ELECTRONIC SUBMISSION HEADER
CIK 356981
PASSWORD AE4886
FORM TYPE 10-K
DOCUMENTS 2
EQUIPMENT 101
FILER SUBURBAN BANCORP, INC.
CONTACT EDWARD C. MURAWSKI
TELEPHONE (708) 359-1077 Ext 28
PAGE 0
DOCUMENT HEADER
DOCUMENT DESCRIPTION COVER LETTER
DOCUMENT TYPE 3
COUNT 1
PAGE 1
March 25, 1994
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Re: Report on Form 10-K
Dated March 25, 1994
Registrant - Suburban Bancorp, Inc.
Commission File Number 0-11138
Gentlemen:
We herewith submit the above captioned report as an EDGAR filing.
Very truly yours,
SUBURBAN BANCORP, INC.
By: /s/ Edward C. Murawski
Senior Vice President
PAGE 0
DOCUMENT HEADER
DOCUMENT DESCRIPTION 10-K 12/31/93
DOCUMENT TYPE 1
COUNT 16
SECTIONS
Part I 3
Part II 11
Part III 12
Part IV 12
Signatures 14
Index of Exhibits 15
PAGE 1
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, 1993
or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities Ex-
change Act of 1934. (No Fee Required)
For the transition period from to
Commission file number 0-11138
SUBURBAN BANCORP, INC.
(Exact name of Registrant as specified in its charter)
Delaware 36-3150316
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
50 North Brockway
Palatine, Illinois 60067
(708) 359-1077 (Zip Code)
(Address and telephone number
of principal executive offices)
______________________________
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Class A Common Stock, $1.00 Par Value
Class B Common Stock, $1.00 Par Value
Indicate by check mark whether the Registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that
the Registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if 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 Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10K or any
amendment to this Form 10-K [X]
As of March 1, 1994, the aggregate market values of the Class A
Common Stock and Class B Common Stock held by non-affiliates were $73,504,000
and $4,048,000, respectively. The value of the Class A Common Stock is based
on the closing price for such stock on the NASDAQ National Market System on
that date. The value of the Class B Common stock, as to which no market
exists, is assumed to be equal to the value of the Class A Common Stock be-
cause the Class B Common Stock is convertible into Class A Common Stock at any
time on a one-for-one basis. Determination of stock ownership by non-affili-
ates was made solely for the purpose of responding to this requirement and
Registrant is not bound by this determination for any other purpose.
As of March 1, 1994, there were 2,190,520 shares of Class A Common
Stock and 1,256,486 shares of Class B Common Stock outstanding.
Documents Incorporated by Reference:
Portions of the Annual Report to Stockholders for fiscal year ended December
31, 1993 - Part I and II
Portions of the Proxy Statement for the Annual Meeting of Stockholders to be
held on April 15, 1994 - Part III
PAGE 2
CROSS REFERENCE SHEET
AND INDEX
PART I Page
Item 1 Business 3
Item 1(a) Executive Officers of the Company 8
Item 2 Properties 9
Item 3 Legal Proceedings 11
Item 4 Submission of Matters to a Vote of Security
Holders 11
PART II
Item 5 Market for Company's Common Equity
and Related Stockholder Matters 11
Item 6 Selected Financial Data 11
Item 7 Management's Discussion and Analysis of
Financial Condition and Results of Operations 11
Item 8 Financial Statements and
Supplementary Data 11
Item 9 Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure 11
PART III
Item 10 Directors and Executive Officers of the
Registrant 11
Item 11 Executive Compensation 12
Item 12 Security Ownership of Certain Beneficial Owners
and Management 12
Item 13 Certain Relationships and Related Transactions 12
PART IV
Item 14 Exhibits, Financial Statement Schedules and
Reports on Form 8-K 12
SIGNATURES 15
INDEX TO EXHIBITS 16
PAGE 3
PART I
ITEM 1 - BUSINESS
Overview
Suburban Bancorp, Inc. (the "Company") is organized as a multi-bank
holding company, with its principal office in Palatine, Illinois. Its princi-
pal subsidiaries are thirteen community banks. The banks are located in Cook,
DuPage, Lake, Kane, and McHenry counties in suburban areas of metropolitan
Chicago. Because most of their market areas are suburban communities, the
banks are primarily retail-oriented, providing a wide range of financial
services to individuals and small businesses. The market areas of the banks
have a diversified economy, with several corporate headquarters and numerous
smaller commercial and industrial businesses providing employment, with a
large number of residents commuting to work in the City of Chicago.
The banks engage in a general full service banking business. The
depository and loan products of the banks are generally those offered by
competing financial institutions in the communities. Deposit products include
several types of interest-bearing transaction accounts and savings and time
deposits, including individual retirement accounts. Although numerous types
of loans are available, the banks principally make secured commercial loans to
small business organizations and secured installment loans to individuals.
Additional products and services offered include lock box services,
electronic fund transfers, automatic teller machines (ATMs), safe deposit
facilities, automatic payroll deposit, cash management and trust services.
Although each bank operates under the direction of its own board of
directors, the Company has standard operating policies and procedures regard-
ing asset/liability management, liquidity, investment, lending and deposit
structure management. The Company has historically centralized certain opera-
tions where economies of scale can be achieved.
Market Information
As of March 1, 1994, the Company has 13 bank subsidiaries with 30
offices providing direct service to 31 communities in the Chicago metropolitan
area. The combined populations of these communities have grown at a signifi-
cantly faster pace than the population of the Chicago metropolitan area over
the past two decades. Local planners forecast that growth in communities
served by the banks will, on a percentage basis, greatly exceed that of the
total metropolitan area. Average household income of the communities served
by the Company was greater than the average Chicago metropolitan area income,
and the Company believes that average incomes of the households it serves will
continue to compare favorably to Chicago metropolitan averages for the fore-
seeable future.
Subsidiary Banks
The Company has made seven acquisitions in the past nine years. The
Suburban Bank of Bartlett was purchased in 1985, both the Marengo State Bank
and the Suburban Bank of West Brook in 1986, Suburban National Bank/Aurora and
The State Bank of Woodstock in 1987, Suburban Bank of Oakbrook Terrace in
1988, and The State Bank of Huntley in 1993.
PAGE 4
The table below presents certain information regarding the subsidiary
banks owned by the Company (dollars in thousands.)
December 31, 1993 (1)
Name of Bank Number -------------------------------------------
(Year Formed/Year Af- of Total Net Return on Average
filiated with Suburban) Locations Assets Equity Income Assets Equity
- - ------------------------ -------- -------- ------- ------ -------- -------
<TABLE>
<S> <C> <C> <C> <C> <C>
Suburban National Bank of
Palatine (1944/1961) 8 $280,581 $17,660 $3,582 1.29% 20.53%
Suburban Bank of Barrington
(1968/1983) 3 185,677 11,647 2,651 1.53 23.71
The State Bank of Woodstock
(1889/1987) 2 154,944 10,545 2,179 1.37 21.26
Suburban Bank of Rolling
Meadows (1959/1973) 2 106,947 6,668 1,431 1.46 22.34
Suburban Bank of Bartlett
(1911/1985) 2 85,822 5,480 1,117 1.39 22.20
Suburban Bank of Cary-Grove
(1914/1971) 3 79,597 5,243 1,117 1.43 22.10
Suburban National Bank of Elk
Grove Village (1971/1971) 2 74,460 4,820 931 1.31 21.26
Marengo State Bank
(1930/1986) 2 67,137 4,236 878 1.37 21.85
Suburban Bank of West Brook
(1964/1986) 1 65,236 4,319 786 1.23 19.58
Suburban Bank of Hoffman-
Schaumburg (1970/1970) 2 63,415 4,098 639 1.10 17.14
Suburban Bank of Oakbrook
Terrace (1971/1988) 1 60,438 3,689 761 1.39 22.08
The State Bank of Huntley
(1913/1993) 1 44,051 3,964 (234) (2.21) (24.95)
Suburban National Bank/Aurora
(1960/1987) 1 29,251 2,053 400 1.46 20.50
- - ------------------------
</TABLE>
(1) The data presented in this table does not aggregate to the
Company's consolidated financial results for 1993, since they do not take into
account unallocated parent company expenses and other consolidating adjust-
ments.
Nonbank Subsidiaries
The Company also owns 100 percent of three nonbank subsidiaries:
Brockway Insurance Agency, Inc., a company organized as an insurance broker;
Suburban Mortgage Corp., a company organized as a mortgage banker; and Subur-
ban Holdings, Inc., a company organized to hold real estate. Suburban Hold-
ings, Inc. is the owner of certain parcels of real estate which are being held
for use as bank premises and for sale.
Bank Service Corporation Subsidiaries
The Company's subsidiary banks own two bank service corporations
designed to facilitate certain operations of the banks. Suburban Information
Systems, Inc. provides data processing, bookkeeping, and proof of deposit
services for the customers of the banks. Suburban Information Systems, Inc.
derives substantially all its revenue from the Company's banks. Suburban
Remittance Corporation, which is a wholly owned subsidiary of Suburban Infor-
mation Systems, processes remittances to large commercial customers requiring
specialized services due to high volumes of deposit items.
PAGE 5
Competition
The Company faces intense competition in all phases of its banking
business from other banks and financial institutions. In addition to numerous
banks in their market area, the Company's banks compete actively with savings
and loan institutions, credit unions, insurance companies, investment firms,
and retailers. A growing source of local competition comes from out-of-state
regional bank holding companies and major Chicago banks which have established
themselves in the market areas of the Company's subsidiary banks through loan
production offices and affiliated banks. The Company believes that competi-
tion for its products and services is based principally on location, conven-
ience, quality, and price. The principal pricing factors relate to interest
rates charged on loans and paid on deposits.
Employees
The Company and its subsidiaries employed approximately 575 persons
(full time equivalent) on December 31, 1993, of which 21 were employed by the
parent company.
SUPERVISION AND REGULATION
The Company.
The Company is a corporation organized in 1981 under the General Corpora-
tion Law of the State of Delaware, having its principal place of business in
Palatine, Illinois. It holds a certificate of authority to do business as a
foreign corporation in the State of Illinois. As a corporation listed for
quotation on NASDAQ, it is subject to the Delaware anti-takeover legislation
adopted February, 1988. That legislation prevents hostile acquirers from
engaging in a wide range of business combinations for three years after ac-
quiring a 15% interest in the target corporation.
The Company is a bank holding company within the meaning of the Bank
Holding Company Act of 1956, as amended (the "Bank Holding Company Act"), and
is registered as such with the Board of Governors of the Federal Reserve
System (the "Federal Reserve Board"). The Bank Holding Company Act requires
every bank holding company to obtain the prior approval of the Federal Reserve
Board 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. The Federal Reserve Board may not approve an acquisition by the Company
unless such acquisition has been specifically authorized by Illinois statute.
The Bank Holding Company Act 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. The Company,
however, may engage in, and may own shares of companies engaged in, certain
businesses determined by the Federal Reserve Board to be so closely related to
banking or managing or controlling banks as to be a proper incident thereto.
The Bank Holding Company Act does not place territorial restrictions on the
activities of bank holding companies or their nonbank subsidiaries.
The Banks.
Under the Bank Holding Company Act, and the regulations promulgated
thereunder, the Company is required to file annual reports of its operations
and such additional information as the Federal Reserve Board may require and
is subject to examination by the Federal Reserve Board. The Federal Reserve
Board has jurisdiction to regulate the terms of certain debt issues of the
Company, including the authority to impose reserve requirements.
PAGE 6
Three of the Company's subsidiaries are national banks and are
subject to regulation and regular examinations by the Comptroller of the
Currency. All national banks are members of the Federal Reserve System and
are subject to applicable provisions of the Federal Reserve Act. The Com-
pany's three national banks are the Suburban National Bank of Palatine, Subur-
ban National Bank of Elk Grove Village and Suburban National Bank/Aurora.
Ten of the Company's banks are state banks, chartered under the
Illinois Banking Act. They are subject to regulation and examination by the
Illinois Commissioner of Banks and Trust Companies. The Company's state
chartered banks are the Suburban Bank of Cary-Grove, Suburban Bank of Hoffman-
Schaumburg, Suburban Bank of Barrington, Suburban Bank of Rolling Meadows,
Suburban Bank of Bartlett, Suburban Bank of West Brook, Suburban Bank of
Oakbrook Terrace, Marengo State Bank, The State Bank of Woodstock and The
State
Bank of Huntley.
All of the banking subsidiaries are members of the Federal Deposit
Insurance Corporation ("FDIC") and as such are subject to the provisions of
the Federal Deposit Insurance Act.
Regulatory Issues
The federal and state laws and regulations generally applicable to
banks regulate, among other things, the scope of their business, their invest-
ments, their reserves against deposits, the nature and amount of and collater-
al for loans, and include restrictions on the number of banking offices and
activities which may be performed at such offices.
Subsidiary banks of a bank holding company 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 collat-
eralized by such stock or other securities.
Effective December 1, 1990, out-of-state bank holding companies are
authorized to acquire banks or bank holding companies having their principal
place of business in Illinois. Such out-of-state bank holding companies must
have their principal place of business in a state whose interstate banking
laws are fully reciprocal with those of Illinois. In 1993, the Illinois
General Assembly amended the Illinois Banking Act effectively removing all
numeric, geographic and home office protection branching restrictions imposed
on banks and savings banks under Illinois law.
On December 19, the Federal Deposit Insurance Corporation Improvement act
of 1991 ("FDICIA") was enacted. FDICIA provides for, among other things: the
recapitalization of the Bank Insurance Fund; several supervisory reforms, inc-
luding required annual regulatory examinations of depository institutions,
annual independent audits and related management reports on internal controls;
the adoption of safety and soundness standards on matters such as loan under
writing and documentation, interest rate risk deposit insurance system; and
mandated consumer protection disclosure regarding deposit accounts. FDICIA,
together with the regulations promulgated pursuant thereto, have increased
certain costs related to examination reporting and disclosure.
PAGE 7
Effective July 1, 1992, banks commonly owned by the same holding
company are allowed to establish "affiliate facilities." An affiliate facili-
ty is allowed to receive deposits; cash and issue checks drafts and money
orders; and receive payments on existing indebtedness.
Dividends.
The Company uses funds derived primarily from the payment of divi-
dends by its subsidiaries for, among other purposes, the payment of dividends
to the Company's stockholders.
The directors of a national bank may generally declare a dividend of
as much of the net profits (as defined in the National Bank Act) of the bank
as they deem proper. However, the approval of the Comptroller of the Currency
is required for any dividend paid to the Company by national bank subsidiaries
if the total of all dividends, including any proposed dividend declared by
that bank in any calendar year, exceeds the total of its net profits (as
defined in the National Bank Act) for that year and retained net profits (as
defined in the National Bank Act) for the preceding two years.
Under provisions of the Illinois Banking Act, dividends may not be
declared by the Company's state banking subsidiaries except out of each bank's
net profit, and unless each bank has transferred to surplus at least one-
tenth of its net profits since the date of the declaration of the last preced-
ing dividend until the amount of its surplus is at least equal to its capital.
Presently, the surplus of each of the Company's state banks equals or exceeds
capital.
All dividends paid to the Company by its subsidiary banks and by the
Company to its stockholders are further restricted by Capital Asset Guide-
lines, adopted in substantially the same form by all the relevant Federal
regulatory agencies. The Capital Asset Guidelines have been phased in over
several years and are currently effective in their entirety. The Capital
Asset Guidelines include two measures, a risk-based measure and a leverage
measure. Generally a financial institution's capital ratios must meet both
measures. The risk-based measure compares an institution's capital with its
assets which have been weighted in accordance with the risks associated with
them. The minimum ratio established under the risk-based measure is 8.00
percent. The ratio under the risk-based measure for the Company on a consoli-
dated basis was 15.77 percent at December 31, 1993. The leverage measure is
flexible. The minimum ranges between 4 percent and 5 percent, except for the
strongest institutions, which are permitted to operate with a minimum of 3
percent. The Company had a consolidated capital ratio based on the leverage
measure of 7.2 percent at December 31, 1993.
At December 31, 1993, the Company's banking subsidiaries had
$15,656,000 available for the payment of dividends to the Company.
Monetary Policy and Economic Conditions.
The earnings of bank holding companies and their subsidiary banks
are affected by general economic conditions and also by the fiscal and mone-
tary policies of governmental authorities, including in particular those of
the Federal Reserve Board, which influences conditions in the money and capi-
tal markets through, among other means, open market operations. Such opera-
tions are designed to affect interest rates and the growth in bank credit and
deposits. The above monetary and fiscal policies of the Federal Reserve Board
have affected the operating results of all commercial banks in the past and
may be expected to do so in the future. The Company cannot predict the nature
or the extent of any effects which economic conditions, fiscal, or monetary
policies may have on its business and earnings.
PAGE 8
SELECTED STATISTICAL INFORMATION
In accordance with general instruction G(2), the information called
for by Item 1 of this Form 10-K and Guide 3, Statistical Disclosure by Bank
Holding Companies, is incorporated herein by reference to a section entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 24 through 36 of the Company's 1993 Annual Report.
ITEM 1(a) - EXECUTIVE OFFICERS OF THE COMPANY
The names and ages of the executive officers of the Company, along
with a brief account of the business experience of each such person during the
past five years, and certain other information follows:
Name (Age) and Positions Principal Occupations and Offices
with the Company (year with the Company (and subsidiaries) For
first elected to office) Past Five Years and Other Information
Gerald F. Fitzgerald, Jr. (43) President of Suburban National Bank of
director (1981) Palatine from 1980 to 1990; chairman
president chief executive of the board of Suburban Bank of West
officer (1990) Brook since 1986; of Suburban Bank of
of Oakbrook Terrace since 1988; of
Suburban Bank of Rolling Meadows
since 1990; of Suburban National Bank/
Aurora since 1990; of Suburban National
Bank of Elk Grove Village since 1990; of
Suburban National Bank of Palatine since
1990; and Suburban Information Systems,
Inc. since 1990; president of Brockway
Insurance Agency, Inc. since 1990; director
Suburban Remittance Corp. since 1987; presi-
dent of Suburban Holdings, Inc. since 1990.
James G. Fitzgerald (42) Chairman of the board since 1990 and
director (1981) president since 1983 of Suburban Bank of
treasurer and chief Barrington; chairman of the board of
financial officer(1981 Marengo State Bank since 1986; vice
vice president (1993) chairman and director of The State Bank
of Woodstock since 1987; chairman of the
board of Suburban Bank of Bartlett since
1990; of Suburban Bank of Cary-Grove
since 1990; of Suburban Bank of Hoffman-
Schaumburg since 1990; and The State Bank of
Huntley since 1993; director of Suburban
Information Systems, Inc. since 1990.
Thomas P. MacCarthy (44) President Suburban National Bank of
Palatine since 1990; director of Suburban
Remittance Corp. since 1993.
Francis Catini (48) President Suburban Bank of Cary/Grove
director (1981) since 1981; director Suburban Remittance
Corp. since 1993; Trustee Suburban Bancorp,
Inc. Employee Benefit Plan since 1983.
Edward C. Murawski (46) Secretary and treasurer of Brockway
senior vice president and Insurance Agency; since 1990; secretary,
assistant secretary (1991) treasurer and director of Suburban Holdings
comptroller and chief Inc. since 1988; secretary treasurer of
accounting officer (1986) Suburban Mortgage Corporation since 1992;
treasurer of Suburban Information Systems,
Inc.; since 1991.
PAGE 9
Gerald F. Fitzgerald, Jr. and James G. Fitzgerald are sons of Gerald F.
Fitzgerald, current Chairman of the Board of Directors of the Company. No
other executive officers of the Company are related. The officers of the
Company hold their offices until such time as their successors are chosen by
the Board of Directors or their resignations become effective.
ITEM 2 - PROPERTIES
The Company occupies a total of approximately 282,000 square feet in 30
locations. The Company's principal offices are located in approximately 10,000
square feet of office space in the Suburban National Bank of Palatine building
in Palatine, Illinois. Twenty thousand square feet of the Suburban National
Bank of Palatine building, six thousand square feet of the Marengo Bank build-
ing, and 4,000 square feet of the Suburban Bank of West Brook building are
leased to non-affiliated tenants. Except as discussed above, all facilities
are used solely to conduct the Company's banking and bank related businesses.
The following table sets forth certain information concerning the main
offices and branches of the Company's subsidiary banks and of its nonbank sub-
sidiaries.
Approximate Own/
Property Main/Branch Square Feet Lease Status
------- ----------- ----------- ----- ------
<TABLE>
<S> <C> <C> <C> <C>
Suburban Bank of Rolling
Meadows Rolling Meadows 9,600 lease expiring
1999
Branch Arlington Heights 9,500 owned
Suburban Bank of Bartlett Bartlett 12,000 owned
Branch Streamwood 2,400 owned
Suburban Bank of Barrington Barrington 11,000 owned
Branch Hoffman Estates 3,100 owned
Branch Vernon Hills 15,618 owned
Suburban Bank of Cary-Grove Cary 12,500 owned
Branch Fox River Grove 2,300 owned
Branch Crystal Lake 900 lease expiring
1993
Suburban National Bank
of Palatine Palatine 50,000 owned
Branch-Northwest Highway Palatine 5,450 lease expiring
1994
Branch-Hicks Palatine 2,500 owned
Branch-Colfax Palatine 800 owned
Branch-Plum Grove Rolling Meadows 2,820 owned
Branch-Woodfield Schaumburg 8,000 lease expiring
1999
Branch Rolling Meadows 1,835 lease expiring
1996
Branch Schaumburg 1,920 lease expiring
2001
PAGE 10
Approximate Own/
Property Main/Branch Square Feet Lease Status
-------- ----------- ----------- ----- ------
Suburban Bank of Hoffman-
Schaumburg Hoffman Estates 7,000 owned
Branch Schaumburg 9,500 owned
Suburban National Bank
of Elk Grove Village Elk Grove Village 10,000 lease expiring
1997
Branch Roselle 2,400 owned
Marengo State Bank Marengo 7,356 owned
Branch Marengo 2,300 owned
Suburban Bank of
West Brook Westchester 16,000 owned
Suburban National
Bank/Aurora Aurora 4,000 owned
The State Bank of Woodstock Woodstock 30,465 owned
Woodstock 2,200 owned
Suburban Bank of
Oakbrook Terrace Oakbrook Terrace 12,000 lease expiring
1997
The State Bank of Huntley Huntley 8,000 owned
Suburban Information
Systems, Inc. Palatine 17,034 owned
Suburban Remittance Corp. Palatine 2,444 lease from parent
</TABLE>
Certain subsidiary banks have entered into operating leases for
banking premises with unaffiliated third parties which resulted in approx-
imately $657,000, $587,000, and $565,000 in lease-related expenses in 1993,
1992 and 1991, respectively.
The Company does not anticipate material increases in operating
lease-related expenses earlier than 1998, except to the extent, if any, addi-
tional leased facilities are opened.
PAGE 11
ITEM 3 - LEGAL PROCEEDINGS
None
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
PART II
ITEM 5 - MARKET FOR COMPANY'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Incorporated by reference to a section entitled "Market Price of and
Dividends on Company's Common Equity" on page 36 of the Company's Annual
Report to Stockholders for the fiscal year ended December 31, 1993.
ITEM 6 - SELECTED FINANCIAL DATA
Incorporated by reference to sections entitled "Selected Financial
Data" on page 22, "Selected Quarterly Financial Data" on page 23, and "Manage-
ment's Discussion and Analysis of Financial Condition and Results of Opera-
tions" on page 24 of the Company's Annual Report to Stockholders for the
fiscal year ended December 31, 1993.
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Incorporated by reference to a section entitled "Management's Discus-
sion and Analysis of Financial Condition and Results of Operations" on pages
24 through 36 of the Company's Annual Report to Stockholders for the fiscal
year ended December 31, 1993.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
Incorporated by reference to the consolidated financial statements
set forth on pages 7 through 21 of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1993.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Incorporated herein by reference to sections entitled "Election of
Directors" and "Beneficial Ownership of Securities," on pages 1 through 5, of
the Company's definitive proxy statement filed with the Securities and Ex-
change Commission March 15, 1994, pursuant to Regulation 14A. Information
concerning the Executive Officers of the Company is contained in the response
to Item 1(a) hereof.
PAGE 12
ITEM 11 - EXECUTIVE COMPENSATION
Incorporated by reference to a section entitled "Executive Compensation"
on pages 5 through 11 of the Company's definitive proxy statement filed with
the Securities and Exchange Commission March 15, 1994, pursuant to Regula-
tion 14A.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference to a section entitled "Beneficial Ownership
of Securities" on pages 4 and 5 of the Company's definitive proxy statement
filed with the Securities and Exchange Commission March 15, 1994, pursuant to
Regulation 14A.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference to a section entitled "Management Relation-
ships and Related Transactions" on page 12 of the Company's definitive proxy
statement filed with the Securities and Exchange Commission March 15, 1994,
pursuant to Regulation 14A.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
Item 14(a)(1) and (2)
SUBURBAN BANCORP, INC. AND SUBSIDIARIES
LIST OF FINANCIAL STATEMENT AND
FINANCIAL STATEMENT SCHEDULES
The following consolidated financial statements of the Company and
its subsidiaries are incorporated by reference to the Company's Annual Report
to Stockholders for the fiscal year ended December 31, 1993.
Page
Independent Auditors' Report 7
Consolidated Balance Sheets - December 31, 1993 and 1992 8
Consolidated Statements of Income - Years Ended
December 31, 1993, 1992 and 1991 9
Consolidated Statements of Changes in Stockholders'
Equity - Years Ended December 31, 1993, 1992 and 1991 10
Consolidated Statements of Changes in Cash Flows -
Years Ended December 31, 1993, 1992 and 1991 11
Notes of Consolidated Financial Statements 12
PAGE 13
Schedules
The following Condensed Financial Information (Parent Company Only)
is incorporated by reference to note 15 to the Company's Consolidated Finan-
cial Statements as set forth on pages 20 and 21 of the Company's Annual Report
to Stockholders for the fiscal year ended December 31, 1993.
Condensed Balance Sheets - December 31, 1993 and 1992 20
Condensed Statements of Income - Years Ended
December 31, 1993, 1992 and 1991 20
Condensed Statements of Changes in Cash Flows -
Years Ended December 31, 1993, 1992 and 1991 21
Schedules other than those listed above are omitted for the reason that they
are not required or are not applicable or the required information is shown in
the financial statements or notes thereto.
Item 14(a)(3) and 14(c) - Exhibits
(i) See "Index to Exhibits" immediately following signature pages.
(ii) The following management contracts and compensatory plans and
arrangements are listed as exhibits to this Form 10-K:
10.1 Suburban Bancorp, Inc. Bank Employees Profit Shar-
ing Plan - Incorporated by reference to Exhibit
10.8 of Form S-1 of the Company dated June 17,
1986, Registration Number 33-6528 IBRF
10.2 Suburban Bancorp, Inc. Executive Incentive Plan -
Incorporated by reference to Exhibit 10.9 of
Form S-1 dated July 16, 1986, Registration Number
33-6528 IBRF
10.3 1986 Stock Appreciation Rights Plan - Incorporated
by reference to Exhibit 10.5 of Form 10-K of the
Company for the year ended December 31, 1986, File
Number 0-11138 IBRF
10.4 Deferred Compensation agreement effective as
of January 1, 1991 between the Company and Gerald
F. Fitzgerald - Incorporated by reference
to Exhibit 10.4 of Form 10-K for the year ended
December 31, 1991, File Number 0-11138 IBRF
10.5 Employment Agreement between the Company and Gerald
F. Fitzgerald - Incorporated by reference
to Exhibit 10.5 to Form 10-K for the year ended
December 31, 1992, File No-11138 IBRF
Item 14(b) - Reports on Form 8-K
None
PAGE 14
Upon written request to the Secretary of Suburban Bancorp, Inc., 50
North Brockway, Drawer A, Palatine, Illinois 60067, copies of exhibits listed
on the Index to Exhibits are available to stockholders of Suburban Bancorp,
Inc. by specifically identifying each exhibit desired in the request. A fee of
$0.20 per page will be charged to stockholders requesting copies of exhibits
to cover copying and mailing costs.
PAGE 15
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.
SUBURBAN BANCORP, INC.
(the Registrant)
By: /s/ Gerald F. Fitzgerald, Jr.
_____________________________
Gerald F. Fitzgerald, Jr.
President, Chief Executive
Officer, and Director
March 25, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Company and in the capacities indicated, on March 25, 1994.
/s/ Gerald F. Fitzgerald
___________________________ ______________________
Gerald F. Fitzgerald John V. Crowe
Chairman of the Board Director
/s/ James G. Fitzgerald /s/ Gerald F. Fitzgerald, Jr.
____________________________ ___________________________
James G. Fitzgerald Gerald F. Fitzgerald, Jr.
Treasurer, Chief Financial President, Chief Executive
Officer and Director Officer, and Director
/s/ Edward C. Murawski /s/ Thomas G. Fitzgerald
____________________________ ________________________
Edward C. Murawski Thomas G. Fitzgerald
Senior Vice President, Secretary and Director
Comptroller and Chief
Accounting Officer
/s/ Francis Catini /s/ James H. Sammons
____________________________ __________________________
Francis Catini James H. Sammons, M.D.
Director Director
/s/ Richard J. Riordan
____________________________ ___________________________
Donald J. Cooney Richard J. Riordan
Director Director
/s/ Joseph F. Lizzadro
____________________________
Joseph F. Lizzadro
Director
PAGE 16
INDEX TO EXHIBITS
Exhibit Document
Number Description Filing*
3.1 Restated Certificate of Incorporation - Incorporated
by reference to Exhibit 3.1 of Form S-1 of the
Company dated June 17, 1986, under Registration
Number 33-6528 IBRF
3.2 By-laws - Incorporated by reference to Exhibit 3.2
of Form 10-K of the Company for the year ended
December 31, 1986, File Number 0-11138 IBRF
4.1 Copy of specimen certificate for Class A Common
Stock - Incorporated by reference to Exhibit 4.1
of Form S-1 of the Company dated June 17, 1986,
Registration Number 33-6528 IBRF
4.2 Copy of specimen certificate for Class B Common
Stock - Incorporated by reference to Exhibit 4.2
of Form S-1 of the Company dated June 17, 1986,
Registration Number 33-6528 IBRF
10.1 Suburban Bancorp, Inc. Bank Employees Profit Shar-
ing Plan - Incorporated by reference to Exhibit
10.8 of Form S-1 of the Company dated June 17,
1986, Registration Number 33-6528 IBRF
10.2 Suburban Bancorp, Inc. Executive Incentive Plan -
Incorporated by reference to Exhibit 10.9 of
Form S-1 dated July 16, 1986, Registration Number
33-6528 IBRF
10.3 1986 Stock Appreciation Rights Plan - Incorporated
by reference to Exhibit 10.5 of Form 10-K of the
Company for the year ended December 31, 1986, File
Number 0-11138 IBRF
10.4 Deferred Compensation agreement effective as
of January 1, 1991 between the Company and Gerald
F. Fitzgerald - Incorporated by reference
to Exhibit 10.4 of Form 10-K for the year ended
December 31, 1991, File Number 0-11138 IBRF
10.5 Employment Agreement between the Company and Gerald
F. Fitzgerald - Incorporated by reference
to Exhibit 10.5 to Form 10-K for the Year ended
December 31, 1992, File No. 0-11138 IBRF
PAGE 17
Exhibit Document
Number Description Filing*
10.6 Form of Directorship Agreement entered into between
the Company and each of its Directors - Incorporated
by reference to Exhibit 10.5 of Form 10-K for the
year ended December 31, 1991 File Number 0-11138 IBRF
13 Annual Report to Stockholders for fiscal year ended
December 31, 1993 filed on March 15, 1994 IBRF
21.1 Subsidiaries of Registrant - Incorporated by
reference to the definitive proxy statement
filed on March 15, 1994 IBRF
23.1 Opinion of Deloitte & Touche concerning financial
statements for the year ended December 31, 1993
filed herewith EF
* IBRF - Incorporated by Reference
EF - Electronically Filed
MANAGEMENT'S REPORT ON RESPONSIBILITY FOR FINANCIAL REPORTING
The management of the Company has the responsibility for preparing the
accompanying financial statements and for their integrity and objectivity.
The statements were prepared in conformity with generally accepted account-
ing principles. The financial statements include amounts that are based on
management's best estimates and judgments.
The Company has established and maintains a system of internal accounting
controls and a program of internal auditing designed to provide reasonable
assurance as to the integrity and reliability of the financial statements.
The system is also designed to provide reasonable assurance that transac-
tions are executed in accordance with established authorizations and are
recorded properly, and that assets are protected from unauthorized use or
disposition.
The audit committee of the Board of Directors, composed solely of directors
who are not officers or employees, meets regularly with the Company's
financial management, its internal audit manager and with the independent
auditors engaged by the Company. These meetings include discussion of
internal accounting controls and the quality of financial reporting. The
independent auditors and the internal audit manager have free and independ-
ent access to the audit committee to discuss the results of their audits or
any other matters relating to the Company's financial affairs.
The accompanying consolidated financial statements have been audited by
Deloitte & Touche, independent auditors, whose appointment was approved by
the stockholders. Deloitte & Touche's report follows.
/s/ Gerald F. Fitzgerald Jr.
President and Chief Executive Officer
/s/ James G. Fitzgerald
Vice President, Treasurer and Chief Financial Officer
/s/ Edward C. Murawski
Senior Vice President, Chief Accounting Officer
and Assistant Secretary
INDEPENDENT AUDITORS' REPORT
Board of Directors and Stockholders
Suburban Bancorp, Inc.
Palatine, Illinois
We have audited the accompanying consolidated balance sheets of Suburban
Bancorp, Inc. and subsidiaries as of December 31, 1993 and 1992, and the
related statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 1993. These financial
statements are the responsibility of the Company's management. Our respon-
sibility 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 state-
ments. 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, such consolidated financial statements present fairly, in
all material respects, the financial position of Suburban Bancorp, Inc. and
subsidiaries as of December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the three years in the period
ended December 31, 1993 in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the consolidated financial statements, in 1993
the Company changed its method of accounting for income taxes to conform
with Statements of Financial Accounting Standard No. 109, "Accounting for
Income Taxes."
/s/ Deloite & Touche
Chicago, Illinois
February 4, 1994
<TABLE>
SUBURBAN BANCORP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
______________ ______________
<S> <C> <C>
ASSETS
Cash and due from banks (Note 4) 50,010,965 52,081,494
Interest-bearing deposits with banks 2,282,212 305,000
Federal funds sold and resale agreements 57,025,000 60,510,000
Investment securities held for sale, at
lower of cost or market (approximate market
value of $411,812,000 in 1993;
$433,851,000 in 1992) (Note 5) 401,194,961 421,992,159
Mortgage-backed and related securities held
for sale, at lower of cost or market
(approximated market value of $190,461,000
in 1993; $116,984,000 in 1992) (Note 5) 187,614,298 115,173,370
Loans, less allowance for loan losses of
$11,074,631 in 1993; $9,602,586
in 1992 (note 6) 566,952,628 480,940,727
Buildings, equipment and leasehold
improvements, net (Note 7) 23,621,140 24,243,050
Goodwill and other intangibles, net
of accumulated amortization of
$5,895,420 in 1993; $5,061,616 in 1992 8,495,415 7,098,738
Accrued interest and other assets 18,911,387 17,221,522
-------------- --------------
Total assets 1,316,108,006 1,179,566,060
============== ==============
</TABLE>
<TABLE>
LIABILITIES AND STOCKHOLDERS' EQUITY
<S> <C> <C>
Deposits (Note 9)
Noninterest-bearing 229,293,520 196,320,988
Interest-bearing 962,754,364 873,515,733
-------------- --------------
Total deposits 1,192,047,884 1,069,836,721
Federal funds purchased
and repurchase agreements 13,410,412 12,062,997
Notes payable (Note 10) 500,000 3,500,000
Accrued interest and other
liabilities 9,341,264 9,228,277
-------------- --------------
Total liabilities 1,215,299,560 1,094,627,995
-------------- --------------
Commitments and contingencies (Note 12)
Stockholders' equity (Notes 13 and 14)
Preferred stock, no par value, 500,000 shares
authorized; none issued
Common stock:
Class A, $1 par value; 6,000,000 shares
authorized; shares issued-3,140,971 3,141,834 3,140,971
Class B, $1 par value; 3,000,000 shares
authorized; shares issued-1,293,113 1,292,250 1,293,113
Surplus 41,931,982 39,785,087
Retained earnings 72,912,667 61,149,956
Treasury stock, at cost, 987,078 shares
in 1993; and 1,091,784 shares in 1992 (18,470,287) (20,431,062)
-------------- --------------
Total stockholders' equity 100,808,446 84,938,065
-------------- --------------
Total liabilities and
stockholders' equity 1,316,108,006 1,179,566,060
============== ==============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
1993 1992 1991
____________ ____________ ____________
INTEREST INCOME
<S> <C> <C> <C>
Interest and fees on loans $45,239,422 $43,335,470 $45,537,505
Interest on securities:
U.S. Treasury securities 14,324,863 17,316,544 14,736,349
Obligations of other U.S. government agencies
and corporations 11,125,326 10,879,823 12,492,498
Obligations of states and political subdivisions 5,935,408 5,091,773 5,542,713
Other securities 372,894 970,575 1,658,765
Interest on federal funds sold and resale agreements 2,113,072 2,296,619 2,830,683
Interest on deposits with banks 65,257 13,925 40,244
----------- ----------- -----------
79,176,242 79,904,729 82,838,757
----------- ----------- -----------
INTEREST EXPENSE
Interest on deposits (Note 9) 30,922,325 34,989,828 44,518,146
Interest on notes payable 58,605 272,419 498,256
Other interest expense 764,710 702,734 540,302
----------- ----------- -----------
31,745,640 35,964,981 45,556,704
----------- ----------- -----------
Net interest income 47,430,602 43,939,748 37,282,053
Provision for loan losses (Note 6) 2,240,306 2,269,510 2,654,925
----------- ----------- -----------
Net interest income after provision for loan losses 45,190,296 41,670,238 34,627,128
----------- ----------- -----------
NONINTEREST INCOME
Service fees 10,355,001 8,778,888 7,451,301
Securities gains (losses) 1,193,576 770,980 476,235
Trust department revenue 916,596 801,129 658,959
Other 1,346,208 1,138,011 1,067,348
----------- ----------- -----------
13,811,381 11,489,008 9,653,843
----------- ----------- -----------
NONINTEREST EXPENSE
Salaries and employee benefits (Note 11) 20,302,268 17,814,063 15,949,566
Occupancy, net 4,080,908 4,160,356 3,932,056
Furniture and equipment 3,352,256 2,903,316 2,831,711
Deposit insurance expense 2,433,747 2,192,695 1,851,753
Amortization of goodwill 725,737 705,116 728,339
Other 10,600,678 8,980,913 8,699,412
----------- ----------- -----------
41,495,594 36,756,459 33,992,837
----------- ----------- -----------
Income before income taxes and cumulative
effect if a change in accounting principle 17,506,083 16,402,787 10,288,134
Applicable income taxes (Note 8) 4,346,950 3,983,247 1,895,612
----------- ----------- -----------
Income before cumulative effect of a change
in accounting principle 13,159,133 12,419,540 8,392,522
Cumulative effect on prior years of a change
in accounting for income taxes (Note 1) 1,500,000
----------- ----------- -----------
Net income $14,659,133 $12,419,540 $ 8,392,522
=========== =========== ===========
</TABLE>
Earnings per common share based upon a daily weighted
average of shares outstanding of 3,404,340 in 1993;
3,384,432 in 1992 and 3,486,055 in 1991
<TABLE>
<S> <C> <C> <C>
Income before cumulative effect of a change
in accounting principle $3.87 $3.67 $2.41
===== ===== =====
Net Income $4.31 $3.67 $2.41
===== ===== =====
Dividends per common share (Note 13)
Class A Common $0.88 $0.70 $0.33
===== ===== =====
Class B Common $0.80 $0.64 $0.30
===== ===== =====
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
Common Stock
_________________________ Total
Retained Treasury Stockholders'
Class A Class B Surplus Earnings Stock Equity
<S> ------------ ------------ ------------ ------------ ------------- -------------
<C> <C> <C> <C> <C> <C>
Balance, December 31, 1990 $3,128,050 $1,306,034 $39,785,087 $43,749,753 ($16,393,724) $71,575,200
Net income 8,392,522 8,392,522
Cash dividends declared
(Note 13) (1,112,075) (1,112,075)
Purchase of 18,000 shares
of treasury stock (287,400) (287,400)
Class B shares exchanged
for Class A shares
(Note 13) 9,580 (9,580) -
------------ ------------ ------------ ------------ ------------- -------------
Balance, December 31, 1991 3,137,630 1,296,454 39,785,087 51,030,200 (16,681,124) 78,568,247
Net income 12,419,540 12,419,540
Cash dividends declared
(Note 13) (2,299,784) (2,299,784)
Purchase of 139,700 shares
of treasury stock (3,749,938) (3,749,938)
Class B shares exchanged
for Class A shares
(Note 13) 3,341 (3,341) -
------------ ------------ ------------ ------------ ------------- -------------
Balance, December 31, 1992 3,140,971 1,293,113 39,785,087 61,149,956 (20,431,062) 84,938,065
Net income 14,659,133 14,659,133
Cash dividends declared
(Note 13) (2,896,422) (2,896,422)
Issuance of stock (Note 2) 2,146,895 4,137,000 6,283,895
Purchase of 49,500 shares (2,176,225) (2,176,225)
of treasury stock
Class B shares exchanged
for Class A shares
(Note 13) 863 (863) -
------------ ------------ ------------ ------------ ------------- -------------
$3,141,834 $1,292,250 $41,931,982 $72,912,667 ($18,470,287) $100,808,446
============ ============ ============ ============ ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
___________ ___________ ___________
<TABLE> <C> <C> <C>
<S>
OPERATING ACTIVITIES
Net income $ 14,659,133 $ 12,419,540 $ 8,392,522
Adjustments to reconcile net income
to net cash provided (used) by
operating activities:
Cumulative effect on prior
years of change in accounting (1,500,000) - -
Provision for loan losses 2,240,306 2,269,510 2,654,925
Depreciation and amortization
of premises and equipment 3,362,130 3,232,790 3,014,883
Gain on sale of investment
securities held for sale (256,874) (713,730) (476,235)
Gain on sale of mortgage-backed
securities held for sale (936,702) (57,250) -
Amortization and accretion on
Investment securities and mortgage-
backed securities held for sale 5,679,536 3,929,474 1,790,550
Write down of property 114,237 - 447,249
Gains on sale of other real estate (26,805) (93,446) (83,957)
Amortization of goodwill
and other intangibles 833,804 829,962 1,003,631
Deferred income taxes (703,019) (421,080) (413,929)
Decrease (increase) in interest
receivable 93,618 516,036 (319,455)
Decrease in interest payable (865) (523,219) (101,017)
Other - net (568,262) 931,842 922,209
___________ ___________ ___________
Net cash provided by
operating activities 22,990,237 22,320,429 16,831,376
___________ ___________ ___________
INVESTING ACTIVITIES
Net (increase) decrease in interest-
bearing deposits with banks 200,788 (9,000) 803,865
Net (increase) decrease in federal
funds sold and resale agreements 4,900,000 (13,865,000) 2,675,000
Purchases of investment securities
held for sale (220,137,692) (237,334,263) (219,547,686)
Purchases of mortgage-backed
securities held for sale (144,552,641) (30,198,209) (32,201,482)
Proceeds from sales of investment
securities held for sale 118,763,589 50,962,672 69,428,859
Proceeds from sales of mortgage-
backed securities held for sale 54,884,206 3,971,632 -
Proceeds from maturities and
principle reductions of Investment
securities held for sale 123,875,358 119,656,031 81,097,237
Mortgage-backed securities
held for sale 27,574,950 29,245,487 21,101,639
Net increase in loans (70,582,230) (44,713,273) (26,479,085)
Net cash acquired in acquisition 722,085 - -
Purchases of premises and equipment (2,821,102) (2,655,059) (2,266,617)
Proceeds from sale of land
held for sale 1,216,000 - -
Proceeds from sale of other
real estate 1,415,883 1,128,658 532,000
___________ ___________ ___________
Net cash used in
investing activities (104,540,806) (123,810,324) (104,856,270)
___________ ___________ ___________
FINANCING ACTIVITIES
Net increase in deposits 86,205,272 101,807,629 90,980,244
Net increase in securities sold
under repurchase agreements 1,347,415 5,709,776 1,161,279
Proceeds from notes payable 2,650,000 3,500,000 -
Payment of notes payable (5,650,000) (4,300,000) (4,150,000)
Purchase of treasury stock (2,176,225) (3,749,938) (287,400)
Cash dividends paid (2,896,422) (2,299,784) (1,112,075)
___________ ___________ ___________
Net cash provided by
financing activities 79,480,040 100,667,683 86,592,048
___________ ___________ ___________
Net decrease in cash and
due from banks (2,070,529) (822,212) (1,432,846)
Cash and due from banks
at beginning of year 52,081,494 52,903,706 54,336,552
___________ ___________ ___________
Cash and due from banks
at end of period $ 50,010,965 $ 52,081,494 $ 52,903,706
=========== ============ ===========
Supplemental disclosures
as to cash flow:
Cash paid during the year for:
Interest $ 31,638,438 $ 36,363,354 $45,532,875
=========== ============ ===========
Income taxes $ 5,304,732 $ 4,650,000 $ 2,339,815
=========== ============ ===========
Transfer to other real
estate from loans $ 424,263 $ 1,335,758 $ 2,558,358
=========== ============ ===========
Acquisitions:
Fair value of assets acquired $ 42,982,035 $ - $ -
Liabilities and equity assumed 42,855,585 - -
___________ ___________ ___________
Cash paid for purchase of stock 126,450 - -
Cash acquired (848,535) - -
___________ ___________ ___________
Net Cash acquired $ (722,085) $ - $ -
=========== ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 - Summary of Significant Accounting
Policies
Basis of Accounting
The accompanying financial statements are prepared in accordance with
generally accepted accounting principles and conform to general practices
within the banking industry.
Principles of Consolidation
The consolidated financial statements of Suburban Bancorp, Inc. include the
accounts of Suburban Bancorp, Inc. (the Parent) and its subsidiaries (collec-
tively referred to with the Parent as the Company).
Investment Securities and Mortgage Backed Securities Held for Sale
The Company's investment securities and mortgage-backed securities portfo-
lios are held for sale and stated at the lower of amortized cost, adjusted
for amortization of premiums and accretion of discounts, which are recognized
as adjustments to interest income, or market value, determined on an ag-
gregate basis. Unrealized losses, if any, are recognized on a current basis.
Gains or losses on the sale or disposition of securities are based on the
net proceeds and the adjusted carrying amount of the securities sold, using
the specific identification method. Losses on individual securities are
recorded when values are deemed to be permanently impaired.
Loans and Allowance for Loan Losses
Loans are stated at the amount of unpaid principal. Interest on nondis-
counted loans is recognized based upon the principal amount outstanding.
Interest on discounted loans is recognized based on methods which generally
approximate the interest method. Accrual of interest is discontinued on a
loan when management believes, after considering economic and business condi-
tions, collection efforts and available collateral, that the borrowers'
financial condition is such that collection of interest is doubtful. When a
loan is placed on nonaccrual status, all interest accrued but not yet col-
lected is charged against interest income in the current year. Interest
income on nonaccrual loans is recognized only when collected.
The adequacy of the allowance for loan losses is reviewed regularly by
management. Additions to the allowance for loan losses are made by charges
to the provision for loan losses. On a quarterly basis, a comprehensive
review of the adequacy of the allowance for loan losses is performed. This
assessment is accomplished through analytical techniques which evaluate the
allowance in light of historical losses, changes in the nature and volume of
the loan portfolio, overall portfolio quality, identified problem loans and
current economic conditions.
Buildings, Equipment and Leasehold Improvements
Buildings and equipment are stated at cost less accumulated depreciation
computed principally on the straight-line method over the estimated useful
lives of the assets, which range from three to 30 years. Leasehold improve-
ments are amortized on the straight-line method over the shorter of the
estimated useful lives of the improvements or the terms of the related
leases.
Other Real Estate
Other real estate includes properties acquired in partial or total settle-
ment of problem loans. The properties are recorded at the lower of cost or
fair market value based on appraised value at the date acquired,less estimat-
ed sales costs. Losses arising at the time of acquisition of such properties
are charged to the allowance for loan losses. Any subsequent decline in
value is charged to current operations.
Goodwill
Goodwill represents the aggregate excess of the cost over the fair value of
net assets acquired and is amortized on the straight-line method over periods
not exceeding 15 years.
Other Intangibles
Other intangibles are capitalized and amortized on the straight-line method
over periods not exceeding ten years.
Income Taxes
The Company files a consolidated federal income tax return. As of January
1, 1993, the Company changed its method of accounting for income taxes to
conform with Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes" ("SFAS 109"). The Cumulative effect of adopting this
standard, recorded in the first quarter of 1993, was to increase income by
$1,500,000, or $0.45 per share.
Prior to the adoption of SFAS 109, the Company accounted for income taxes
in accordance with Accounting Principles Board Opinion No.11, which required
that income taxes were accrued based on income and expenses reported for
financial statement purposes. SFAS 109 requires the use of the liability
method in accounting for income taxes.
Trust Assets and Fees
Assets held in fiduciary or agency capacities are not included in the
consolidated balance sheets since such items are not assets of the Company.
Income from trust fees is recorded when received. This income does not
differ materially from trust fees computed on an accrual basis.
Earnings Per Share
Earnings per share are calculated based on the daily weighted average
number of shares outstanding.
Reclassifications
Certain reclassifications have been made in prior years' financial state-
ments to conform with the current year presentation.
New Accounting Pronouncements
In May 1993, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards No. 114, "Accounting by Creditors
for Impairment of a Loan" ("SFAS 114"). SFAS 114 requires that impaired
loans, as defined, be measured based on the present value of expected future
cash flows, discounted at the loan's effective interest rate or, as a practi-
cal expedient, at the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. SFAS 114 is effective for
fiscal years beginning after December 15, 1994, although earlier application
is encouraged. Management has not yet determined the impact of the adoption
of SFAS 114 on the Company.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 115, "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115") which shall be effective for fiscal years beginning after Decem-
ber 15, 1993. SFAS 115 requires that all debt and equity securities be classi-
fied as: held-to-maturity, available-for-sale or trading. Securities
held-to-maturity are classified as such only when the company determines it
has the ability and intent to hold these securities to maturity. Such secu-
rities are carried at cost adjusted for amortization of premiums and accre-
tion of discounts. Securities available-for-sale, which include securities
to be held for indefinite periods of time or for trading, are carried at fair
value. Unrealized holding gains and losses for available-for-sale securities
are excluded from earnings and reported as a net amount, adjusted for income
taxes, in a separate component of stockholders' equity. Unrealized holding
gains and losses on trading securities are included in operations. At Decem-
ber 31, 1993, the Company has classified $588.8 million of its securities as
available-for-sale. Such securities had been accounted for at the lower of
cost or market. If the securities had been accounted for under SFAS 115,
stockholders' equity would have increased by approximately $8.7 million. The
Company will fully adopt the provisions of SFAS 115 in the first quarter of
1994.
Note 2 - Acquisition
In July 1993, the Company completed its acquisition of Huntley Bancshares,
Inc. owner of the State Bank of Huntley, in a business combination accounted
for as a purchase. The aggregate purchase price was $6,410,345, consisting
of 154,206 shares of the Company's Class A Common Stock and $126,450 in cash.
The results of operations of the State Bank of Huntley are included in the
accompanying financial statements since the date of acquisition. The net
assets acquired were recorded at fair value at the date of acquisition. The
excess of purchase price over the fair value of assets acquired was allocated
and will be amortized as follows:
Amount Life Method
__________ ________ _____________
Premium on investment securities $ 220,000 4 years Straight-line
Premium on furniture and equipment 164,357 5 years Straight-line
Premium on bank premises 227,951 10 years Straight-line
Goodwill 412,414 10 years Straight-line
Premium on deposits 1,800,000 10 years Straight-line
Premium on land 303,000 - -
The following table represents the combination of the historical results of
the Company and Huntley Bancshares, as if the acquisition had occurred on
January 1, 1992, and includes adjustments required by the purchase method of
accounting. This pro forma information does not purport to be indicative of
the results that actually would have been obtained if the acquisition had
occurred on January 1, 1992, and is not intended to be a projection of future
results.
(Dollars in thousands except per share amounts)
1993 1992
------- -------
<TABLE> <C> <C>
<S>
Interest income $80,680 $83,249
Interest expense 32,453 37,711
------- -------
Net interest income 48,227 45,538
Provision for loan losses 2,317 2,402
------- -------
Net interest income after
provision for loan losses 45,910 43,136
------- -------
Noninterest income 14,026 11,842
Noninterest expense 42,381 38,356
------- -------
Income before income taxes and cumulative
effect of a change in accounting 17,555 16,622
Applicable income taxes 4,426 4,134
------- -------
Income before cumulative effect of a
change in accounting principle 13,129 12,488
Cumulative effect on prior years of a
change in accounting for income taxes 1,500 -
------- -------
Net income $14,629 $12,488
======= =======
Earnings per common share based
upon a daily weighted average of
shares outstanding of 3,447,006 in
1993 and 3,489,138 in 1992
Income before cumulative effect of a
change in accounting principle $3.81 $3.58
======= =======
Net income $4.24 $3.58
======= =======
</TABLE>
Note 3 - Disclosures about Fair Value of Financial Instruments
Statement of Financial Accounting Standards No. 107 ("SFAS 107"), "Dis-
closures about Fair Value of Financial Instruments," requires disclosure of
estimated fair values of financial instrument assets and liabilities. Many
of the Company's financial instruments, however, lack an available trading
market. Estimated fair values have been determined by the Company by using
the best available data and an estimation methodology suitable for each
category of financial instruments. Considerable judgment is necessarily
required, however, to interpret market data to develop the estimates of fair
value. Accordingly, the estimates which follow are not necessarily indica-
tive of the amounts that the Company could realize in a current market ex-
change. The use of different market assumptions and/or estimation methodolo-
gies may have a material effect on the estimated fair value amounts.
For loans and deposits with floating interest rates, it is presumed that
the carrying value approximates the estimated fair value.
The methods and assumptions used to estimate the fair value of each class
of financial instrument, along with the corresponding carrying value as of
December 31, 1993, and 1992, are as follows:
For financial instruments having a short term maturity the carrying value
is a reasonable estimate of fair value. These financial instruments include;
cash and due from banks, interest-bearing deposits with banks, federal funds
sold and resale agreements.
Financial instruments which are actively traded have been valued using the
available market prices.
($ in thousands)
1993 1992
______________________ ______________________
<TABLE> <C> <C> <C> <C>
Carrying Estimated Carrying Estimated
<S> Value Fair Value Amount Fair Value
Securities held for sale $401,195 $411,812 $421,992 $433,851
Mortgage-backed and related
securities held for sale 187,614 190,461 115,173 116,984
The fair value of the loan portfolio has been estimated by discounting the
future cash flows using the current rates at which similar loans would be
made to borrowers with similar credit ratings and for the same remaining
maturities. In computing the estimated fair value for all loans, estimated
future cash flows have been reduced by the allowance for loan losses.
1993 1992
______________________ ______________________
Carrying Estimated Carrying Estimated
Value Fair Value Amount Fair Value
Net loans $566,953 $575,108 $480,941 $488,812
Fair value of financial instrument liabilities with stated maturities have
been estimated using the present value of discounted cash flow with a dis-
count rate approximating current market for similar liabilities.
1993 1992
______________________ ______________________
Carrying Estimated Carrying Estimated
Value Fair Value Amount Fair Value
Deposits with
stated maturities $314,367 $318,045 $278,245 $281,227
Securities sold under
repurchase agreements 13,410 13,410 12,063 12,063
Notes payable 500 500 3,500 3,500
</TABLE>
Deposits with no stated maturities have an estimated fair value equal to
the carrying value.
The Company's remaining assets and liabilities are not considered to be
financial instruments for purposes of SFAS 107 and, accordingly, disclosure
of their estimated fair value is not required. The fair value of certain
other assets and liabilities may be significantly different than the amount
reflected on the Company's balance sheet. These include the Company's build-
ings, equipment and leasehold improvements, as well as the Company's core
deposit base. The Company's buildings, equipment and leasehold improvements
have a carrying value, based upon depreciated historic cost of $23,621 and
$24,243, at December 31, 1993, and 1992, respectively. The Company does
not record any value for its ongoing relationships with its deposit custo-
mers, or its core deposit base, except in connection with acquisitions acc-
ounted for by the purchase method. Neither of these adjustments have been
reflected in the fair value amounts disclosed above.
There is no material difference between the notional amount and the esti-
mated fair value of off-balance sheet items which totaled $43,706 and $30,064
at December 31, 1993 and 1992, respectively, and are primarily comprised of
unfunded loan commitments which are generally priced at market at the time of
funding.
Note 4 - Cash and Due From Banks
The Company's subsidiary banks are required by federal law to maintain
reserves against their deposits. Reserves are held either in the form of
vault cash, balances with correspondent banks or balances maintained directly
with the Federal Reserve Bank. Required reserves are a function of daily
average deposit balances and statutory reserve ratios required by type of
deposit. At December 31, 1993 and 1992, the amounts so restricted were
approximately $11,233,000 and $9,416,000, respectively.
Note 5 - Securities Held for Sale
Carrying values and approximate market values of investment securities held
for sale are summarized as follows:
1993 1992
------------------------- -------------------------
Carrying Approximate Carrying Approximate
Value Market-Value Value Market-Value
------------ ------------ ------------ ------------
<TABLE> <C> <C> <C> <C>
<S>
U.S. Treasury securities $247,688,700 $252,066,000 $263,504,915 $270,161,000
Obligations of U.S.
government agencies
and corporations 52,459,882 53,287,000 63,640,645 65,245,000
Obligations of states and
political subdivisions 98,002,985 103,126,000 94,433,465 97,990,000
Other securities 3,043,394 3,333,000 413,134 455,000
------------ ------------ ------------ ------------
$401,194,961 $411,812,000 $421,992,159 $433,851,000
============ ============ ============ ============
</TABLE>
Carrying values and approximate market values of mortgage-backed and
related securities held for sale are summarized as follows:
1993 1992
------------------------- -------------------------
<TABLE> <C> <C> <C> <C>
Carrying Approximate Carrying Approximate
Value Market-Value Value Market-Value
------------ ------------ ------------ ------------
<S>
Mortgage-backed and
related securities
GNMA certificates $ 79,447,077 $ 80,524,000 $ 50,060 $ 55,000
FNMA and FHLMC
certificates 36,498,701 37,711,000 84,222,400 85,754,000
Collateralized mortgage
obligations 64,849,846 65,198,000 24,975,073 25,081,000
SBA guaranteed loan
pool certificates 5,197,843 5,386,000 2,521,383 2,612,000
Other 1,620,831 1,642,000 3,404,454 3,482,000
------------ ------------ ------------ ------------
$187,614,298 $190,461,000 $115,173,370 $116,984,000
============ ============ ============ ============
</TABLE>
Securities with a carrying value amount of $142,199,788 and $115,447,344 at
December 31, 1993 and 1992, respectively, were pledged to secure public
deposits, securities sold under repurchase agreements and for other purposes
required or permitted by law.
The following table summarizes, by maturity, the unrealized gains and
losses on investment securities held for sale by maturity at December 31,
1993, with comparative totals at December 31, 1992.
<TABLE>
U.S. Government States & Other Bonds
U.S. Treasury Agency Subdivisions & Securities Totals
-------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C>
<S>
Within one year
Carrying amount $ 87,840,186 $ 33,058,841 $ 23,865,326 $ 66,667 $144,831,020
Approximate market value 89,054,000 33,558,000 24,025,000 68,000 146,705,000
Unrealized gain 1,213,814 499,159 170,304 1,333 1,884,610
Unrealized loss - - (10,630) - (10,630)
After one year but
Within five years
Carrying amount 159,848,514 17,904,486 47,972,461 326,164 226,051,625
Approximate market value 163,012,000 18,232,000 50,062,000 327,000 231,633,000
Unrealized gain 3,247,203 373,825 2,169,926 836 5,791,790
Unrealized loss (83,717) (46,311) (80,387) - (210,415)
After five years but
Within ten years
Carrying amount - 1,496,555 14,546,236 - 16,042,791
Approximate market value - 1,497,000 15,976,000 - 17,473,000
Unrealized gain - 10,000 1,458,833 - 1,468,833
Unrealized loss - (9,555) (29,069) - (38,624)
After ten years
Carrying amount - - 11,618,962 - 11,618,962
Approximate market value - - 13,063,000 - 13,063,000
Unrealized gain - - 1,459,445 - 1,459,445
Unrealized loss - - (15,407) - (15,407)
Equity investments
Carrying amount - - - 2,650,563 2,650,563
Approximate market value - - - 2,938,000 2,938,000
Unrealized gain - - - 329,875 329,875
Unrealized loss - - - (42,438) (42,438)
Total carrying amount $247,688,700 $ 52,459,882 $98,002,985 $3,043,394 $401,194,961
Total approximate market value 252,066,000 53,287,000 103,126,000 3,333,000 411,812,000
Total unrealized gain 4,461,017 882,984 5,258,508 332,044 10,934,553
Total unrealized loss (83,717) (55,866) (135,493) (42,438) (317,514)
Comparative totals at December 31, 1992:
Total carrying amount $263,504,915 $ 63,640,645 $94,433,465 $ 413,134 $421,992,159
Total approximate market value 270,161,000 65,245,000 97,990,000 455,000 433,851,000
Total unrealized gain 6,674,118 1,643,146 3,827,830 41,866 12,186,960
Total unrealized loss (18,033) (38,791) (271,295) - (328,119)
</TABLE>
The following table summarizes the unrealized gains and losses on invest-
ments in mortgage-backed securities at December 31, 1993, with comparative
totals at December 31, 1992.
<TABLE>
Collateral-
FNMA and ized SBA Guaranteed
GNMA FHLMC Mortgage Loan Pool
Certificates Certificates Obligations Certificates Other Total
-------------- -------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C> <C>
<S>
Mortgage/asset backed
Carrying amount $79,447,077 $36,498,701 $64,849,846 $5,197,843 $1,620,831 $187,614,298
Approximate market value 80,524,000 37,711,000 65,198,000 5,386,000 1,642,000 190,461,000
Unrealized gain 1,106,614 1,217,303 541,720 188,157 21,169 3,074,963
Unrealized loss (29,691) (5,004) (193,566) - - (228,261)
Comparative totals at December 31, 1992:
Carrying amount $50,060 $84,222,400 $24,975,073 $2,521,383 $3,404,454 $115,173,370
Approximate market value 55,000 85,754,000 25,081,000 2,612,000 3,482,000 116,984,000
Unrealized gain 4,940 1,531,600 159,044 90,617 79,515 1,865,716
Unrealized loss - - (53,117) - (1,969) (55,086)
Gross gains of $1,510,526 in 1993 and $795,271 in 1992, and gross losses of
$316,950 in 1993 and $24,291 in 1992, were recognized on investments sold
during the respective years.
Note 6 - Loans
Major classifications of loans are as follows:
1993 1992
------------ -------------
Commercial and industrial $ 92,827,896 $ 70,850,012
Real estate-construction 37,213,612 25,410,214
Real estate-mortgage
Residential 241,991,588 206,605,597
Home equity 41,339,297 35,467,578
Commercial 126,345,626 110,295,370
Consumer 40,946,572 44,408,063
------------ ------------
580,664,591 493,036,834
Deferred loan fees (1,980,955) (1,718,149)
Unearned discount (656,377) (775,372)
------------ ------------
578,027,259 490,543,313
Allowance for loan losses (11,074,631) (9,602,586)
------------ ------------
Loans, net $566,952,628 $480,940,727
============ ============
</TABLE>
Loans on which the accrual of interest has been discontinued totaled
$6,222,529, $6,499,141, and $7,180,058 at December 31, 1993, 1992 and 1991,
respectively. If interest on those loans had been accrued, such income would
have approximated $592,019, $658,427 and $830,287 for 1993, 1992 and 1991
respectively. Interest income on those loans, which is recorded only when
received, amounted to $149,864, $291,145 and $229,810 for 1993, 1992 and
1991, respectively.
Changes in the allowance for loan losses were as follows:
1993 1992 1991
---------- ---------- ----------
<TABLE> <C> <C> <C>
<S>
Balance, beginning
of year $9,602,586 $8,362,870 $6,919,085
Allowance acquired
in business combination 361,559 - -
Provision charged
to operations 2,240,306 2,269,510 2,654,925
Recoveries 612,769 893,632 1,145,274
Loans charged off (1,742,589) (1,923,426) (2,356,414)
---------- ---------- ----------
Balance, end of year $11,074,631 $9,602,586 $8,362,870
=========== ========== ==========
</TABLE>
At various times, certain officers, directors and their affiliates have
borrowed money from the Company's subsidiary banks. These loans were made in
the ordinary course of business at substantially the same terms, including
interest rate and collateral, as those prevailing at the time for comparable
transactions with other customers. In the opinion of management these loans
do not involve more than the normal risk of collectibility or present other
unfavorable features. These officers, directors and their affiliates also
had on deposit with the Company's subsidiary banks $6,446,000 and $6,060,000
at December 31, 1993, and 1992 respectively.
These loans are summarized as follows:
1993 1992
----------- -----------
<TABLE> <C> <C>
<S>
Balance, beginning of year $10,637,764 $13,056,263
Additional loans 4,518,170 5,559,598
Loan repayments (6,027,972) (7,978,097)
----------- -----------
Balance, end of year $ 9,127,962 $10,637,764
=========== ===========
</TABLE>
Note 7 - Buildings, Equipment and Leasehold Improvements
Major classifications of these assets are summarized as follows:
1993 1992
----------- -----------
<TABLE> <C> <C>
<S>
Land $ 5,300,604 $ 4,159,139
Buildings 20,082,392 19,012,535
Property held for
sale 1,480,000 3,070,794
Property held for
future expansion 1,162,797 912,797
Equipment 20,460,360 18,995,122
Leasehold improvements 2,512,328 2,443,823
----------- -----------
50,998,481 48,594,210
Accumulated depreciation
and amortization (27,377,341) (24,351,160)
----------- -----------
$23,621,140 $24,243,050
=========== ===========
</TABLE>
Note 8 - Income Taxes
Income taxes reflected in the statements of income consist of the following:
1993 1992 1991
---------- ---------- ----------
<TABLE> <C> <C> <C>
<S>
Current
Federal $5,049,969 $4,404,327 $2,309,541
State - - -
Deferred (703,019) (421,080) (413,929)
---------- ---------- ----------
$4,346,950 $3,983,247 $1,895,612
========== ========== ==========
</TABLE>
The deferred tax provision reflects a number of temporary differences, the
tax effects of which are as follows:
1993 1992 1991
--------- ---------- ----------
<TABLE> <C> <C> <C>
<S>
Provision for
loan losses $(393,982) $(521,964) $(288,757)
Deferred compensation (39,082) 13,255 (8,549)
Depreciation
and amortization (110,804) 35,272 2,461
Lease obligation 32,830 27,683 (29,450)
Write down of property (17,500) - (77,000)
Adjust temporary
differences to 35% (178,039) - -
Other 3,558 24,674 (12,634)
---------- ---------- ----------
$(703,019) $(421,080) $(413,929)
========== ========== ==========
</TABLE>
A reconciliation between taxes computed at the U.S. federal statutory rate
and the consolidated effective tax rate follows:
1993 1992 1991
------ ------ ------
<TABLE> <C> <C> <C.
<S>
U.S. federal
statutory rate 35.0% 34.0% 34.0%
Tax-exempt interest
from loans
and investments (10.7) (9.6) (16.1)
Amortization of goodwill
and other intangibles 2.1 2.3 4.3
Alternative minimum tax - (2.5) (1.4)
$10,000,000 taxed at 34% (0.6) - -
Adjust temporary
differences (1.0) - -
Other - 0.1 (2.4)
------ ------ ------
24.8% 24.3% 18.4%
====== ====== ======
</TABLE>
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial report-
ing purposes and the amounts used for income tax purposes. The tax effects
of significant items comprising the Company's net deferred tax asset as of
December 31, 1993, and January 1, 1993, are as follows:
December 31, January 1,
1993 1993
---------- -----------
<TABLE> <C> <C>
<S>
Deferred tax assets:
Allowance for loan losses $ 3,828,314 $ 3,264,879
Deferred compensation 1,026,988 903,178
Difference between book and tax
basis of property 86,355 13,419
Write down of land held for sale 255,458 231,160
Other, net 7,766 35,378
---------- -----------
Net deferred tax asset $ 5,204,881 $ 4,448,014
=========== ===========
</TABLE>
At December 31, 1993, the Company had approximately $15.4 million of unused
net operating loss carryforwards, for state tax purposes which may be applied
against future state taxable income, until the year 2005.
Note 9 - Deposits
The major components of deposits are summarized as follows:
<TABLE>
1993 1992
------------ ------------
<C> <C>
<S>
Noninterest-bearing $229,293,520 $196,320,988
Regular savings 109,510,121 92,677,806
NOW accounts 156,489,398 141,052,298
Money market 382,387,432 361,540,939
Certificates of deposit,
$100,000 and over 66,770,364 49,444,370
Certificates of deposit 167,005,993 153,611,505
Individual retirement accounts 80,591,056 75,188,815
-------------- --------------
$1,192,047,884 $1,069,836,721
============== ==============
</TABLE>
Individual retirement accounts also include deposits of $100,000 and over.
Interest expense on interest-bearing deposits is summarized as follows:
1993 1992 1991
---------- ----------- -----------
<TABLE> <C> <C> <C>
<S>
Regular savings $2,764,048 $ 2,920,984 $ 3,653,880
NOW accounts 3,070,510 3,651,665 4,660,146
Money market 11,069,852 11,982,011 14,294,268
Certificates of deposit,
$100,000 and over 2,433,660 2,720,481 3,487,302
Certificates of deposit 7,371,910 9,225,961 13,207,256
Amortization of premium
on deposits acquired 108,067 124,846 429,954
Individual retirement
accounts 4,104,278 4,363,880 4,785,340
----------- ----------- -----------
$30,922,325 $34,989,828 $44,518,146
=========== =========== ===========
</TABLE>
Note 10 - Notes Payable
Notes payable consists of an unsecured demand note bearing interest at 6% in
the amount of $500,000 in 1993, and notes due January 29, 1993, bearing
interest at the rate of 5.125%, and in the amount of $3,500,000 in 1992.
Note 11 - Employee Benefit Plans
The Company maintains a non-contributory, trusteed profit sharing plan which
covers substantially all full-time and part-time employees who have completed
service requirements. Contributions are made by the Company in accordance
with resolutions passed by the respective Boards of Directors and are record-
ed as expense in the period in which the resolutions are passed. Contribu-
tions were $1,506,360, $1,324,510 and $1,188,289 for 1993, 1992 and 1991,
respectively.
The Company has adopted plans granting stock appreciation rights to the
presidents of the Parent and its subsidiary banks. Such rights are awarded
based on formulas related to defined earning performance and deposit growth
and are subject to the discretion of the Boards of Directors of the Parent
and each subsidiary bank. These stock appreciation rights mature at the end
of four years and are realized in cash for the difference between the defined
value per share of common stock at the time of the award and at maturity.
The Company recorded expenses of $198,527, $168,773 and $167,748 for 1993,
1992 and 1991, respectively, in connection with these plans.
The Company has entered into a deferred compensation agreement with the
Chairman of its Board of Directors. At December 31, 1993, the accrued li-
ability, which represents the present value of future deferred compensation
payments, amounted to $2,244,700. Payments made in 1993, under this agree-
ment, amounted to $344,825, of which $200,904 was expensed as other interest.
The Company pays bonuses under an Executive Incentive Plan to participating
employees.
In addition to the previously mentioned benefit plans, certain health care,
life insurance and disability benefits are provided to qualifying active
employees. The Company does not provide these benefits to retired employees.
Note 12 - Commitments and Contingencies
Commitments to Extend Credit
In the normal course of business, the Company's subsidiary banks make con-
tractual commitments to extend credit and issue standby letters of credit.
These contracted commitments are subject to the banks' credit approval and
monitoring procedures. Contracted commitments to extend credit aggregated
approximately $35,862,000 and $23,281,000 at December 31, 1993 and 1992,
respectively. Commitments under standby letters of credit aggregated
$7,844,158 and $6,783,420 at December 31, 1993 and 1992, respectively. The
Company does not anticipate any material losses as a result of such commit-
ments and contingent liabilities.
Concentration of Credit Risk
The Company's real estate-construction and real estate-mortgage loans are
made within the market areas of the Company's subsidiary banks. Loans se-
cured by real estate represented 77% of total loans at December 31, 1993
and 1992. The Company manages its exposure to this concentration by cont-
inually reviewing local market conditions and closely monitoring collateral
values. No unusual losses are anticipated as a result of this concentration.
Investment securities collateralized by mortgage obligations represented 32%
and 20% of the investment securities at December 31, 1993, and 1992 respecti-
vely.
Litigation
The Company is a defendant in legal actions arising from normal business
activities. Management believes that such actions are without merit or that
the ultimate liability, if any, resulting from them will not materially
affect the Company's financial position, or results of operation.
Leases
Certain subsidiary banks have entered into operating leases with third
parties for the rental of bank premises. Remaining lease terms range from
one to five years and include certain renewal options from one to fifty
years. These lease agreements provide for aggregated minimum rental commit-
ments as follows:
Year Ended December 31,
-----------------------
<TABLE> <C>
<S>
1994 $ 681,570
1995 637,924
1996 607,331
1997 503,524
1998 344,831
Due in remaining
term of leases 1,552,341
----------
$4,327,521
==========
</TABLE>
Certain leases have contingent rentals which are based on increases in real
estate taxes, deposits and/or total building expenses.
The following schedule shows the composition of total rental expense:
1993 1992 1991
-------- -------- --------
<TABLE> <C> <C> <C>
<S>
Minimum rentals $648,026 $568,188 $513,583
Contingent rentals 49,061 58,425 75,463
Less sublease rentals (40,332) (39,988) (24,225)
-------- -------- --------
Total $656,755 $586,625 $564,821
======== ======== ========
</TABLE>
Note 13 - Common Stock
Class A Common Stockholders are entitled to one vote per share on all mat-
ters to be voted on by the Company's stockholders. The holders of Class B
Common Stock are entitled to ten votes per share on all matters to be voted
on by the Company's stockholders. The Class A Common stockholders are enti-
tled to elect 25% of the directors, while the remaining directors are elected
by Class B stockholders.
Class A Common Stock carries a dividend of 110% of the dividend rate de-
clared to Class B Common Stock.
Class B Common Stock is irrevocably convertible on a share for share basis
into Class A Common Stock.
Note 14 - Retained Earnings
The Company's subsidiary banks are subject to statutory and regulatory
restrictions on the amount of dividends which may be paid to the Parent.
Dividends which can be paid to the Parent by bank subsidiaries without ob-
taining prior approval from bank regulatory agencies amounted to approximate-
ly $15,656,000 and $11,725,000 at December 31, 1993 and 1992, respectively.
The Company and its subsidiary banks are also required to maintain minimum
amounts of capital to total "risk weighted" assets, as defined by the banking
regulators. At December 31, 1993, the Company is required to have minimum
Tier I and Total capital ratios of 4.00% and 8.00%, respectively. The Com-
pany's actual ratios at that date were 14.52% and 15.77%. Each of the Com-
pany's subsidiary banks also had Tier I and Total capital ratios substantial-
ly exceeding the minimum standards.
Note 15 - Condensed Financial Information - Parent Company Only
SUBURBAN BANCORP, INC.
CONDENSED BALANCE SHEETS
December 31, 1993 and 1992
1993 1992
ASSETS ___________ __________
<TABLE> <C> <C>
<S>
Cash on deposit in subsidiary bank $ 138,288 $ 125,830
Cash - other financial institutions 2,198 6,462
Interest-bearing deposits with
other financial institutions 400,212 -
Securities held for sale, at lower of
cost or market (approximate market value
of $2,938,000 in 1993; $313,000 in 1992) 2,650,563 280,000
Due from:
Bank subsidiaries 253,332 188,276
Nonbank subsidiaries 3,852,616 4,907,281
Equity investment in subsidiaries
Bank subsidiaries 86,167,148 76,804,078
Nonbank subsidiaries 987 (32,219)
Equipment and leasehold
improvements, net 76,047 120,941
Goodwill and other intangibles net 8,495,415 7,116,805
Other assets 1,857,324 2,157,084
------------ -----------
$103,894,130 $91,674,538
============ ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Notes payable $ 500,000 $ 3,500,000
Other liabilities 2,585,684 3,236,473
------------ -----------
Total liabilities 3,085,684 6,736,473
Stockholders' equity 100,808,446 84,938,065
------------ -----------
$103,894,130 $91,674,538
============ ===========
</TABLE>
Note 15 - Condensed Financial Information - Parent Company Only (continued)
SUBURBAN BANCORP, INC.
CONDENSED STATEMENTS OF INCOME
Years Ended December 31, 1993, 1992 and 1991
1993 1992 1991
___________ ___________ __________
<TABLE> <C> <C> <C>
<S>
INCOME
Dividends received from
bank subsidiaries $ 10,897,000 $ 7,422,000 $4,038,000
Interest and dividends 43,896 18,871 95,829
Bank servicing and other 1,963,910 2,034,019 1,920,002
----------- ---------- ----------
12,904,806 9,474,890 6,053,831
----------- ---------- ----------
EXPENSES
Interest 259,509 490,185 729,285
Salaries and employee benefits 1,234,616 1,106,329 1,186,733
Occupancy, net 149,287 142,104 128,991
Furniture and equipment 104,036 56,982 72,812
Amortization of goodwill and intangibles 833,804 829,962 1,003,631
Amortization of purchase
accounting adjustments 318,765 536,813 625,731
Other operating expenses 1,077,502 1,242,818 1,105,981
---------- --------- ----------
3,977,519 4,405,193 4,853,164
---------- --------- ----------
Income before applicable income
tax benefits and undistributed
income of subsidiaries 8,927,287 5,069,697 1,200,667
Applicable income tax benefits (717,327) (541,357) (491,281)
---------- --------- ----------
9,644,614 5,611,054 1,691,948
Equity in undistributed net income of
subsidiary banks 5,439,203 7,024,355 7,229,371
Equity in undistributed net income
(loss) of nonbank subsidiaries 237,579 (215,869) (528,797)
---------- ---------- ----------
Income before cumulative effect
of a change in accounting 15,321,396 12,419,540 8,392,522
Cumulative effect on prior years of a
change in accounting for income taxes (662,263) - -
---------- ---------- ----------
Net income $ 14,659,133 $12,419,540 $8,392,522
============ =========== ==========
</TABLE>
Note 15 - Condensed Financial Information - Parent Company Only (continued)
SUBURBAN BANCORP, INC.
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1993, 1992 and 1991
<TABLE>
1993 1992 1991
____________ ____________ ___________
<C> <C> <C>
<S>
OPERATING ACTIVITIES
Net income $ 14,659,133 $ 12,419,540 $ 8,392,522
Adjustments to reconcile net income
to net cash provided (used)
by operating activities:
Cumulative effect of a change
in accounting principles 662,263 - -
Net equity in undistributed
income of subsidiaries (5,676,782) (6,808,486) (6,700,574)
Depreciation and amortization 72,068 87,969 95,817
Amortization of intangibles 1,152,569 1,366,775 1,629,362
Increase (decrease) in
interest payable (29,728) 29,978 -
Others - net (1,028,265) 321,339 385,463
----------- ------------ -----------
Net cash provided by operations 9,811,258 7,417,115 3,802,590
----------- ------------ -----------
INVESTING ACTIVITIES
Contribution of capital to subsidiaries - (181,868) (527,097)
Decrease (increase) in
due from subsidiaries 1,193,982 (180,684) (19,308)
Purchase of securities (2,370,563) (280,000) -
Funds invested in acquisitions (126,450) - -
Purchase of property and equipment (27,174) (37,632) (12,449)
----------- ----------- ------------
Net cash used in
investing activities (1,330,205) (680,184) (558,854)
----------- ----------- ------------
FINANCING ACTIVITIES
Proceeds from note payable 2,650,000 3,500,000 -
Net proceeds from transfer of
banks' retirement liability - - 1,716,000
Payment of notes payable (5,650,000) (4,300,000) (4,150,000)
Purchase of treasury stock (2,176,225) (3,749,938) (287,400)
Cash dividends paid (2,896,422) (2,299,784) (1,112,075)
----------- ----------- -----------
Net cash used in
financing activities (8,072,647) (6,849,722) (3,833,475)
----------- ----------- -----------
Net decrease in cash 408,406 (112,791) (589,739)
Cash at beginning of year 132,292 245,083 834,822
----------- ----------- ------------
Cash at end of period $ 540,698 $ 132,292 $ 245,083
=========== =========== ============
Supplemental disclosures to the cash flow information:
Cash paid during the
year for interest $ 289,237 $ 460,202 $ 729,285
=========== =========== ============
</TABLE>
SELECTED FINANCIAL DATA
The following table consists of financial data derived from the consolidated
financial statements of the Company. The acquisition of Huntley Bancshares in
1993 has effected the comparability of the information set forth below. This
information should be read in connection with Management's Discussion and
Analysis of Financial Condition and Results of Operations and the Company's
consolidated financial statements included elsewhere in this report.
<TABLE>
Years Ended December 31,
----------------------------------------------------------
1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ----------
(Dollars in thousands except per share data)
<C> <C> <C> <C> <C>
<S>
SUMMARY OF OPERATIONS
Interest income $ 79,176 $ 79,905 $ 82,839 $ 82,651 $ 75,915
Interest expense 31,746 35,965 45,557 46,842 40,191
---------- ---------- ---------- ---------- ----------
Net interest income 47,430 43,940 37,282 35,809 35,724
Provision for loan loss 2,240 2,270 2,655 6,965 3,496
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for loan losses 45,190 41,670 34,627 28,844 32,228
Noninterest income 13,812 11,489 9,231 7,500 6,864
Noninterest expense 41,496 36,756 33,570 33,649 29,156
---------- ---------- ---------- ---------- ----------
Income before income taxes
and cumulative effect 17,506 16,403 10,288 2,695 9,936
Applicable income taxes 4,347 3,983 1,895 513 1,984
---------- ---------- ---------- ---------- ----------
Income before cumulative effect
of a change in accounting principle 13,159 12,420 8,393 2,182 7,952
Cumulative effect on prior years
of a change in accounting
for income taxes 1,500 - - - -
---------- ---------- ---------- ---------- ----------
Net income $ 14,659 $ 12,420 $ 8,393 $ 2,182 $ 7,952
========== ========== ========== ========== ==========
PER SHARE OF COMMON STOCK
Income before cumulative
effect of a change
in accounting principle $ 3.87 $ 3.67 $ 2.41 $ 0.59 $ 2.04
Net income 4.31 3.67 2.41 0.59 2.04
Class A Cash dividends declared 0.88 0.70 0.33 0.31 0.28
Class B Cash dividends declared 0.80 0.64 0.30 0.28 0.25
Book value 29.25 25.41 22.56 20.45 19.95
SELECTED BALANCES - END OF PERIOD
Total assets $1,316,108 $1,179,566 $1,066,543 $ 969,556 $ 917,184
Net loans 566,952 480,941 439,796 418,439 398,359
Deposits 1,192,048 1,069,837 968,029 877,049 826,473
Stockholders' equity 100,808 84,938 78,568 71,575 77,038
RATIOS
Return on average total assets 1.18 % 1.11 % 0.83 % 0.23 % 0.94 %
Return on average stockholders' equity 15.28 15.40 11.34 2.92 10.67
Total cash dividends to net income 19.76 18.52 13.25 50.26 13.00
Average equity to average assets 7.71 7.20 7.35 7.95 8.81
Net interest margin (1) 4.16 4.30 4.11 4.29 4.70
Net interest margin non-FTE 3.81 3.92 3.70 3.81 4.22
</TABLE>
(1) Net interest income as a percentage of average total assets stated on a
fully taxable equivalent basis assuming a federal income tax rate of 35% in
1993, 34% in prior years, and a state income tax rate of 7.3% in 1993 through
1990 and 6.9% in 1989.
SELECTED QUARTERLY FINANCIAL DATA
(UNAUDITED)
<TABLE>
First Second Third Fourth
Quarter Quarter Quarter Quarter
(Dollars in thousands except per share data)
<C> <C> <C> <C>
<S>
1993
Interest income $ 19,133 $ 19,480 $ 20,462 $ 20,101
Net interest income 11,289 11,689 12,175 12,277
Provision for loan losses 827 568 315 530
Income before cumulative effect of a
change in accounting principle 2,986 3,551 3,458 3,164
Net income 4,486 3,551 3,458 3,164
Per share of common stock
Income before cumulative effect of a
change in accounting principle 0.89 1.06 1.00 0.92
Net income 1.34 1.06 1.00 0.92
1992
Interest income 20,063 20,059 20,052 19,731
Net interest income 10,310 10,750 11,356 11,524
Provision for loan losses 609 759 431 471
Net income 2,505 3,079 3,307 3,529
Per share of common stock 0.73 0.90 0.99 1.06
1991
Interest income 20,330 20,645 20,933 20,931
Net interest income 8,847 9,261 9,400 9,774
Provision for loan losses 751 747 477 680
Net income 1,582 2,098 2,248 2,465
Per share of common stock 0.45 0.60 0.65 0.71
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion and analysis provides information regarding the
Company's financial condition and results of operations for the years ended
December 31, 1993, 1992 and 1991. This discussion and analysis should be
read in conjunction with financial statements, notes, tables and graphs
included elsewhere in this report. Unless otherwise stated, all dollar
amounts are expressed in thousands. Income stated on a fully taxable equiv-
alent basis "(FTE)" means income which is exempt from either Illinois income
taxation, federal income taxation or both and is stated as if such income
were subject to all applicable taxation. All the presentations that follow
assume a federal income tax rate of 35% in 1993, 34% in prior years, and an
Illinois income tax rate of 7.3% in 1993 through 1990 and 6.9% in 1989.
Overview
Income before the cumulative effect of a change in accounting principle for
1993 amounted to $13.2 million, or $3.87 per share, compared to income of
$12.4 million, or $3.67 per share, for 1992. The increase in earnings for
1993 was primarily the result of an increase in net interest income, driven
by a reduction in interest expense from the 1992 level. Net income for 1993,
including the $1.5 million cumulative effect of a change in accounting prin-
ciple, was $14.7 million, or $4.31 per share.
In 1993 the Company continued on a course of solid growth. Total assets
increased during 1993 by 11.6%. This increase, which includes 3.6% related
to an acquisition, was driven by deposit growth, from year-end to year-end,
of 11.4%. In July 1993, the Company completed its acquisition of Huntley
Bancshares, owner of the State Bank of Huntley in a business combination
accounted for as a purchase. The aggregate purchase price was approximately
$6.41 million consisting of 154,206 shares of the Company's Class A Common
Stock and $126,450 in cash. As a result of the acquisition, total assets,
net loans and deposits increased by approximately $43 million, $18 million
and $36 million respectively. The results of operations of the State Bank of
Huntley are included in the accompanying financial statements from the date
of acquisition.
Analysis of Consolidated Statements of Income
Set forth below are selected performance ratios showing components of the
Company's net income as a percentage of average assets over the past three
years.
<TABLE>
Years Ended December 31,
----------------------------------
<C> <C> <C>
<S>
1993 1992 1991
---- ---- ----
Net interest income (non-FTE) 3.81% 3.92% 3.70%
Taxable equivalent adjustment 0.35 0.38 0.41
---- ---- ----
Net interest income (FTE) 4.16 4.30 4.11
Provision for loan losses 0.18 0.20 0.26
---- ---- ----
Net interest income after
provision for loan losses 3.98 4.10 3.85
Noninterest income 1.01 0.96 0.91
Securities gains (losses) 0.10 0.07 0.05
Noninterest expense 3.33 3.28 3.38
---- ---- ----
Income before: 1.76 1.85 1.43
Taxes and FTE adjustment 0.70 0.74 0.60
---- ---- ----
Income before: 1.06 1.11 0.83
Cumulative effect on prior years
of a change in accounting for
income taxes .12 - -
---- ---- ----
Net income 1.18% 1.11% 0.83%
==== ==== ====
</TABLE>
Net Interest Income
Net interest income, defined as interest income less interest expense,
represents the Company's major source of income. Net interest income is
dependent on the size of the spread between rates earned on interest earning
assets and rates paid on interest-bearing liabilities.
While interest income decreased in each of the last two years from the 1991
level, interest expense decreased dramatically, during the same period. The
current interest rate environment has been favorable to many financial insti-
tutions, including the Company. In this environment, the Company was able to
reduce its cost of funds significantly while offering interest rates competi-
tive enough to fuel the deposit growth experienced in each of the last three
years. The interest rate environment in which the Company operates is sub-
ject to many factors beyond the control of the Company.
The following table presents the Company's average statements of condition
and net interest (FTE) yield for the past three years.
The following table presents the Company's daily average statements of
condition and net interest yield for the past three years.
<TABLE>
Years Ended December 31,
___________________________ ____________________________ ____________________________
1993 1992 1991
___________________________ ____________________________ ____________________________
Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
___________________________ ____________________________ ____________________________
<C> <C> <C> <C> <C> <C> <C> <C> <C>
<S>
Assets
Interest earning assets:
Loans, net of unearned
discount (1)(2) $530,262 $45,651 8.609 % $470,022 $43,806 9.320 % $440,363 $45,977 10.441 %
Investment securities:
Taxable 467,095 27,269 5.838 433,869 30,941 7.131 361,765 30,638 8.469
Tax-exempt 97,150 8,432 8.679 68,379 7,076 10.348 68,473 7,468 10.906
------------------- -------------------- --------------------
Total investment securities 564,245 35,701 6.327 502,248 38,017 7.569 430,238 38,106 8.857
Time deposits in banks 1,266 65 5.134 290 14 4.828 551 40 7.260
Federal funds sold & resale agreements 61,611 2,113 3.430 62,260 2,297 3.689 50,660 2,828 5.582
------------------- -------------------- --------------------
Total interest earning assets 1,157,384 83,530 7.217 1,034,820 84,134 8.130 921,812 86,951 9.433
------------------- -------------------- --------------------
Noninterest earning assets:
Cash and due from banks 45,776 43,747 44,040
Premises and equipment, net 25,544 24,710 25,075
Other assets 26,546 25,169 23,177
Allowance for loan losses (10,472) (9,200) (7,478)
----------- ----------- -----------
Total noninterest earning assets 87,394 84,426 84,814
----------- ----------- -----------
TOTAL ASSETS $1,244,778 $1,119,246 $1,006,626
=========== =========== ===========
Liabilities and Stockholders' Equity
Interest-bearing liabilities:
Regular savings $101,356 $2,764 2.727 $87,669 $2,921 3.332 $81,251 $3,654 4.497
NOW accounts 144,314 3,071 2.128 124,903 3,652 2.924 104,998 4,660 4.438
Money market 375,361 11,070 2.949 331,833 11,982 3.611 265,392 14,294 5.386
Certificates of deposit 223,303 9,805 4.391 223,280 11,946 5.350 237,695 16,695 7.024
IRA's 78,029 4,104 5.260 71,848 4,364 6.074 65,808 4,785 7.271
Premium on deposits 108 125 430
Federal funds purchased
and repurchase agreements 14,812 564 3.808 10,488 485 4.624 5,465 309 5.654
Deferred compensation 2,311 201 8.698 2,448 218 8.905 2,553 231 9.048
Notes payable 932 59 6.330 4,325 272 6.289 5,554 498 8.967
------------------- -------------------- --------------------
Total interest-bearing liabilities 940,418 31,746 3.376 856,794 35,965 4.198 768,716 45,556 5.926
------------------- -------------------- --------------------
Noninterest-bearing liabilities:
Demand deposits 199,298 172,880 155,770
Other liabilities 9,136 8,931 8,132
Stockholders' Equity 95,926 80,641 74,008
----------- ----------- -----------
TOTAL LIABILITIES and
STOCKHOLDERS' EQUITY $1,244,778 $1,119,246 $1,006,626
=========== =========== ===========
Net interest earnings $51,784 $48,169 $41,395
======== ========= =========
Net yield on interest earning assets 4.474% 4.655% 4.491%
======== ======== ========
Net yield on interest earning assets
(non-FTE) 4.098% 4.246% 4.044%
======== ======== ========
</TABLE>
(1) Includes tax-exempt loans of $4,795 in 1993, $5,785 in 1992 and $6,407 in
1991.
(2) The reduction in interest income caused by nonaccrual loans is reflected
in all net interest income and related yield calculations.
Analysis of Changes in Net Interest Income
The following table sets forth the changes in interest income and interest
expense attributable to rate and volume variances. The calculations in this
table have been made on the basis that: (1) income is recognized on nonac-
cruing loans only when collected; and (2) there were no prior period adjust-
ments. Change in income due to volume is calculated by multiplying the
annual change in volume times the prior year's rate. Change in income due to
rate is calculated by multiplying the annual change in rate times the prior
year's volume. Changes due to rate/volume have been classified as changes
due to volume.
<TABLE>
1993 Compared to 1992 1992 Compared to 1991 1991 Compared to 1990
_________________________________ _________________________________ _________________________________
Change Due Change Due Total Change Due Change Due Total Change Due Change Due Total
to Volume to Rate Change to Volume to Rate Change to Volume to Rate Change
_________________________________ _________________________________ _________________________________
<C> <C> <C> <C> <C> <C> <C> <C> <C>
<S>
Interest earned on:
Loans, net of
unearned discount $5,187 ($3,342) $1,845 $2,765 ($4,936) ($2,171) $1,839 ($3,035) ($1,196)
Taxable investment
securities 1,938 (5,610) (3,672) 5,143 (4,837) 306 7,222 (1,758) 5,464
Tax-exempt investment
securities 2,497 (1,141) 1,356 (10) (382) (392) (2,213) 190 (2,023)
Time deposits in banks 50 1 51 (13) (13) (26) (74) (61) (135)
Federal funds sold
and resale agreements (23) (161) (184) 428 (962) (534) (674) (1,587) (2,261)
--------------------------------- --------------------------------- ---------------------------------
Total interest income 9,649 (10,253) (604) 8,313 (11,130) (2,817) 6,100 (6,251) (151)
--------------------------------- --------------------------------- ---------------------------------
Interest expense on:
Regular Savings 373 (530) (157) 214 (947) (733) 52 (110) (58)
NOW accounts 413 (994) (581) 582 (1,590) (1,008) 478 (405) 73
Money market 1,285 (2,197) (912) 2,399 (4,711) (2,312) 2,743 (1,776) 967
Certificates of
deposits 0 (2,141) (2,141) (770) (3,979) (4,749) (494) (2,056) (2,550)
IRA's 325 (585) (260) 367 (788) (421) 493 (344) 149
Premium on deposits (17) 0 (17) (305) - (305) (52) - (52)
Federal funds purchased
and repurchase
agreements 165 (86) 79 232 (56) 176 63 (84) (21)
Deferred compensation (12) (5) (17) (9) (4) (13) 231 0 231
Notes payable (215) 2 (213) (77) (149) (226) 27 (52) (25)
--------------------------------- --------------------------------- ---------------------------------
Total interest expense 2,317 (6,536) (4,219) 2,633 (12,224) (9,591) 3,541 (4,827) (1,286)
--------------------------------- --------------------------------- ---------------------------------
Net interest income $7,332 ($3,717) $3,615 $5,680 $1,094 $6,774 $2,559 ($1,424) $1,135
================================= ================================= =================================
</TABLE>
Noninterest Income
The following table depicts noninterest income information for the years
indicated.
<TABLE>
1993 1992 1991
----------------- ----------------- -----------------
Non- % of Non- % of Non- % of
Interest Average Interest Average Interest Average
Income Assets Income Assets Income Assets
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
<S>
Service charge-deposits 5,075 0.41% $5,057 0.45 4,757 0.47%
Other service charges and fees 5,280 0.42 3,722 0.34 2,695 0.27
Securities gains (losses) 1,194 0.10 771 0.07 476 0.05
Trust department revenue 916 0.07 801 0.07 659 0.06
Other 1,346 0.11 1,138 0.10 1,067 0.11
-------- -------- --------
Totals $13,811 1.11% $11,489 1.03% $9,654 0.96%
======== ======== ========
</TABLE>
Noninterest income continued its growth pattern, which has approximated 20%
in each of the last three years. The increase in service fees in 1993 and
1992 was principally the result of an increase in fees generated from mort-
gage origination activities which amounted to $1.78 million in 1993 and
$570,000 in 1992. Noninterest income attributable to the acquisition of
Huntley Bancshares amounted to $230,000 in 1993.
The Company began a mortgage origination program in 1992. Under this
initiative, the Company originated 1,551 mortgages in the amount of $149.4
million in 1993 and 559 mortgages in the amount of $53.5 million in 1992. A
substantial majority of these mortgages have been sold in the secondary
market. The remaining increases seen in both 1993 and 1992, were the result
of increased rates, improved realization procedures and a larger deposit base
resulting from sustained deposit growth.
Securities gains were recognized in the first six months of 1993 on the
sale of $61 million in U.S. Treasury and agency securities. The majority of
the securities sold were scheduled to mature, or reprice, in 1993 or the
first quarter of 1994. Similar transactions occurred in the second quarter
of 1992, resulting in gains totaling $683,000. The securities gains realized
in 1991 reflect a reduction in the Company's investment in tax free securi-
ties in order to eliminate the effects of the alternative minimum tax.
Noninterest Expense
The following table presents noninterest expense for the years indicated.
<TABLE>
1993 1992 1991
----------------- ----------------- -----------------
Non- % of Non- % of Non- % of
Interest Average Interest Average Interest Average
Expense Assets Expense Assets Expense Assets
-------- -------- -------- -------- -------- --------
<C> <C> <C> <C> <C> <C>
<S>
Salaries and employee benefits $20,302 1.63% $17,814 1.59% $15,950 1.59%
Occupancy, net 4,081 0.33 4,160 0.37 3,932 0.39
Furniture and equipment 3,352 0.27 2,903 0.26 2,832 0.28
Amortization of goodwill 726 0.06 705 0.06 728 0.07
F.D.I.C. insurance 2,434 0.19 2,193 0.20 1,852 0.18
Other 10,601 0.85 8,981 0.80 8,699 0.87
-------- -------- --------
Totals $41,496 3.33% $36,756 3.28% $33,993 3.38%
======== ======== ========
</TABLE>
Although noninterest expense increased in absolute dollars in both 1993 and
1992, noninterest expense expressed as a percent of average assets remains in
line with the 1991 level. The increases in salaries and employee benefits in
both 1993 and 1992 primarily resulted from the addition of staff associated
with the mortgage origination operation and additional staffing levels re-
sponding to deposit growth.
Noninterest expenses attributed to the acquisition of Huntley Bancshares in
1993 amounted to $1.25 million, of which approximately $340,000 was of a
nonrecurring nature.
Analysis of Consolidated Balance Sheets
Investment Securities
Investment securities play a substantial role in the Company's operations,
profitability and management of its interest rate risks. At December 31,
1993 and 1992, investment securities represented 44.7% and 45.5% of total
assets, respectively.
The Company generally invests in fixed-rate securities having a maturity of
five years or less. Securities having a maturity in excess of five years are
generally floating-rate securities. As a result, the maturity structure of
the Company's investment portfolio is relatively short-term in nature and the
market value of the portfolio remains very close to its book value, despite
interest rate fluctuations. At December 31, 1993, the approximate market
value of the Company's investment portfolio was equal to 102.3% of its book
value, reflecting an unrealized gain of $13.5 million in the total portfolio.
Although the Company has the ability to hold investment securities to
maturity, in order to achieve one or more of its investment objectives the
Company may sell certain securities prior to maturity in response to changes
in related economic or business conditions. In December of 1992 the Company
reclassified its entire investment portfolio from securities held for invest-
ment to securities held for sale. Securities held for sale include all
investment securities currently owned by the Company and which may be sold in
response to changes in the interest rate environment, liquidity needs or
other changes in economic or business conditions. These securities are
stated at the lower of amortized cost or market value.
Gains will typically only be taken on securities when the proceeds can be
reinvested at a similar or higher fully taxable equivalent yield and hence
will not adversely affect future income and investment yield, or when the
reduction in yield is offset by a sufficient increase in the quality of the
issue purchased.
The following table shows the relative stated maturities of investment debt
securities (at amortized cost) held by the Company's subsidiary banks on a
consolidated basis at December 31, 1993, and the weighted average interest
rate for each range of maturities.
<TABLE> Average
taxable
U.S. Government States & Other bonds equivalent
U.S. Treasury Agency subdivisions & securities yield
-------------- -------------- -------------- -------------- --------------
<C> <C> <C> <C> <C>
<S>
Under 1 year $ 87,840 $ 33,059 $23,865 $ 67 6.59%
1 to 5 years 159,849 17,904 47,972 326 6.19
5 to 10 years - 1,497 14,546 - 9.84
Over 10 years - - 11,619 - 11.08
Mortgage/asset backed - 184,815 - 2,799 4.23
-------------- -------------- -------------- --------------
Totals $247,689 $237,275 $98,002 $ 3,192
============== ============== ============== ==============
</TABLE>
Securities in the mortgage/asset backed category are primarily adjustable
rate mortgage backed securities with a stated maturity of greater than ten
years. The average life of these securities is approximately seven years
based on current prepayment patterns.
Loans
The following table shows the major categories of the Company's loan port-
folio at the dates indicated.
<TABLE>
December 31,
-----------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
<C> <C> <C> <C> <C>
<S>
Commercial and industrial $ 92,828 $ 70,850 $ 72,390 $ 95,659 $ 86,699
Real estate-construction 37,214 25,410 29,990 28,696 20,557
Real estate-residential 241,991 206,606 156,969 155,132 146,793
Real estate-home equity 41,339 35,468 44,034 29,388 22,795
Real estate-commercial 126,346 110,295 94,391 54,333 57,817
Consumer 40,947 44,408 52,828 65,303 72,351
-------- -------- -------- -------- --------
Gross loans 580,665 493,037 450,602 428,511 407,012
Less:
Deferred loan fees 1,981 1,718 1,178 893 850
Unearned discount 656 775 1,265 2,260 2,839
Allowance for loan losses 11,075 9,603 8,363 6,919 4,964
-------- -------- -------- -------- --------
Net loans $566,953 $480,941 $439,796 $418,439 $398,359
======== ======== ======== ======== ========
Ratio of net loans to total assets 43.1% 40.8% 41.2% 43.2% 43.4%
======== ======== ======== ======== ========
</TABLE>
The Company's gross loans grew approximately 17.8% in 1993 at the subsidi-
ary banks. The growth in loans outpaced deposit and total asset growth, both
of which approximated 11.5%.
As a consequence of loan growth exceeding asset growth, the ratio of net
loans to total assets has been restored to the levels of 1989 and 1990. The
controlled growth pattern is the result of management's efforts to maintain
the quality of the loan portfolio by accepting primarily secured, quality
loans within the natural market areas of the subsidiary banks. The majority
of the Company's commercial and industrial loans are made to small businesses
in the communities where the Company's banking facilities are located. Real
estate-mortgage, real estate-construction and consumer loans are also made
within the natural market areas of the Company's subsidiary banks. Because
the Company's loan portfolio is classified by collateral rather than purpose,
real estate-residential includes some credits for commercial purposes which
are secured by residential real estate. First mortgages on residential
properties are generally made at either floating rates or with three to five
year maturities.
The Company does not engage in the origination or purchase of highly lever-
aged or foreign loans and makes very few agricultural loans. The Company
engages on a limited basis in the issuance of letters of credit for its
customers. The amount of outstanding letters of credit was $7.8 million at
December 31, 1993.
Nonperforming Assets
The following table shows the aggregate amount of assets which were nonper-
forming as of the dates indicated.
<TABLE>
December 31,
-----------------------------------------------
1993 1992 1991 1990 1989
------- ------ ------ ------ ------
<C> <C> <C> <C> <C>
<S>
Nonaccrual loans $6,223 $6,499 $7,180 $6,141 $1,865
Restructured loans 90 455 - - -
90 day past due loans 902 126 289 421 1,119
------ ------ ------ ------ ------
Total nonperforming loans 7,215 7,080 7,469 6,562 2,984
------ ------ ------ ------ ------
Other real estate owned 1,703 2,668 2,368 257 76
------ ------ ------ ------ ------
Total nonperforming assets $8,918 $9,748 $9,837 $6,819 $3,060
====== ====== ====== ===== ======
Nonperforming assets to net loans 1.57% 2.03% 2.24% 1.63% .77%
====== ====== ====== ===== ======
Gross amount of interest that would have been
recorded if all nonperforming loans had been
accruing interest at their original terms $ 592 $ 658 $ 830 $ 588 $ 261
Income actually collected and recognized (150) (291) (230) (117) (112)
------ ------ ------ ------ ------
Net reduction in interest income $ 442 $ 367 $ 600 $ 471 $ 149
====== ====== ====== ====== ======
</TABLE>
The increase in nonaccrual loans between 1989 and 1990 reflected isolated
credit quality deterioration identified by management in the first part of
1990. A general slowdown in the local economy resulted in an increase in
nonaccrual loans during 1991, which remained relatively stable through 1993.
Other real estate owned at December 31, 1993 is stated at fair market value
and consists of six parcels ranging in value from $100,000 to $1,030,000.
Nonperforming assets at December 31, 1993 represent $5.4 million of commer-
cial and industrial loans; $3.3 million of real estate mortgages; $100,000
of real estate construction loans, and $100,000 of consumer loans.
Nonperforming assets which were collateralized by commercial real estate
totaled $4.3 million; $4.4 million were secured by residential real estate
and $200,000 were secured by other collateral.
Generally, the Company places a loan on nonaccrual status when it reaches
90 days past due or, when management believes, after considering economic and
business conditions and collection efforts, that the borrower's financial
condition is such that collection of interest is doubtful.
Allowance for Loan Losses
The allowance for loan losses reduces the gross level of loans outstanding
by an estimate of uncollectible loans. When management determines that loans
are uncollectible, the loans are charged off against the allowance for loan
losses. Periodically, a provision for loan losses is charged against current
income. This provision restores the allowance for loan losses to a level
management deems adequate to cover anticipated future losses in the portfo-
lio.
The 1993 year-end allowance for loan losses was 3.7 times the average
annual net charge-offs to average loans from 1989 to 1993. Management be-
lieves that the allowance continues to preserve the Company's ability to
absorb unexpected loan losses in the future. There is no accurate means to
predict loan losses or amounts which ultimately will be charged off. The
conclusion that a loan may become uncollectible is a matter of judgment.
Decisions to make provisions for loan losses charged against operating income
are made by the managements of the Company's subsidiary banks. Such deci-
sions are based primarily on unfavorable collectibility factors relating to
specific loans, historical loan loss experience and current economic condi-
tions in the market area. On a quarterly basis, a comprehensive review of
the adequacy of the allowance for loan losses is performed. This assessment
is accomplished through analytical techniques which evaluate the allowance in
light of historical losses, changes in the nature and volume of the loan
portfolio, overall portfolio quality, identified problem loans and current
economic conditions. In addition to management's assessment, the loans of
the Company's subsidiary banks are examined periodically by the Company's
independent loan review firm and by state and federal banking authorities.
The allowance for loan losses is also reviewed by independent auditors as
part of the audit of the Company's consolidated financial statements.
The following table shows activity affecting the allowance for loan losses
for the five year period ending December 31, 1993.
<TABLE>
December 31,
--------------------------------------------------
1993 1992 1991 1990 1989
------- ------ ------ ------ ------
<C> <C> <C> <C> <C>
<S>
Allowance for loan losses at beginning of period $ 9,603 $8,363 $6,919 $4,964 $4,147
Allowance of acquired subsidiaries 362 - - - -
------- ------ ------ ------ ------
9,965 8,363 6,919 4,964 4,147
Amount of loans charged off during the year:
Commercial and industrial 1,496 1,243 1,447 4,703 2,729
Real estate, mortgage and construction 22 250 183 175 -
Consumer 225 431 726 1,095 376
------- ------ ------ ------ ------
Total loans charged off 1,743 1,924 2,356 5,973 3,105
Amount of loan recoveries during the year:
Commercial and industrial 409 671 815 659 202
Real estate, mortgage and construction 50 6 - 117 102
Consumer 154 217 330 187 122
------- ------ ------ ------ ------
Total loan recoveries 613 894 1,145 963 426
------- ------ ------ ------ ------
Net loans charged off 1,130 1,030 1,211 5,010 2,679
Provision for loan losses 2,240 2,270 2,655 6,965 3,496
------- ------ ------ ------ ------
Allowance for loan losses at end of period $11,075 $9,603 $8,363 $6,919 $4,964
======= ====== ====== ====== ======
Allowance for loan losses to loans net of unearned discount 1.92% 1.96% 1.87% 1.63% 1.23%
Ratio of net loans charged off to average
loans outstanding during the year .21 .22 .28 1.19 .69
</TABLE>
Allocation of Allowance for Loan Losses
The following table sets forth the allocation of the Company's allowance
for loan losses, along with the percentage of loans in each category to total
loans. The allocation of the allowance by loan category includes unallocated
amounts assigned to each category. The entire allowance for loan losses is
available to absorb losses in any particular category of loans, notwithstand-
ing management's allocation of the allowance.
<TABLE>
December 31,
-------------------------------------------------------------------------
1993 1992 1991 1990 1989
------------- ------------ ------------ ------------ ------------
Amount % Amount % Amount % Amount % Amount %
------- --- ------ --- ------ --- ------ --- ------ ---
<C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
<S>
Commercial and industrial $ 6,081 16 $5,283 14 $4,605 16 $4,094 22 $2,221 21
Real estate, mortgage and
construction 3,192 77 2,783 77 2,091 72 1,383 63 1,251 61
Consumer 1,802 7 1,537 9 1,667 12 1,442 15 1,492 18
------ --- ------ --- ------ --- ------ --- ------ ---
Total $11,075 100 $9,603 100 $8,363 100 $6,919 100 $4,964 100
====== === ====== === ====== === ====== === ====== ===
</TABLE>
Maturity and Rate Sensitivity
The following table sets forth the maturity distribution and interest
sensitivity of the Company's commercial, industrial and real estate construc-
tion loan portfolio at December 31, 1993.
<TABLE>
Remaining Maturity
-----------------------------------------------
One Year One to Over Five
Or Less Five Years Years Total
-------- ---------- --------- --------
<C> <C> <C> <C>
<S>
Commercial and industrial $ 42,539 $ 39,048 $11,241 $ 92,828
Real estate-construction 37,214 - - 37,214
-------- ---------- --------- --------
$ 79,753 $ 39,048 $11,241 $130,042
======== ========== ========= ========
Interest rate sensitivity
Commercial and industrial
Fixed rate $ 26,802 $10,341 $ 37,143
Variable rate 12,246 900 13,146
---------- --------- --------
Total $ 39,048 $11,241 $ 50,289
========== ========= ========
</TABLE>
Deposits
Total deposits increased 11.4% over the past year from $1,069.8 million at
December 31, 1992, to $1,192.1 million at December 31, 1993. On a daily
average basis, total deposits grew 10.8% during 1993 to $1,121.7 million.
The following table provides a breakdown by category of the Company's
deposits on a daily average basis for the past three years.
<TABLE>
Year Ended December 31,
----------------------------------
1993 1992 1991
---------- ---------- --------
<C> <C> <C>
<S>
Noninterest-bearing deposits $ 199,298 $ 172,880 $155,770
Regular savings 101,356 87,669 81,251
NOW accounts 144,314 124,903 104,998
Money market 375,361 331,833 265,392
Certificates of deposit 223,303 223,280 237,695
Individual retirement accounts 78,029 71,848 65,808
---------- ---------- --------
Total deposits $1,121,661 $1,012,413 $910,914
========== ========== ========
</TABLE>
The Company relies upon its core deposits, rather than on purchased money,
as its principal source of funds. Although the Company's subsidiary banks
accept certificates of deposit and other time deposits over $100,000, gener-
ally the rate paid on these deposits is not significantly different from
other smaller instruments. The following table shows the maturity structure
and amounts of the Company's time deposits of $100,000 or more for the last
three years.
<TABLE>
December 31,
---------------------------
1993 1992 1991
------- ------- -------
<C> <C> <C>
<S>
Under 3 months $29,439 $25,410 $30,185
3 to 6 months 14,409 9,739 11,579
6 to 12 months 12,641 8,176 10,760
Over 12 months 10,281 6,119 4,909
------- ------- -------
Total $66,770 $49,444 $57,433
======= ======= =======
</TABLE>
Capital Resources
Stockholders' equity at December 31, 1993 was $100.8 million, an increase
of 18.7% over the $84.9 million level at December 31, 1992. The Company
remains well capitalized. Stockholders equity represented 7.66% of total
assets at December 31, 1993, compared to 7.20% at December 31, 1992. The
increase in the ratio was primarily the result of the reissuance of treasury
shares in completing the acquisition of Huntley Bancshares, Inc.
The Board of Directors of the Company have authorized the purchase of the
Company's Class A Common Stock in an amount not to exceed 10% of the Com-
pany's net worth, per year. The following table sets forth the aggregate
open market stock purchases of the Company's Class A Common Stock.
Average
Shares Aggregate Cost
Year Purchased Cost per Share
------ --------- ---------- ---------
<TABLE> <C> <C> <C> <C>
<S>
1989 185,500 $3,600,000 $19.41
1990 361,179 6,547,803 18.13
1991 18,000 287,400 15.97
1992 139,700 3,749,938 26.84
1993 49,500 2,176,225 43.96
</TABLE>
At year-end the Company had short-term indebtedness of $500,000, a
decrease of $3.0 million from the prior year. The indebtedness was incurred
to purchase equity investments in other financial institutions, and will be
repaid through ongoing operations.
Bank regulators have established capital guidelines. The guidelines assign
different risk weighting to assets and certain off-balance sheet activities.
Capital is defined as: Tier I capital which includes stockholders' equity
reduced by intangibles; and Tier II Capital which includes certain long-term
debt and a portion of the allowance for loan losses. The guidelines require
that companies must have ratios of 4% and 8% for Tier I and total capital
(which includes Tier II Capital), respectively. At December 31, 1993 the
Company had Tier I capital and total capital ratios substantially exceeding
the minimum standards. The Tier I and total capital ratios of each of the
Company's subsidiary banks were also in excess of the minimum standards. The
elements of these capital levels are shown below:
<TABLE>
December 31,
----------------------------------
1993 1992 1991
---------- --------- ---------
<C> <C> <C>
<S>
Risk-based capital
Stockholders' equity $100,808 $84,938 $78,568
Less goodwill and other intangibles 8,495 7,117 8,042
--------- --------- ---------
Total Tier I capital 92,313 77,821 70,526
--------- --------- ---------
Allowable allowance for loan losses 7,946 6,997 6,693
--------- --------- ---------
Total Tier II capital 7,946 6,997 6,693
--------- --------- ---------
Total capital 100,259 84,818 77,219
========= ========= =========
Risk-adjusted assets $635,694 $559,730 $535,470
========= ========= =========
Tier I capital to risk-adjusted assets 14.52% 13.90% 13.17%
========= ========= =========
Total capital to risk-adjusted assets 15.77% 15.15% 14.42%
========= ========= =========
</TABLE>
Liquidity
Liquidity involves the ability to meet the cash flow requirements of cus-
tomers, who may be either depositors wanting to withdraw funds or borrowers
needing assurance that sufficient funds will be available to meet their
credit needs. Cash and cash equivalents, federal funds sold and marketable
investment securities, particularly unpledged U.S. Government securities with
a maturity of five years or less, are the Company's principal sources of
asset liquidity. Although the Company does not
generally rely on federal funds purchased or brokered deposits as sources of
liquidity, some of the Company's subsidiary banks hold positions in federal
funds purchased from time to time.
The Company's base of core deposits is relatively stable, due to the retail
nature of its banking business. Nonetheless, the Company seeks to maintain a
high level of liquidity in order to meet possible deposit withdrawal require-
ments and loan demands of its customers as well as to maintain the ability to
change the nature of a substantial portion of its assets in response to
changes in general economic conditions. The Company's liquidity ratio (the
percent of total liquid assets to net deposits), as internally calculated
using a modified OCC formula, was 51% at December 31, 1993, compared to 53%
at December 31, 1992. Historically, the Company has not had, nor does man-
agement foresee any unusual short-term or long-term liquidity needs. Manage-
ment intends to continue maintaining high levels of liquidity.
Asset/Liability Management
The purpose of asset/liability management is to structure the maturities
and interest rate variability of the Company's assets and liabilities in such
a way that changes in interest rates do not adversely impact the net interest
margin. Interest rate variability differs with various types of interest
earning assets and interest-bearing liabilities. Overnight federal funds
sold, on which rates change daily, and loans which are tied to the prime rate
differ considerably from long-term investments and fixed-rate loans. Simi-
larly, new and maturing certificates of deposit and money market accounts are
more interest sensitive than passbook savings accounts.
Traditionally the most common measure of a bank's interest rate risk has
been the static gap (GAP). GAP reports measure imbalances that exist between
the repricing schedules for an institution's financial assets and liabilities
for a given period of time. This method is limited by its static nature, and
does not allow for varying degrees of sensitivity to interest rates present
in the financial assets and liabilities.
The Asset/Liability Management Committee of the Company has established
guidelines which limit the amount of interest rate risk which the Company is
willing to accept. To ensure compliance with these risk limits, the Commit-
tee regularly monitors the level of interest sensitivity. The Company's
interest rate sensitivity at December 31, 1993, is within the guidelines
established by the Asset/Liability Management Committee.
The following table reflects the repricing sensitivity of both earning
assets and interest-bearing liabilities at December 31, 1993, on a static GAP
basis.
<TABLE>
0-3 4-12 1-5 Over 5
Months Months Years Years Total
------------ ------------ ------------ ------------ ------------
<S>
Assets <C> <C> <C> <C> <C>
Loans $69,113 $219,103 $136,570 $153,241 $578,027
Securities 90,637 209,335 258,161 28,025 586,158
Interest-bearing deposits with banks 2,282 - - - 2,282
Short-term investments 57,025 - - - 57,025
------------ ------------ ------------ ------------ ------------
Total 219,057 428,438 394,731 181,266 1,223,492
------------ ------------ ------------ ------------ ------------
Liabilities
Interest-bearing demand deposits 156,489 - - - 156,489
Money market accounts 382,387 - - - 382,387
Certificates of deposit 72,042 102,178 45,650 13,906 233,776
Individual retirement accounts 7,727 57,620 14,584 660 80,591
Savings accounts 109,510 - - - 109,510
Borrowed funds 5,897 8,013 - - 13,910
------------ ------------ ------------ ------------ ------------
Total 734,052 167,811 60,234 14,566 976,663
------------ ------------ ------------ ------------ ------------
Interest sensitive GAP ($514,995) $260,627 $334,497 $166,700 $246,829
============ ============ ============ ============ ============
Cumulative GAP ($514,995) ($254,368) $ 80,129 $246,829
============ ============ ============ ============
</TABLE>
The static GAP table shown above assumes that all deposits will reprice on
a contractual basis. A significant portion of the Company's retail core
deposit base, however, historically has not repriced on a contractual basis.
In response to external market interest changes, the Company's interest rates
may change quickly and dramatically on some balance sheet items, but very
little on other items, if at all. The traditional static GAP does not recog-
nize these differences in balance sheet items, as it only measures balance
sheet volumes without regard for differences in rate sensitivity. The Com-
pany's Asset/Liability Management Committee also uses a dynamic simulation
model, including statistical analysis, which is able to reflect many of the
variables not addressed in the static GAP analysis.
Effects of Inflation
In contrast to industrial companies, virtually all of the assets and li-
abilities of the Company are monetary in nature. As a result, interest rates
have a more significant impact on the Company's performance than the effects
of general levels of inflation. Although interest rates can be affected by
inflation, interest rates do not necessarily move in the same direction or
have the same magnitude as changes in the price of goods and services. In
the current economic environment, liquidity and interest rate adjustment
features of the Company's assets and liabilities are important in maintaining
acceptable performance levels.
Business Review
The Company is a Delaware-chartered bank holding company, headquartered in
Palatine, Illinois, which owns all of the stock of 13 banks operating in
Cook, DuPage, Kane, Lake and McHenry Counties, Illinois. The Company also
has two active indirect subsidiaries which are bank service corporations.
Active competition exists in all areas in which the Company's subsidiary
banks are presently engaged, not only with commercial banks, but also with
savings and loan associations, credit unions, finance companies, money market
mutual funds, brokerage houses and other financial institutions.
As of December 31, 1993, the Company and its subsidiaries had 575 full time
equivalent employees.
The banks are generally located in growing, affluent suburban communities
in the Chicago area and are primarily retail oriented. The banks operated at
30 banking locations as of December 31, 1993.
Market Price of and Dividends on the Company's Common Equity
The Company's Class A Common Stock is quoted on the NASDAQ National Market
System and is traded over the counter. NASDAQ quotations for the Company's
Class A Common Stock for 1992 and 1993 are set forth in the following table:
<TABLE>
High Low
------ ------
<C> <C>
<S>
1st quarter 1992 27 1/2 24 1/2
2nd quarter 1992 28 1/4 26
3rd quarter 1992 34 3/4 27
4th quarter 1992 35 1/2 33
1st quarter 1993 45 34
2nd quarter 1993 44 1/2 39 1/2
3rd quarter 1993 45 40 3/4
4th quarter 1993 45 1/2 41 3/4
</TABLE>
On February 1, 1994, there were 2,190,520 shares of Class A Common Stock
and 1,256,486 shares of Class B Common Stock outstanding. On that date,
951,314 shares of Class A Common Stock and 35,764 shares of Class B Common
Stock were held as treasury shares and were not outstanding. The outstanding
Class A Common Stock was held by 890 stockholders of record. The outstanding
Class B Common Stock was held by 79 stockholders of record.
In 1989 the Company paid quarterly dividends of $.066 per share on the
shares of the Class A Common Stock and $.06 per share on the shares of Class
B Common Stock for the first three quarterly dividends. For the fourth
quarter of 1989 and all of 1990, the Company paid a quarterly dividend of
$.077 and $.07 on the shares of Class A and Class B Common stock respective-
ly. In 1991 the Company paid quarterly dividends of $.077 and $.07 for the
first two quarters and $.088 and $.08 for the second two quarters on the
shares of Class A and Class B Common Stock respectively. In 1992 the Company
paid quarterly dividends of $0.176 and $.16 on the shares of Class A and
Class B Common Stock respectively. In 1993 the Company paid quarterly divi-
dends of $0.22 and $.20 on the shares of Class A and Class B Common Stock
respectively. On January 21, 1994, the Board of Directors of the Company
increased the quarterly dividend to $0.25 and $0.227 on the shares of Class A
and Class B Common stock respectively.
The Company uses funds derived primarily from the payment of dividends by
its subsidiaries for, among other purposes, the payment of dividends to the
Company's stockholders.
The directors of a national bank may generally declare a dividend of as
much of the net profits (as defined) of the bank as they deem proper. Howev-
er, the approval of the Comptroller of the Currency is required for any
dividend paid to the Company by national bank subsidiaries if the total of
all dividends, including any proposed dividend declared by that bank in any
calendar year, exceeds the total of its net profits (as defined) for that
year and retained net profits (as defined) for the preceding two years.
Under provisions of the Illinois Banking Act, dividends may not be declared
by the Company's state banking subsidiaries except out of each bank's net
profit (as defined), and unless each bank has transferred to surplus at least
one-tenth of its net profits since the date of the declaration of the last
preceding dividend until the amount of its surplus is at least equal to its
common stock. Presently, the surplus of each of the Company's state banks
equals or exceeds capital.
All dividends paid to the Company by its subsidiary banks and by the Compa-
ny to its stockholders are further restricted by Capital Asset Guidelines
adopted in substantially the same form by all the relevant Federal regulatory
agencies. Dividends available to the Company from the subsidiary banks,
without obtaining prior approval from bank regulatory agencies, amounted to
approximately $15.7 million at December 31, 1993.
