1,256 3,564
</TABLE>
(1) Adoption of SFAS No. 114 in 1995 does not materially impact the
comparability of this disclosure.
(2) Loans accounted for on a nonaccrual basis. (See Note A for
further information.)
(3) Accruing loans that are contractually past due 90 days or more as
to principal or interest payments.
(4) Loans not included above that are "troubled debt restructurings"
as defined in SFAS No. 15, Accounting by Debtors and Creditors
for Troubled Debt Restructurings.
Nonperforming assets increased to $5,555 at December 31, 1997, from $4,180 in
1996. The economic outlook for 1998 calls for another year of economic expansion
and limited inflation. However, economic factors including employment, interest
rates, consumer pricing and sales, could upset the financial markets and have
the capability of adversely affecting loan quality and portfolio growth.
31
<PAGE> 29
Selected Statistical Information -- continued
Consolidated Average Statements of Condition, Analysis of Interest Earnings and
Interest Differential Analysis
<TABLE>
<CAPTION>
1997 1996
Average Average
Balance Interest Rate Balance Interest Rate
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 46,830 $ 2,579 5.51% $ 34,051 $ 1,815 5.33%
Taxable investment securities 955,447 63,739 6.67 989,874 67,213 6.79
Non-taxable investment securities (l) 174,296 15,311 8.78 163,022 14,630 8.97
IDR bonds/non-taxable loans (2) 5,566 503 9.04 6,085 554 9.10
Loans (3) 637,119 51,168 8.03 573,421 46,334 8.08
---------- ---------- ---- ---------- ---------- ----
Total interest-earning assets 1,819,258 133,300 7.33 1,766,453 130,546 7.39
========== ========== ==== ========== ========== ====
Other Assets:
Cash and due from banks 44,558 45,179
Less allowance for loan losses (3,071) (3,562)
Bank premises and equipment 33,344 30,545
Accrued interest receivable 20,935 21,805
Other real estate owned 69 177
Goodwill and intangibles 3,883 4,727
Other assets 1,237 1,872
---------- ----------
Total Assets $1,920,213 $1,867,196
========== ==========
Interest-Bearing Liabilities:
Interest-bearing transaction deposits $ 159,186 4,866 3.06 $ 205,438 6,169 3.00
Savings deposits 536,322 15,947 2.97 525,294 15,780 3.00
Time deposits of $100 or more 166,537 9,415 5.65 143,283 7,885 5.50
Other time deposits 660,721 37,464 5.67 625,722 35,097 5.61
Federal funds purchased, securities
sold under agreements to repurchase
and borrowed funds 19,049 805 4.23 15,323 611 3.99
---------- ---------- ---- ---------- ---------- ----
Total interest-bearing liabilities 1,541,815 68,497 4.44 1,515,060 65,542 4.33
========== ========== ==== ========== ========== ====
Net interest margin 2.89% 3.06%
==== ====
Other Liabilities and Stockholders' Equity:
Demand deposits 175,427 166,384
Accrued interest and other liabilities 12,489 7,031
Stockholders' equity 190,482 178,721
---------- ----------
Total liabilities and stockholders' equity $1,920,213 $1,867,196
========== ==========
- -------------------------------------------------------------------------------------------------------------------------------
Net interest earnings $ 64,803 $ 65,004
- -------------------------------------------------------------------------------------------------------------------------------
Net yield on interest-earning assets 3.56% 3.68%
- -------------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) The interest on non-taxable securities has been adjusted and is
calculated on a tax-equivalent basis using a federal tax rate of
35%.
(2) The interest on non-taxable industrial development bonds and
other non-taxable loans (included in loans for financial
purposes) has been adjusted and is calculated on a tax-equivalent
basis using a federal tax rate of 35%.
(3) Average balance includes nonaccrual loans; their impact is
included in the rate component.
(4) Changes due to both rate and volume are allocated based on the
percentage of each to the total.
32
<PAGE> 30
<TABLE>
<CAPTION>
1995 1997 Compared to 1996
Average Change Attributable to
Balance Interest Rate Volume Rate Total (4)
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 24,344 $ 1,435 5.89% $ 702 $ 62 $ 764
Taxable investment securities 1,072,922 72,448 6.75 (2,310) (1,164) (3,474)
Non-taxable investment securities (l) 144,388 13,782 9.54 995 (314) 681
IDR bonds/non-taxable loans (2) 6,443 592 9.19 (47) (4) (51)
Loans (3) 491,941 40,215 8.17 5,117 (283) 4,834
----------- ----------- ---- ----------- ----------- -----------
Total interest-earning assets 1,740,038 128,472 7.38 4,457 (1,703) 2,754
=========== =========== ==== =========== =========== ===========
Other Assets:
Cash and due from banks 46,363
Less allowance for loan losses (3,862)
Bank premises and equipment 29,179
Accrued interest receivable 22,402
Other real estate owned 844
Goodwill and intangibles 5,568
Other assets 3,548
-----------
Total Assets $ 1,844,080
===========
Interest-Bearing Liabilities:
Interest-bearing transaction deposits $ 209,247 6,488 3.10 (1,412) 109 (1,303)
Savings deposits 613,993 18,953 3.09 329 (162) 167
Time deposits of $100 or more 133,413 7,342 5.50 1,310 220 1,530
Other time deposits 546,119 30,441 5.57 1,981 386 2,367
Federal funds purchased, securities
sold under agreements to repurchase
and borrowed funds 10,666 520 4.88 156 38 194
----------- ----- ---- ------ --- ------
Total interest-bearing liabilities 1,513,438 63,744 4.21 2,363 592 2,955
=========== ===== ==== ====== === ======
Net interest margin 3.17%
====
Other Liabilities and Stockholders' Equity:
Demand deposits 154,988
Accrued interest and other liabilities 11,409
Stockholders' equity 164,245
-----------
Total liabilities and stockholders' equity $ 1,844,080 $ 2,094 $ (2,295) $ (201)
=========== =========== =========== ===========
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest earnings $ 64,728
- -----------------------------------------------------------------------------------------------------------------------------------
Net yield on interest-earning assets 3.72%
- -----------------------------------------------------------------------------------------------------------------------------------
<CAPTION>
1996 Compared to 1995
Change Attributable to
Volume Rate Total (4)
<S> <C> <C> <C>
Interest-Earning Assets:
Federal funds sold $ 528 $ (148) $ 380
Taxable investment securities (5,637) 402 (5,235)
Non-taxable investment securities (l) 1,706 (858) 848
IDR bonds/non-taxable loans (2) (33) (5) (38)
Loans (3) 6,589 (470) 6,119
----------- ----------- -----------
Total interest-earning assets 3,153 (1,079) 2,074
=========== =========== ===========
Other Assets:
Cash and due from banks
Less allowance for loan losses
Bank premises and equipment
Accrued interest receivable
Other real estate owned
Goodwill and intangibles
Other assets
Total Assets
Interest-Bearing Liabilities:
Interest-bearing transaction deposits (117) (202) (319)
Savings deposits (2,676) (497) (3,173)
Time deposits of $100 or more 543 (0) 543
Other time deposits 4,464 192 4,656
Federal funds purchased, securities
sold under agreements to repurchase
and borrowed funds 198 (107) 91
----------- ----------- -----------
Total interest-bearing liabilities 2,412 (614) 1,798
=========== =========== ===========
Net interest margin
Other Liabilities and Stockholders' Equity:
Demand deposits
Accrued interest and other liabilities
Stockholders' equity
Total liabilities and stockholders' equity $ 741 $ (465) $ 276
=========== =========== ===========
- ------------------------------------------------------------------------------------------
Net interest earnings
- ------------------------------------------------------------------------------------------
Net yield on interest-earning assets
- ------------------------------------------------------------------------------------------
</TABLE>
33
<PAGE> 31
Selected Statistical Information -- continued
POTENTIAL PROBLEM LOANS
Effective December 31, 1997, the Company had $5,938 in domestic commercial loans
for which payments presently are current, but the borrowers are currently
experiencing financial difficulties. These loans are closely monitored by
management on a regular basis.
FOREIGN LOANS OUTSTANDING
There were no loans to foreign countries outstanding for the reported periods.
SUMMARY OF LOAN LOSS EXPERIENCE
<TABLE>
<CAPTION>
ANALYSIS OF THE ALLOWANCE FOR LOAN LOSSES Years Ended December 31
1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C>
Average total loans $ 642,685 $ 579,506 $ 498,384 $ 451,727 $ 385,014
========= ========= ========= ========= =========
Total loans at year end $ 674,440 $ 618,695 $ 530,499 $ 478,764 $ 416,341
========= ========= ========= ========= =========
Allowance for loan losses
at beginning of year $ 3,042 $ 3,796 $ 3,852 $ 3,764 $ 3,906
Loans charged off:
Commercial and industrial 697 1,010 187 117 306
Real estate-- mortgage 5 4 0 4 137
Installment 402 242 70 60 100
--------- --------- --------- --------- ---------
Total 1,104 1,256 257 181 543
--------- --------- --------- --------- ---------
Recoveries of loans previously charged off:
Commercial and industrial 229 33 131 83 321
Real estate-- mortgage 4 23 0 63 0
Installment 44 46 70 123 80
--------- --------- --------- --------- ---------
Total 277 102 201 269 401
--------- --------- --------- --------- ---------
Net loans charged off 827 1,154 56 (88) 142
Provision for loan losses 1,300 400 0 0 0
--------- --------- --------- --------- ---------
Allowance for loan losses at year end $ 3,515 $ 3,042 $ 3,796 $ 3,852 $ 3,764
========= ========= ========= ========= =========
As a percent of average loans:
Net loans charged off 0.13% 0.20% 0.01% (0.02)% 0.04%
Provision for loan losses 0.20 0.07 0.00 0.00 0.00
Allowance balance as a percent
of year-end loans 0.52% 0.49% 0.72% 0.80% 0.90%
</TABLE>
The allowance for loan losses has been allocated to the amount deemed to be
reasonably necessary to provide for the probable losses being incurred
within the following categories at December 31,
<TABLE>
<CAPTION>
Allocation of allowance Percent of loans in each category to total loans
1997 1996 1995 1994 1993 1997 1996 1995 1994 1993
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and industrial $1,478 $1,346 $1,363 $1,089 $ 813 14.26% 15.74% 14.74% 15.26% 15.00%
Real estate-- construction 6 5 6 4 6 2.17 1.77 0.81 0.15 0.70
Real estate-- residential 806 800 837 796 360 62.97 60.99 62.63 59.85 57.95
Real estate-- commercial 653 579 439 435 196 16.80 17.53 17.22 16.99 16.45
Installment 432 312 236 196 683 3.80 3.97 4.60 7.75 9.90
Unallocated 140 0 915 1,332 1,706 n/a n/a n/a n/a n/a
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
$3,515 $3,042 $3,796 $3,852 $3,764 100.00% 100.00% 100.00% 100.00% 100.00%
====== ====== ====== ====== ====== ====== ====== ====== ====== ======
</TABLE>
34
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> DEC-31-1997
<CASH> 45,977,111
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 79,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 149,466,404
<INVESTMENTS-CARRYING> 929,168,145
<INVESTMENTS-MARKET> 945,930,000
<LOANS> 674,439,546
<ALLOWANCE> 3,515,265
<TOTAL-ASSETS> 1,933,095,582
<DEPOSITS> 1,700,619,745
<SHORT-TERM> 15,305,000
<LIABILITIES-OTHER> 19,028,880
<LONG-TERM> 0
0
0
<COMMON> 198,141,957
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 198,141,957
<INTEREST-LOAN> 51,673,831
<INTEREST-INVEST> 73,691,078
<INTEREST-OTHER> 2,578,639
<INTEREST-TOTAL> 127,943,548
<INTEREST-DEPOSIT> 67,691,592
<INTEREST-EXPENSE> 68,496,092
<INTEREST-INCOME-NET> 59,447,456
<LOAN-LOSSES> 1,300,000
<SECURITIES-GAINS> 488,855
<EXPENSE-OTHER> 42,549,357
<INCOME-PRETAX> 23,602,895
<INCOME-PRE-EXTRAORDINARY> 23,602,895
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 18,113,895
<EPS-PRIMARY> 45.17
<EPS-DILUTED> 45.17
<YIELD-ACTUAL> 3.56
<LOANS-NON> 2,282,797
<LOANS-PAST> 3,271,503
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 5,533,867
<ALLOWANCE-OPEN> 3,041,637
<CHARGE-OFFS> 1,103,598
<RECOVERIES> 277,226
<ALLOWANCE-CLOSE> 3,515,265
<ALLOWANCE-DOMESTIC> 3,515,265
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 140,000
</TABLE>
