<PAGE> 1
ORIGINAL
SECURITIES AND EXCHANGE COMMISSION
----------------------------------
Washington, D.C. 20549
FORM 10-Q
---------
(Mark One)
X Quarterly Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934. For the period ended June 30, 1998.
Transition Report pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934. For the transition period
from ___________ to ___________.
Commission file number 2-94209
FIRST EVERGREEN CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
Delaware 36-2952700
- -------- ----------
(State or other jurisdiction (I.R.S. Employer
incorporation or organization) Identification No.)
3101 W. 95th Street, Evergreen Park, Illinois 60805
- --------------------------------------------- -----
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (708) 422-6700
--------------
Indicated by check mark whether the registrant (1) has filed all reports to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing for the
past 90 days.
Yes X No
----- -----
Indicate the number of shares outstanding of each issuer's class of common
stock, as of the latest practicable date.
Common Stock - $25.00 par value, 2,000,000 shares authorized, 432,842 shares
issued and 400,261 shares outstanding at July 31, 1998.
1
<PAGE> 2
FIRST EVERGREEN CORPORATION
---------------------------
PART I - FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
Numbers
-------
<S> <C>
Consolidated Statements of Condition ..................................3
Consolidated Statements of Income .....................................4
Consolidated Statements of Cash Flows .................................6
Notes to Consolidated Financial Statements ............................7
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS ................................8
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K ...................................11
</TABLE>
2
<PAGE> 3
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Condition
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
June 30, December 31,
ASSETS 1998 1997
---------------------------
<S> <C> <C>
Cash and due from banks $ 42,525 $ 45,977
Federal funds sold 26,000 79,000
Available for sale securities 183,657 149,466
Held to maturity securities
U.S. Treasury obligations 52,315 70,663
U.S. Government agencies 397,408 381,078
Obligations of states and political subdivisions 206,318 184,938
Mortgage-backed securities 76,563 97,217
Collateralized mortgage obligations 147,013 188,007
Other securities 16,974 7,265
---------- ----------
Total held to maturity 896,591 929,168
(Market value of $914,438 in 1998
and $945,930 in 1997)
Loans - net 727,408 670,925
Bank premises and equipment (net) 36,100 35,849
Accrued interest receivable 18,254 17,669
Goodwill and other intangibles (net) 3,018 3,439
Other assets 1,742 1,603
---------- ----------
$1,935,295 $1,933,096
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Demand deposits $ 187,941 $ 197,448
Savings deposits 580,558 562,654
Money market accounts 105,223 97,062
Time deposits 821,068 843,456
---------- ----------
Total deposits 1,694,790 1,700,620
Federal funds purchased and Securities sold
under agreements to repurchase 22,695 15,305
Accrued interest and other liabilities 17,474 19,029
---------- ----------
Total liabilities 1,734,959 1,734,954
========== ==========
Stockholders' equity
Common stock - authorized, 2,000,000 shares
of $25 par value; issued, 432,842 shares
in 1998 and 1997 10,821 10,821
Surplus 4,815 4,815
Retained earnings 193,786 191,566
Accumulated other comprehensive income:
Unrealized losses on Available for sale
securities, net of income taxes (279) (318)
---------- ----------
209,143 206,884
Less treasury stock - at cost, 32,581 shares
in 1998 and 32,446 shares in 1997 (8,807) (8,742)
---------- ----------
Total stockholders' equity 200,336 198,142
---------- ----------
$1,935,295 $1,933,096
========== ==========
</TABLE>
The accompanying notes are an integral part of these statements.
3
<PAGE> 4
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION>
Three months ended June 30
--------------------------
1998 1997
<S> <C> <C>
Interest income
Interest and fees on loans $ 14,204 $ 12,790
Interest and dividends on investment securities
Taxable securities 12,331 14,792
Securities exempt from Federal taxes 2,825 2,463
Dividends 110 20
Interest on available for sale securities 1,704 1,895
Interest on Federal funds sold 509 252
-------- --------
Total interest income 31,683 32,212
-------- --------
Interest expense
Interest on deposits 16,777 16,856
Interest on Federal funds purchased and Securities
Sold under Agreements to Repurchase 185 222
-------- --------
Total interest expense 16,962 17,078
-------- --------
Net interest income 14,721 15,134
Provision for loan losses 500 300
-------- --------
Net interest income after provision
for loan losses 14,221 14,834
-------- --------
Other operating income
Service charges on deposit accounts 1,044 797
Trust department income 749 772
Other income 434 350
Net security gains 337 24
-------- --------
Total other operating income 2,564 1,943
Other operating expenses
Salaries and employee benefits 5,811 6,101
Net occupancy expense of bank premises 976 955
Equipment depreciation, rentals and maintenance 881 725
Insurance 113 122
Outside fees and services 424 568
Data processing 661 558
Other expenses 1,668 1,688
-------- --------
Total other operating expenses 10,534 10,717
-------- --------
Income before income tax expense 6,251 6,060
Income tax expense 1,372 1,438
-------- --------
NET INCOME $ 4,879 $ 4,622
======== ========
Net income per share $ 13.19 $ 11.51
-------- --------
Weighted average number of shares outstanding 400,261 401,384
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
4
<PAGE> 5
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Consolidated Statements of Income
DOLLARS IN THOUSANDS EXCEPT SHARE DATA
(UNAUDITED)
<TABLE>
<CAPTION> Six months ended June 30
------------------------
1998 1997
<S> <C> <C>
Interest income
Interest and fees on loans $ 27,955 $ 25,258
Interest and dividends on investment securities
Taxable securities 24,987 29,277
Securities exempt from Federal taxes 5,490 4,942
Dividends 230 41
Interest on available for sale securities 3,847 3,749
Interest on Federal funds sold 1,179 697
-------- --------
Total interest income 63,688 63,964
-------- --------
Interest expense
Interest on deposits 33,494 33,404
Interest on Federal funds purchased and Securities
Sold under Agreements to Repurchase 339 404
-------- --------
Total interest expense 33,833 33,808
-------- --------
Net interest income 29,855 30,156
Provision for loan losses 800 450
-------- --------
Net interest income after provision
for loan losses 29,055 29,706
-------- --------
Other operating income
Service charges on deposit accounts 2,045 1,592
Trust department income 1,465 1,345
Other income 908 697
Net security gains (losses) 1,070 (15)
-------- --------
Total other operating income 5,488 3,619
Other operating expenses
Salaries and employee benefits 11,918 12,276
Net occupancy expense of bank premises 1,976 1,925
Equipment depreciation, rentals and maintenance 1,700 1,422
Insurance 226 243
Outside fees and services 897 1,034
Data processing 1,278 1,105
Other expenses 3,237 3,391
-------- --------
Total other operating expenses 21,232 21,396
-------- --------
Income before income tax expense 13,311 11,929
Income tax expense 3,083 2,781
-------- --------
NET INCOME $ 10,228 $ 9,148
======== ========
Net income per share $ 25.55 $ 22.78
-------- --------
Weighted average number of shares outstanding 400,280 401,500
-------- --------
</TABLE>
The accompanying notes are an integral part of these statements.
5
<PAGE> 6
FIRST EVERGREEN CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
DOLLARS IN THOUSANDS
<TABLE>
<CAPTION>
Six months ended June 30
------------------------
1998 1997
<S> <C> <C>
Cash flows from operating activities:
Net income $ 10,228 $ 9,148
Adjustments to reconcile net income to net
cash provided by operating activities:
Provision for depreciation and amortization 2,076 1,862
Provision for loan losses 800 450
Amortization of investment security
discounts/premiums 2,178 3,047
Net (gain) loss on investment securities (1,070) 15
Deferred income taxes (90) (106)
Increase in accrued interest receivable (585) (1,509)
(Increase) decrease in other assets (69) 320
Net (decrease) increase in accrued interest
and other liabilities (1,555) 1,633
--------- ---------
Net cash provided by operating activities 11,913 14,860
Cash flows from investing activities:
Capital expenditures (1,906) (2,456)
Proceeds from maturity of securities held
to maturity 194,888 94,583
Purchases of securities held to maturity (163,993) (115,465)
Proceeds from sales of securities available
for sale 349,147 94,019
Purchases of securities available for sale (382,705) (94,064)
Net increase in loans (57,283) (26,560)
--------- ---------
Net cash used by investing activities (61,852) (49,943)
Cash flows from financing activities:
Net increase (decrease) in demand, money market
and savings accounts 16,558 (14,675)
Net (decrease) increase in time deposits (22,388) 14,459
Net increase in Federal funds purchased
and Securities sold under
agreements to repurchase 7,390 3,575
Cash dividends paid (8,008) (6,828)
Acquisition of treasury stock (65) (425)
--------- ---------
Net cash used by financing activities (6,513) (3,894)
--------- ---------
Decrease in cash and cash equivalents (56,452) (38,977)
Cash and cash equivalents at beginning of period 124,977 108,854
--------- ---------
Cash and cash equivalents at end of period $ 68,525 $ 69,877
========= ========
Supplemental disclosure of cash flow information:
Cash paid during the period for:
Interest $ 33,922 $ 33,800
Income taxes 3,075 2,500
</TABLE>
6
<PAGE> 7
FIRST EVERGREEN CORPORATION AND SUBSIDIARY
Notes to Consolidated Financial Statements
June 30, 1998
Unaudited - Dollars in Thousands
NOTE A
The unaudited interim consolidated financial statements of First Evergreen
Corporation ("First Evergreen") include the accounts of First Evergreen and its
subsidiary bank, First National Bank of Evergreen Park.
The unaudited interim consolidated financial statements have been prepared in
conformity with generally accepted accounting principles and reporting
practices. The more significant policies are incorporated in the Notes to
Financial Statements in the 1997 Annual Report and Form 10-K and should be read
in conjunction herewith.
In the opinion of management, all adjustments necessary for fair presentation of
the financial position and the results of operations for the interim periods,
all of which were recurring and normal, have been made. The results of
operations for the interim period are not necessarily indicative of results that
may be expected for the entire fiscal year.
NOTE B
The preparation of financial statements in conformance with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
NOTE C
In June, 1997, the FASB issued Statement of Financial Accounting Standards 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 did not materially change the company's financial statement
presentation. Comprehensive Income is forth in the table below:
<TABLE>
<CAPTION>
Three Months Six Months
Ended 6-30-98 Ended 6-30-98
--------------- ---------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET INCOME: $ 4,879 $4,622 $10,228 $9,148
OTHER COMPREHENSIVE INCOME:
Net Change in Unrealized losses on
available for sale securities, Net of Taxes $ 454 821 39 335
------- ------ ------- ------
Total Comprehensive Income $ 5,333 $5,443 $10,267 $9,483
======= ====== ======= ======
</TABLE>
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 company will adopt this Statement for its 1998 Annual
Report to shareholders.
7
<PAGE> 8
Item 2 - Management's Discussion and Analysis of Financial Condition and
Results of Operations (Dollars in Thousands Except Share Data)
FINANCIAL CONDITION
During the six month period ended June 30, 1998, the deposit base decreased
$5,830 to $1,694,790. In the period, the volume of savings and money market
accounts increased $17,904 and $8,161, while demand and time deposits decreased
by $9,507 and $22,388. Despite growing pressures from other financial markets
and interest rates on mid and short-term deposits remaining nearly unchanged,
the bank did not experience any significant deposit runoff. During the same
1997 period, deposits decreased $216. In 1997, the volume of savings, demand and
money market accounts declined $8,238, $6,159 and $278, respectively, while time
deposits increased by $14,459.
Interest earning assets increased by $5,097 during 1998. The combined held to
maturity and available for sale securities portfolios increased $1,614. Net
loans continued to show strength rising 7.76% or $56,483. This growth was in
part funded by a $53,000 decrease in Federal Funds sold.
For the six month period ended June 30, 1998, the average interest rate spread
expressed on a tax equivalent basis (net interest margin) was 2.89%, a decline
of 16 basis points from the same 1997 period. During the same period, the
return on interest earning assets declined 15 basis points to 7.33%, while the
average cost of funds increased one basis point to 4.44%. Financial market
conditions generally dictate the return realized on average earning assets and
the rates paid to depositors. However, management has a discretionary influence
on the investment of assets and rates paid on deposits.
Annual return on average equity increased from 9.51% for the year ended December
31, 1997 to 10.50% at June 30, 1998 as annualized earnings increased by 13.86%.
The annualized return on average assets increased 13 basis points to 1.07%.
Total shareholders' equity increased $2,194 from $198,142 at December 31, 1997
to $200,336 at June 30, 1998. During this period, the net unrealized loss on
available for sale securities decreased $39, while treasury stock grew by $65.
On January 9, 1998, a $20.00 per share dividend totaling $8,008 was paid to
stockholders of record as of January 2, 1998.
The Tier I leveraged capital ratio increased two basis points to 10.19%, while
the total risk-based capital ratio decreased to 23.77%. Both capital ratios are
monitored by Federal agencies which require minimums of 5% for Tier I leveraged
ratio and 10% for total risk-based ratio to receive the highest classification
of "well capitalized."
LIQUIDITY
The objective of liquidity management is to ensure that First Evergreen can meet
its cash flow requirements and capitalize on opportunities on a timely basis.
Liquidity is secured by managing the mix of items on the statement of condition
and expanding sources of liquidity. At June 30, 1998, First Evergreen's sources
of liquidity totaled $397,922, consisting of $188,265 in held to maturity
securities maturing within one year, $26,000 in Federal Funds sold, and $183,657
in available for sale securities. Deposits totaled $1,694,790, yielding a
liquidity ratio of 23.48%.
Earning assets with maturities of less than one year, one to five years and in
excess of five years as a percentage of total earning assets totaled 30.35%,
42.71% and 26.94%, respectively. Similarly, approximately 49.09% of interest
sensitive liabilities could be repriced within one year, 25.34% within one to
five years and 25.57% in excess of five years.
8
<PAGE> 9
Cash and cash equivalents decreased $56,452 during the six months ended June 30,
1998, reaching $68,525. These funds were redeployed to available for sale (AFS)
securities and the loan portfolio. Operating activities contributed $11,913,
primarily due to net income of $10,228. Investing activities used $61,852, due
to the increases in AFS securities and gross loans noted above. Financing
activities consisted of a $5,830 decrease in deposits, an $8,008 cash dividend
paid to shareholders, purchases of treasury stock totaling $65, and a $7,390
increase in repurchase agreements.
As of June 30, 1998, the market value of the held to maturity investment
portfolio exceeded book value by $17,847. Management has the positive intent
and ability to hold these securities until maturity.
RESULTS OF OPERATIONS - Quarter Ended June 30, 1998 Compared to Quarter Ended
June 30, 1997.
Net interest income before provision for loan losses of $14,721 for the quarter
ended June 30, 1998 represents a $413 decrease from the same quarter last year.
To compensate for the growth of the loan portfolio, a loan loss provision of
$500 was provided in the 1998 period versus $300 in the 1997 period. Net
interest income (on a tax equivalent basis) decreased $201 from the prior year's
quarter. The average volume of interest earning assets increased $32,109, while
their yield decreased 19 basis points to 7.24%. The average volume of interest
sensitive liabilities decreased $7,868, while the average cost of funds
decreased two basis points to 4.41%. The net interest margin declined 17 basis
points, while the net yield on earning assets decreased 10 basis points to
3.55%.
Other operating income increased $621 from the second quarter of 1997. The
increase is attributable to 1998 security gains of $337 versus 1997 gains of $24
and a $247 increase in service charges on deposit accounts, resulting from
revised fee schedules and volume increases. Other income rose $84 due to
changes in the ATM fee structure.
Other operating expense decreased $183. Salaries and employee benefits
decreased $290 as a modest increase in salary expense was offset by a decline
in medical claims. Equipment and data processing increased $156 and $103 due
to technology enhancements, equipment repairs and profitability initiatives.
Outside fees and services declined $144 due to a 1997 charge related to ATM
processing.
The provision for income taxes decreased $66 as tax exempt interest increased
$362 in the 1998 period.
RESULTS OF OPERATIONS - Six Months Ended June 30, 1998 Compared to Six Months
Ended June 30, 1997.
Net interest income, before provision for loan losses, of $29,855 represents a
$301 decrease from the same 1997 period. Due to loan growth, the provision for
loan losses in 1998 totaled $800, while $450 was provided in 1997. Net interest
income (on a tax equivalent basis) increased by $9 from the prior year. The
average volume of interest earning assets increased $26,126, while their yield
declined 15 basis points to 7.33%. The average volume of interest sensitive
liabilities decreased $11,918, while the average cost of funds increased one
basis point to 4.44%. The net interest margin decreased 16 basis points to
2.89% with a corresponding 7 point decrease in net yield on earning assets.
9
<PAGE> 10
Other operating income increased $1,869 from the same 1997 period. The increase
is primarily attributable to realized security gains of $1,070 in 1998, versus
1997 losses of $15. Additionally, revised fee schedules and volume increases
were responsible for increases in service charges on deposit accounts and trust
department income, which rose by $453 and $120, respectively. Other income rose
$211 due to a change in ATM fees.
Other operating expense decreased $164. Salaries and employee benefits
decreased $358. Salaries increased $192 due to annual salary adjustments and an
increase in the number of employees necessitated by the opening of a new
facility. This increase was offset by a $369 decrease in medical insurance, as
accruals were reduced in relationship with claims paid. Equipment and data
processing increased $278 and $173, respectively. These increases relate to
product technology enhancements, equipment repairs and profitability
initiatives. Outside fees and services decreased $137 due to a 1997 ATM
processing charge. Other expenses declined $154 due to decreased level of
charitable contributions.
Current period income tax increased $302 due to a $1,382 increase in pretax
income. The effective tax rate decreased from 23.31 % in 1997 to 23.16% in
1998.
10
<PAGE> 11
PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
The Annual Meeting of Shareholders of the Registrant was held on April
23, 1998, at which time 350,932 shares were cast in favor of
re-electing the Board of Directors in its entirety and re-apppointing
the independent audit firm of Ernst & Young LLP. Each director shall
hold office until the next Annual Meeting of Shareholders and until
his successor shall be elected and shall qualify.
(a) Exhibits
Financial Data Schedule - Article 9
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
FIRST EVERGREEN CORPORATION
Dated: August 7, 1998 BY: /s/ Stephen M. Hallenbeck
-----------------------------------
Stephen M. Hallenbeck
Secretary/Treasurer
Signing on behalf of the Registrant and
as Principal Financial Officer.
11
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 42,524,975
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 26,000,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 183,657,294
<INVESTMENTS-CARRYING> 896,590,735
<INVESTMENTS-MARKET> 914,438,000
<LOANS> 731,187,236
<ALLOWANCE> 3,778,908
<TOTAL-ASSETS> 1,935,294,957
<DEPOSITS> 1,694,789,837
<SHORT-TERM> 22,695,000
<LIABILITIES-OTHER> 17,474,411
<LONG-TERM> 0
0
0
<COMMON> 200,335,709
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 1,935,294,957
<INTEREST-LOAN> 27,955,192
<INTEREST-INVEST> 34,553,848
<INTEREST-OTHER> 1,179,094
<INTEREST-TOTAL> 63,688,134
<INTEREST-DEPOSIT> 33,494,344
<INTEREST-EXPENSE> 33,833,180
<INTEREST-INCOME-NET> 29,854,954
<LOAN-LOSSES> 800,000
<SECURITIES-GAINS> 1,070,285
<EXPENSE-OTHER> 21,232,222
<INCOME-PRETAX> 13,310,656
<INCOME-PRE-EXTRAORDINARY> 13,310,656
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,227,656
<EPS-PRIMARY> 25.55
<EPS-DILUTED> 25.55
<YIELD-ACTUAL> 3.55
<LOANS-NON> 2,554,276
<LOANS-PAST> 2,004,205
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 7,829,415
<ALLOWANCE-OPEN> 3,515,265
<CHARGE-OFFS> 730,896
<RECOVERIES> 194,539
<ALLOWANCE-CLOSE> 3,778,908
<ALLOWANCE-DOMESTIC> 3,778,908
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 48,158
</TABLE>
