SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-K
Annual Report Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993, Commission File Number 0-13425
PREMIER FINANCIAL SERVICES, INC.
(Exact name of registrant as specified in its Charter)
Delaware 36-2852290
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
27 W. Main Street 61032
Freeport, Illinois (Zip Code)
(Address of Principal executive
offices)
Registrant's telephone number, including area code (815) 233-3671
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, $5.00 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 the definitive proxy
or information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K.
Aggregate market value of voting stock held by non-affiliates of the
registrant as of February 28, 1994, based upon the average bid and asked
price at this date: $33,450,627.00
At February 28, 1994, the registrant had outstanding 2,163,107 shares
of its common stock, $5.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1993 Annual Report to Shareholders are incorporated by
reference into Part II of the Form 10-K. Portions of the Proxy Statement
for Registrant's 1994 Annual Meeting of Shareholders to be held April 26,
1994 has been incorporated by reference into Part III of the Form 10-K.
No. of Pages Sequentially Numbered: 27
Exhibit Index is on Page 26
Part I
Item 1. Business
Premier Financial Services, Inc. (the "Company") is a registered
bank holding company organized in 1976 under Delaware law. The
operations of the Company and its subsidiaries consist primarily of
those financial activities, including trust and investment services,
common to the commercial banking industry. Unless the context
otherwise requires, the term "Company" as used herein includes the
Company and its subsidiaries on a consolidated basis. Substantially
all of the operating revenue and net income of the Company is
attributable to its subsidiary banks.
The primary function of the Company is to coordinate the banking
policies and operations of its subsidiaries in order to improve and
expand their services and effect economies in their operations by
joint efforts in certain areas such as auditing, training, marketing,
and business development. The Company also provides operational and
data processing services for its subsidiaries. All services and
counsel to subsidiaries are provided on a fee basis, with fees based
upon fair market value.
The Company's banking subsidiaries include First Bank North
("FBN"), First Bank South ("FBS"), First National Bank of Northbrook
("FNBN") and First Security Bank of Cary Grove ("FSBCG"). Although
chartered as commercial banks, the offices of the banks serve as
general sales offices providing a full array of financial services and
products to individuals, businesses, local governmental units and
institutional customers throughout northern Illinois. Banking
services include those generally associated with the commercial
banking industry such as demand, savings and time deposits, loans to
commercial, agricultural and individual customers, cash management,
electronic funds transfers and other services tailored for the client.
The Company has banking offices located in Freeport, Stockton, Warren,
Mt. Carroll, Dixon, Rockford, Polo, Sterling, Northbrook, Riverwoods
and Cary, Illinois.
Premier Trust Services, Inc., ("PTS") a wholly owned subsidiary
of FBN, provides a full line of fiduciary and investment services
throughout the Company's general market area. Premier Insurance
Services, Inc., also a wholly owned subsidiary of FBN, is a full line
casualty and life insurance agency.
Premier Operating Systems, Inc., ("POS") a direct subsidiary of
the Company, provides data processing and operational services to the
Company and its subsidiaries.
Competition
Active competition exists in all principal areas where the
Company and its subsidiaries are engaged, not only with commercial
banking organizations, but also with savings and loan associations,
finance companies, mortgage companies, credit unions, brokerage houses
and other providers of financial services. The Company has seen the
level of competition and number of competitors in its markets increase
in recent years and expects a continuation of these aggressively
competitive market conditions.
To gain a competitive market advantage, the Company relies on a
strategic marketing plan that is employed throughout the Company,
reaching every level of its sales force. The marketing plan includes
the identification of target markets and customers so that the
Company's resources, both financial and manpower, can be utilized
where the greatest opportunities for gaining market share exist. The
differentiation between the Company's approach to providing products
and services to its customers and that of the competition is in the
individualized attention that the Company devotes to the needs of its
customers. This focus on fulfilling customer's financial needs
generally results in long-term customer relationships.
Banking deposits are well balanced, with a large customer base
and no dominant accounts in any category. The Company's loan
portfolio is also characterized by a large customer base, balanced
between loans to individuals, commercial and agricultural customers,
with no dominant relationships. There is no readily available source
of information which delineates the market for financial services,
including services offered by non-bank competitors, in the company's
market area.
Regulation and Supervision
Bank holding companies and banks are extensively regulated under
both federal and state law. To the extent that the following
information describes statutory and regulatory provisions, it is
qualified in its entirety by references to the particular statutes and
regulations. Any significant change in applicable law or regulation
may have an effect on the business and prospects of the Company and
its subsidiaries.
The Company is registered under and is subject to the provisions
of the Bank Holding Company Act, and is regulated by the Federal
Reserve Board. Under the Bank Holding Company Act the Company is
required to file annual reports 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 all aspects of the Company's business.
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. Bank holding companies are also prohibited from
acquiring shares of any bank located outside the state in which the
operations of the holding company's banking subsidiaries are
principally conducted unless such an acquisition is specifically
authorized by statute of the state of the bank whose shares are to be
acquired.
The Bank Holding Company Act also prohibits a bank holding
company, with certain exceptions, from acquiring direct or indirect
ownership or control of more than 5% of the voting shares of any
company which is not a bank and from engaging in any business other
than that of banking, managing and controlling banks, or services to
banks and their subsidiaries. The Company, however, may engage 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 Company is also subject to the Illinois Bank Holding Company
Act of 1957, as amended (the "Illinois Act"). Effective December 1,
1990, certain provisions of the Illinois Act were amended to permit
Illinois banks and bank holding companies to acquire or be acquired by
banks and bank holding companies located in any state having a
reciprocal law. The approval of the Commissioner of Banks and Trusts
Companies of Illinois is required to complete such an interstate
acquisition in Illinois. The Illinois Act also permits intrastate
acquisition throughout Illinois by Illinois bank holding companies.
The passage of the Financial Institutions Reform, Recovery and
Enforcement Act of 1989 ("FIRREA") resulted in significant changes in
the enforcement powers of federal banking agencies, and more
significantly, the manner in which the thrift industry is regulated.
While FIRREA's primary purpose is to address public concern over the
financial crisis of the thrift industry through the imposition of
strict reforms on that industry, FIRREA grants bank holding companies
more expansive rights of entry into "the savings institution" market
through the acquisition of both healthy and failed savings
institutions. Under the provisions of FIRREA, a banking holding
company can expand its geographic market or increase its concentration
in an existing market by acquiring a savings institution, but the bank
holding company cannot expand its product market by acquiring a
savings institution.
FIRREA authorizes the Federal Reserve Board to approve
applications under Section 4(c)(8) of the Act for bank holding
companies to acquire savings associations, under certain conditions,
regardless of the associations' financial condition. Previously,
under the provisions of the Garn-St. Germain Depository Institutions
Act of 1983 and subsequent Federal Reserve Board interpretations, bank
holding companies could generally acquire only failing thrifts. Under
FIRREA, they realize a significant expansion of authority.
Furthermore, bank holding companies may acquire thrifts without regard
to certain restrictions on interstate banking, as long as the thrift
is operated as a separate subsidiary. FIRREA also allows a bank
holding company to merge an acquired savings association with the bank
holding company's subsidiary bank, if the bank continues to pay
insurance assessments to the Savings Association Insurance Fund for
the deposits acquired from the savings association and if, among other
conditions, the merger complies with current state law. On September
5, 1989, the Federal Reserve Board promulgated a final rule amending
Regulation Y to allow bank holding companies to acquire savings
associations.
On December 19, 1991, The Federal Deposit Insurance Corporation
Improvement Act of 1991 ("FDICIA") was enacted into law. In addition
to providing for the recapitalization of the Bank Insurance Fund
(the"BIF"), FDICIA contains, among other things: (i) truth-in savings
legislation that requires financial institutions to disclose terms,
conditions, fees and yields on deposit accounts in a uniform manner;
(ii) provisions that impose strict audit requirements and expand the
role of the independent auditors of financial institutions; (iii)
provisions that require regulatory agencies to examine financial
institutions more frequently than was required in the past; (iv)
provisions that limit the powers of state-chartered banks to those of
national banks unless the state-chartered bank meets minimum capital
requirements and the FDIC finds that the activity to be engaged in by
the state-chartered banks poses no significant risk to the BIF; (v)
provisions that require the expedited resolution of problem financial
institutions; (vi) provisions that require regulatory agencies to
develop a method for financial institutions to provide information
concerning the estimated fair market value of assets and liabilities
as supplemental disclosures to the financial statements filed with the
regulatory agencies; (vii)provisions that require regulators to
consider adopting capital requirements that account for interest rate
risk; and (viii) provisions that require the regulatory agencies to
adopt regulations that facilitate cross-industry transactions, and
(ix) provide for the acquisition of banks by thrift institutions.
While regulations implementing many of the provisions of FDICIA
have been issued by the federal banking agencies, regulations
implementing certain significant FDICIA requirements (including
requirements for establishment of operational and managerial standards
to promote bank safety and soundness and modification of regulatory
capital standards to account for interest rate risk) have not yet been
issued in final form. Consequently, it is not possible at this time
to determine the full impact FDICIA will have on the Company and its
operations. It is expected, however, that FDICIA is likely to result
in, among other things, increased regulatory compliance costs and a
greater emphasis on capital.
The Company's Subsidiaries
FBN and FBS are State chartered, Federal Reserve member banks.
They are, therefore, subject to regulation and an annual examination
by the Illinois Commissioner of Banks and Trust Companies and by the
Board of Governors of the Federal Reserve Bank. FNBN is a nationally
chartered bank and is under the supervision of and subject to the
examination by the Comptroller of the Currency. All national banks
are members of the Federal Reserve System and subject to applicable
provisions of the Federal Reserve Act and to regular examination by
the Federal Reserve Bank of their district. FSBCG is a State
chartered non-member bank and is subject to regulation and an annual
examination by the Illinois Commissioner of Banks and Trust Companies
and by the Federal Deposit Insurance Corporation.
All of the Company's banks are insured by the Federal Deposit
Insurance Corporation and each bank is consequently subject to the
provisions of the Federal Deposit Insurance Act. The examinations by
the various regulatory authorities are designed for the protection of
bank depositors and not for bank or holding company stockholders.
The federal and state laws and regulations generally applicable
to banks regulate, among other things, the scope of their business,
their investments, their reserves against deposits, the nature and
amount of and collateral for loans, minimum capital requirements and
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 collateralized by such stock
or other securities.
All banks located in Illinois have traditionally been restricted
as to the number and geographic location of branches which they may
establish. Illinois law was amended in June, 1993, to eliminate all
such branching restrictions. Accordingly, banks located in Illinois
are now permitted to establish branches anywhere in Illinois without
regard to the location of other banks' main offices or the number of
branches previously maintained by the bank establishing the branch.
Capital Requirements
In December 1992, the Federal Reserve Board's final rules for risk-
based capital guidelines became effective. These guidelines establish
risk-based capital ratios based upon the allocation of assets and
specified off-balance sheet commitments into four risk-weighted
categories. The guidelines require all bank holding companies and
banks to maintain a Tier 1 capital to risk weighted asset ratio of 4%
and a total capital to risk weighted asset ratio of 8.00%. In
addition to the risk-based capital guidelines, the Federal Reserve
Board has adopted the use of a leverage ratio as an additional tool to
evaluate the capital adequacy of banks and bank holding companies.
The leverage ratio is defined to be a company's "Tier 1" capital
divided by its adjusted total assets. The Company and its banking
subsidiaries meet or exceed these guidelines as currently defined.
Monetary Policy and Economic Conditions
The earnings of commercial banks and bank holding companies are
affected not only by general economic conditions, but also by the
policies of various governmental regulatory authorities. In
particular, the Federal Reserve Board influences conditions in the
money and capital markets, which affect interest rates and growth in
bank credit and deposits. Federal Reserve Board monetary policies
have had a significant effect on the operating results of commercial
banks in the past and are expected to in the future. Also,
assessments from the Bank Insurance Fund, which insures commercial
bank deposits, will continue to impact future earnings of the company.
Employees
As of December 31, 1993, the Company and its subsidiaries had a
total of 253 full-time and 65 part-time employees.
Item 2. Properties
The Company owns a two story office building at 27 West Main
Street, Freeport, Illinois which has a total of 13,900 square feet and
approximately 5.5 acres of land located at the northeast corner of
Lake-Cook Road and Corporate Drive in Riverwoods, Illinois. The land
in Riverwoods, Illinois was acquired in 1992 for possible future use
as a branch site or denovo bank location.
FBN conducts its operations from its offices located in Freeport,
Stockton, Rockford, Warren and Mount Carroll, Illinois. Its main
office is located at 101 West Stephenson Street, Freeport, Illinois
and includes approximately 26,400 square feet. In addition, two other
office buildings are attached to the bank's main office by a parking
deck. One is occupied by the Commercial Division. The other serves
as a drive in facility and operations center. All three buildings
including the underlying land, are owned by the Bank. FBN also
operates a remote banking facility located approximately 1.5 miles
southwest of the Bank's main office in a shopping center. The
underlying land is leased by FBN from an unaffiliated party through
1995, and the Bank has an option to renew through 2000. The annual
rental payment for the remaining two years is $6,000.
FBN conducts its operations in Mount Carroll from its quarters
located at 102 E. Market Street, Mount Carroll, Illinois and its
drive-in facility located at 315 N. Clay Street (Highway 78), Mount
Carroll, Illinois. The main bank building, containing approximately
12,000 square feet, is owned by the bank as is the underlying land.
FBN occupies the main floor and most of the basement, with total
square footage of approximately 9,000 square feet. The second floor,
containing approximately 3,400 square feet, is rented to various
professional organizations. The drive-in facility is located
approximately one block east of the main office. It houses the drive-
in and walk-up facilities as well as a small lobby in a building
containing approximately 1,200 square feet. The drive-in facility as
well as the underlying land is owned by FBN.
FBN conducts its operations in Stockton from its quarters located
at 133 W. Front Street, Stockton, Illinois. The office at Stockton
includes drive-in facilities and is approximately 8,000 square feet.
The building, underlying land and an adjoining 9,000 square foot
parking lot are owned by FBN.
FBN's office in Warren is located at 135 Main Street, Warren,
Illinois. The building, which contains approximately 9,000 square
feet is owned and occupied by the bank. The building also houses its
wholly owned insurance subsidiary, Premier Insurance Services, Inc.
FBN's office in Rockford is located at 2470 Eastrock Drive,
Rockford, Illinois. Both the building which contains approximately
2660 square feet and underlying land are leased from an unaffiliated
party through June 1994, with an option to renew annually. The
Company has not exercised its option to renew in 1994 and is exploring
alternatives for relocating its office.
FBS conducts its operations from its offices located in Dixon,
Polo, and Sterling, Illinois. Its main office is located at 102
Galena Avenue, Dixon, Illinois. The building, which contains
approximately 15,000 square feet, is owned and occupied by the bank.
The land underlying the building, as well as an adjoining parking lot,
are also owned by the bank.
FBS conducts its operations in Polo from its quarters located at
101 W. Mason St., Polo, Illinois. Drive-In and Walk-up facilities are
part of the building. The building contains approximately 17,000
square feet, and is owned by the bank as is the underlying land. FBS
occupies the first floor and the majority of the basement, with total
square footage of about 10,000 square feet. The remainder of the
basement and the second floor, which contain the remaining 7,000
square feet, are rented to various professional and/or retail
organizations.
FBS conducts its operations in Sterling from its quarters located
at 3014 E. Lincolnway, Sterling, Illinois. Drive-in and Walk-up
facilities are part of the building. The building contains
approximately 6,800 square feet. Both the building, which is occupied
solely by the bank, and the underlying land are owned by FBS.
FNBN owns the land and building on which its main office and
adjacent drive-through facility are located at 1300 Meadow Road,
Northbrook, Illinois. The two story, colonial building and drive-
through facility are located on 30,318 square feet of land. The main
building consists of 8,035 square feet. This property also includes a
satellite parking area with 29 parking spaces.
FNBN also owns the land and building located at 2755 West Dundee
Road, Northbrook, Illinois, which houses a full-service branch
facility. The building consists of 4,913 square feet and is located
on 22,500 square feet of land. FNBN leases 16,739 square feet for its
Riverwoods branch at Milwaukee and Deerfield Road. FNBN also operates
a private banking office located in the corporate headquarters of the
Sears Consumer Financial Corporation in Riverwoods, Illinois. The
Company is in the process of closing the office.
FSBCG conducts its business in Cary from its main office located
at Route 45 Highway 14. The main bank building containing
approximately 3,500 square feet is owned by the bank as well as the 4
lane drive-through and the underlying land. In addition, there is a
parking lot which contains 26,000 square feet of land.
FSBCG owns a second banking center located at 3114 Northwest
Highway, Cary, Illinois. The building consists of 1,856 square feet,
three drive-through lanes and is located on 145,953 square feet.
FSBCG is also committed to lease office space at 740-A Industrial
Drive, Cary, Illinois through October 31, 1994. The Company does not
plan to renew the lease. The Bank had planned to use the space for
its operations functions prior to consolidating their back office
areas with FNBN.
Premier Operating Systems, Inc. conducts the majority of it
operations from a two story office building at 110 West Stephenson
Street, Freeport, Illinois which has a total of 13,000 square feet.
The building and underlying land is owned by Premier Operating
Systems, Inc.
Item 3. Legal Proceedings
Neither the Company nor its subsidiaries are a party to any
material legal proceedings, other than routine litigation incidental
to the business of the banks as of December 31, 1993.
Item 4. Submission of Matters to a Vote of Security Holders
No matters, through the solicitation of proxies or otherwise,
have been submitted to a vote of security holders for the quarter
ended December 31, 1993.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
The approximate number of Holders of Common Stock as of 12/31/93
was as follows:
Title of Class No. of Record Holders
Common Stock 658
($5 Par Value)
Other information required by this item is incorporated herein by
reference to the Registrant's Annual Report to its shareholders for
the year ended December 31, 1993, which is included as an exhibit to
this report.
Item 6. Selected Financial Data
Incorporated herein by reference to the Registrant's Annual Report
to its shareholders for the year ended December 31, 1993, which is
included as an exhibit to this report.
On July 16, 1993, the Company acquired 100% of the common stock of
First Northbrook Bancorp, Inc. The acquisition was accounted for as a
purchase transaction; accordingly, the assets and liabilities of First
Northbrook Bancorp, Inc. were recorded at fair market value on the
acquisition date and the results of operations have been included in
the consolidated statements of earnings since July 16, 1993. The
business combination materially affected the comparability of the
information shown on page 26, "Five Year Summary of Selected Data" of
the Registrant's Annual Report to its shareholders for the year ended
December 31, 1993. For a discussion regarding the business
combination see footnote #12 on pages 16 and 17 of Registrant's Annual
Report.
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations
Incorporated by reference to the Registrant's Annual Report to
its shareholders for the year ended December 31, 1993, which is
included as an exhibit to this report.
Submitted herewith is the following supplementary financial
information of the registrant for each of the last five years (Unless
otherwise stated):
Distribution of Assets, Liabilities and Stockholders' Equity
Interest Rates and Interest Differential
Changes in Interest Margin for each of the last two years
Investment Portfolio
Maturities of Investments, December 31, 1993
Loan Portfolio
Loan Maturities and Sensitivity to Changes in Interest Rates,
December 31, 1993
Risk Elements in the Loan Portfolio
Summary of Loan Loss Experience
Deposits
Time Certificates and Other Time Deposits of $100,000 or more
as of December 31, 1993
Return on Equity and Assets
Short Term Borrowings
Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company,
which are included in the annual report of the registrant to its
stockholders for the year ended December 31, 1993, are submitted
herewith as an exhibit, and are incorporated by reference:
1. Consolidated Balance Sheets, December 31, 1993 and 1992
2. Consolidated Statements of Earnings, for the three years
ended December 31, 1993
3. Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1993
4. Consolidated Statements of Cash Flows for the three years
ended December 31, 1993
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
Item 9. Disagreement on Accounting and Financial Disclosure
Not Applicable
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's consolidated average daily
condensed balance sheet for each of the last five years (dollar figures in
thousands):
Year Ended December 31
1989 1990 1991 1992 1993
ASSETS:
Cash & Non-interest bearing
deposits $ 14,026 $ 16,457 $ 15,129 $ 17,162 $30,003
Interest Bearing Deposits 4,684 1,701 1,114 880 1,677
Taxable Investment Securities 119,229 119,804 114,281 95,691 102,323
Non-Taxable Investment
Securities 8,087 20,102 26,200 24,374 37,038
Total Investment Securities 127,316 139,906 140,481 120,065 139,361
Trading Account Assets --- 386 773 2,017 ---
Federal Funds Sold 13,095 9,390 1,704 656 4,706
Loans (Net) 162,537 169,711 182,975 219,684 273,951
All Other Assets 17,100 17,827 16,755 17,450 32,101
TOTAL ASSETS $338,758 $355,378 $358,931 $377,914 $481,799
LIABILITIES & STOCKHOLDERS
EQUITY:
Non-Interest Bearing Deposits $ 39,197 $ 36,437 $ 36,118 $ 38,402 $ 66,895
Interest Bearing Deposits 259,978 275,436 244,253 259,271 335,510
Total Deposits 299,175 311,873 280,371 297,673 402,405
Short Term Borrowings 12,713 12,469 49,544 47,556 24,014
Long Term Debt 1,119 4,532 826 --- ---
All Other Liabilities
& Reserves 4,312 3,500 2,861 2,844 10,785
Stockholders' Equity 21,439 23,004 25,329 29,841 44,595
TOTAL LIABILITIES & EQUITY $338,758 $355,378 $358,931 $377,914 $481,799
INTEREST RATES AND INTEREST DIFFERENTIAL
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's interest earned or paid,
as well as the average yield or average rate paid on each of the major interest
earning assets and interest bearing liabilities for each of the last five years
(dollar figures are in thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Interest Earned:
Interest Bearing Deposits
Interest Earned $ 398 $ 144 $ 94 $ 68 $ 104
Average Yield 8.50% 8.47% 8.43% 7.73% 6.20%
Taxable Investment Securities
Interest Earned 9,928 10,234 9,387 6,691 6,077
Average Yield 8.33% 8.54% 8.21% 6.99% 5.94%
Non-Taxable Investment Securities
(taxable equivalent) (1)
Interest Earned 792 1,961 2,593 2,418 3,080
Average Yield 9.79% 9.76% 9.89% 9.92% 8.32%
Trading Account Assets
Interest Earned --- 31 58 151 ---
Average Yield --- 8.03% 7.50% 7.49% ---
Federal Funds Sold
Interest Earned 1,193 768 88 25 133
Average Yield 9.11% 8.18% 5.16% 3.81% 2.83%
Loans (Excluding Unearned
Discount & Non Accrual Loans)
(taxable equivalent) (1)
Interest & Fees Earned (2) 18,517 19,226 19,357 19,860 22,262
Average Yield (3) 11.34% 11.21% 10.56% 9.06% 8.13%
Interest Paid:
Interest Bearing Deposits
Interest Paid 17,636 18,464 14,358 11,559 11,461
Average Effective Rate Paid 6.78% 6.70% 5.87% 4.46% 3.42%
Borrowed Funds
Interest Paid 1,359 968 2,921 1,800 1,289
Average Effective Rate Paid 10.69% 7.76% 5.89% 3.79% 5.37%
Long Term Debt
Interest Paid 118 465 88 --- ---
Average Effective Rate Paid 10.50% 10.26% 10.65% --- ---
Margin Between Rates Earned
and Rates Paid:
All Interest Earnings Assets
(taxable equivalent)
Interest & Fees Earned 30,828 32,364 31,577 29,213 31,656
Average Yield 10.00% 10.02% 9.65% 8.52% 7.55%
All Interest Bearing Liabilities
Interest Paid 19,113 19,898 17,367 13,359 12,750
Average Effective Rate Paid 6.98% 6.80% 5.89% 4.35% 3.55%
Net Interest Earned 11,715 12,466 14,210 15,854 18,906
Net Yield 3.77% 3.86% 4.34% 4.62% 4.43%
(1) Yields on tax exempt securities and loans are full tax equivalent yields at
34%.
(2) Includes fees of $247, $255, $548, $568 and $718 for 1989 through 1993
respectively.
(3) There were no material out-of-period adjustments or foreign activities for
any reportable period.
CHANGES IN INTEREST MARGIN
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's dollar amount of
change in interest earned on each major interest earning assets and the
dollar amount of change in interest paid on each major interest bearing
liabilities, as well as the portion of such changes attributable to changes
in rate and changes in volume for each of the last two years (Dollar
figures in thousands):
Increase (Decrease)
1992 over 1991 1993 over 1992
Rate Volume Rate Volume
Changes in Interest Earned:
Interest Bearing Deposits $ (8) $ (18) (16) 52
Taxable Investment Securities (1,287) (1,409) (1,055) 441
Non-taxable Investment Securities
(taxable equivalent) 8 (183) (438) 1,100
Trading Account Assets --- 93 --- (151)
Fed Funds Sold (19) (44) (8) 116
Loans (net) (2,982) 3,485 (2,185) 4,587
Total $(4,288) $1,924 $ (3,702) 6,145
Changes in Interest Paid:
Interest Bearing Deposits $(3,633) $ 834 (3,051) 2,953
Short Term Borrowings (1,008) (113) 581 (1,092)
Long Term Debt --- (88) --- ---
Total $(4,641) 633 (2,470) 1,861
Changes in Interest Margin $ 353 $1,291 $ (1,232) $4,284
Changes attributable to rate/volume, i.e., changes in the interest
margin which occurred because of a combination rate/volume change and
cannot be attributed solely to a rate change or a volume change, are
apportioned between rate and volume as follows:
1. Percentage rate increases (decreases) in rate and in volume were
calculated for each major interest earning asset and interest
bearing liability based upon their year-to-year change.
2. The percentage rate changes in rate and in volume were then
allocated proportionately in relationship to 100%.
3. The proportionate allocations were applied to the total
rate/volume change.
INVESTMENT PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's book values of investments
in obligations of the U.S. Treasury Government Agencies and Corporations, State
and Political Subdivisions (U.S.), and other securities for each of the last
five years (dollar figures in thousands):
1989 1990 1991 1992 1993
U.S. Treasury and U.S. Agency
Securities $104,252 $114,485 $ 89,825 $ 77,897 $140,725
Obligations of States and
Political Subdivisions 16,151 26,145 25,258 24,358 36,693
Other Securities 16,308 16,425 10,308 3,580 3,068
Total $136,711 $157,055 $125,391 $105,835 $180,486
The following table sets forth the registrant's book values of investments
in obligations of the U.S. Treasury, U.S. Government Agencies and Corporations,
State and Political Subdivisions (U.S.), and other securities as of December
31, 1993 by maturity and also sets forth the weighted average yield for each
range of maturities.
Obligations of
U.S. Treasury States and Weighted
and U.S. Agency Political Other Average
Book Value: Securities Subdivision Securities Yield
One Year or Less $ 26,650 $ 5,543 $ 274 4.87%
After One Year to Five Years 94,916 23,967 284 6.55%
After Five Years to Ten Years 5,671 6,238 --- 9.20%
Over Ten Years 13,488 945 2,510 10.17%
Total $ 140,725 $ 36,693 $ 3,068 6.76%
(1) Weighted Average Yields were calculated as follows:
1. The weighted average yield for each category in the portfolio was
calculated based upon the maturity distribution shown in the table
above.
2. The yields determined in step 1 were weighted in relation to the total
investments in each maturity range shown in the table above.
(2) Yields on tax exempt securities are full tax equivalent yields at a 34%
rate.
(3) At December 31, 1993 the Company did not own any Obligation of a State or
Political Subdivision or Other Security which was greater than 10% of its
total equity capital.
LOAN PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's Loan Portfolio by major
category for each of the last five years (dollar figures in thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Commercial & Financial Loans $ 56,773 $ 56,043 $ 83,777 $ 88,341 $121,514
Agricultural Loans 25,308 38,738 32,428 45,924 40,972
Real Estate - Residential
Mortgage Loans 54,112 56,980 66,256 54,728 103,234
Real Estate - Other 12,551 10,130 18,289 16,904 35,832
Loans to Individuals 16,004 16,185 13,364 13,268 29,728
Other Loans 30 1,857 859 980 625
164,778 179,933 214,973 220,145 331,905
Less:
Unearned Discount 200 223 231 182 518
Allowance for Possible
Loan Losses 3,477 3,160 3,202 2,713 4,369
Net Loans $161,101 $176,550 $211,540 $217,250 $327,018
The following tables set forth the registrant's loan maturity distribution for
certain major categories of loans as of December 31, 1993 (dollar figures in
thousands).
AMOUNT DUE IN
1 Year or Less 1-5 Years After 5 Years
Commercial & Financial Loans $ 66,089 $ 51,875 $ 3,550
Agricultural Loans 18,176 17,583 5,213
Real Estate - Other Loans 15,964 16,973 2,895
Total $ 100,229 $ 86,431 $ 11,658
As of December 31, 1993 loans totaling $67,715,000, which are due after
one year have predetermined interest rates, while $30,374,000 of loans due
after one year have floating interest rates.
RISK ELEMENTS IN THE LOAN PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The Company's financial statements are prepared on the accrual basis of
accounting, and substantially all of the loans currently accruing interest are
accruing at the rate contractually agreed upon when the loan was negotiated.
When in the judgement of management the timely receipt of interest payments on
a loan is doubtful, it is the Company's policy to cease the accrual of interest
thereon and to recognize income on a cash basis when payments are received,
unless there is adequate collateral or other substantial basis for continued
accrual of interest. An exception is made in the case of consumer installment
and charge card loans; such loans are not placed on a cash basis and all
interest accrued thereon is charged against income at the time a loan is
charged off. At the time a loan is placed in non-accrual status all interest
accrued in the current year but not yet collected is reversed against current
interest income. Troubled debt restructurings (renegotiated loans) are loans
on which interest is being accrued at less than the original contractual rate
of interest because of the inability of the borrower to service the obligation
under the original terms of the agreement. Income is accrued at the
renegotiated rate so long as the borrower is current under the revised terms
and conditions of the agreement. Other Real Estate is real estate, sales
contracts, and other assets acquired because of the inability of the borrower
to serve the obligation of a previous loan collateralized by such assets.
The following table sets forth the registrant's non-accrual, past due, and
renegotiated loans, and other Real Estate for each of the last five years
(dollar figures in thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Non-accrual Loans $ 1,908 $ 156 $ 3,683 $ 2,915 $ 5,791
Loans Past Due 90 days
or More 1,074 946 501 152 5,151
Renegotiated Loans 1,115 372 314 288 523
Other Real Estate 350 210 48 153 1,749
Total $ 4,447 $ 1,684 $ 4,546 $ 3,508 $13,214
In addition to the non-performing loans shown above the registrant from
time-to-time has certain loans which although not currently non-performing are
potential problem loans. Potential problem loans are those for which there are
serious doubts as to the ability of the borrowers to comply with present loan
repayment terms. As of December 31, 1993 loans considered potential problem
loans were not material. The registrant had no foreign loans outstanding in
any of the reported periods.
The following table sets forth interest information for certain non-
performing loans for the year ended December 31, 1993 (dollar figures in
thousands):
Non-Accrual Loans Renegotiated Loans
Balance December 31, 1993 $ 5,791 $ 523
Gross interest income that would
have been recorded if the loans
had been current in accordance
with their original terms 471 57
Amount of interest included in
net earnings. 55 47
SUMMARY OF LOAN LOSS EXPERIENCE
PREMIER FINANCIAL SERVICES, INC.
The Company and its subsidiary banks have historically evaluated the
adequacy of their Allowance for Possible Loan Losses on an overall basis, and
the resulting provision charged to expense has similarly been determined in
relation to management's evaluation of the entire loan portfolio. In
determining the adequacy of its Allowance for Possible Loan Losses, management
considers such factors as the size, composition and quality of the loan
portfolio, historical loss experience, current loan losses, current potential
risks, economic conditions, and other risks inherent in the loan portfolio.
Because the Company has historically evaluated its Allowance for Loan
Losses on an overall basis, the Allowance has not been allocated by category.
The allocation shown in the table below, encompassing the major segments of the
loan portfolio judged most informative by management, represents only an
estimate for each category of loans based upon historical loss experience and
management's judgement of amounts deemed reasonable to provide for the
possibility of losses being incurred within each category. Approximately 24%
remain unallocated as a general valuation reserve for the entire portfolio to
cover unexpected variations from historical experience in individual
categories. The following table sets forth the registrant's loan loss
experience for each of the last five years (dollar figures in thousands):
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/93:
Loans-year End
(Gross) $162,486 $139,066 $29,728 $ 625 --- $331,905
Average Loans
(Gross) 148,376 107,254 21,498 800 --- 277,928
Allowance for Loan
Losses (Beginning
of Year) 1,062 853 77 21 700 2,713
Allowance from
Acquired Entities 750 750 500 --- 351 2,351
Loans Charged Off 1,845 546 129 --- --- 2,520
Recoveries - Loans
Previously Charged
Off 138 --- 67 --- --- 205
Net Loan Losses
(Recoveries) 1,707 546 62 --- --- 2,315
Operating Expense
Provision 1,000 550 70 --- --- 1,620
Allowance For Loan
Losses (Year End) 1,105 1,607 585 21 1,051 4,369
Ratios:
Loans in Category to
Total Loans 48.96% 41.90% 8.96% .18% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans 1.15% .51% .29% --- --- .83%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/92:
Loans-year End
(Gross) $ 134,265 $ 71,632 $ 13,268 $ 980 $ --- $220,145
Average Loans
(Gross) 129,764 77,851 13,976 1,041 --- 222,632
Allowance for Loan
Losses (Beginning
of Year) 1,553 832 97 21 700 3,203
Loans Charged Off 925 9 124 --- --- 1,058
Recoveries - Loans
Previously Charged
Off 159 30 54 --- --- 243
Net Loan Losses
(Recoveries) 766 (21) 70 --- --- 815
Operating Expense
Provision 275 --- 50 --- --- 325
Allowance For Loan
Losses (Year End) 1,062 853 77 21 700 2,713
Ratios:
Loans in Category to
Total Loans 60.99% 32.54% 6.03% .44% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .59% (.03%) .50% --- --- .37%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/91:
Loans-year End
(Gross) $ 116,205 $ 84,545 $ 13,364 $ 859 $ --- $214,973
Average Loans
(Gross) 101,545 69,453 13,873 1,500 --- 186,371
Allowance for Loan
Losses (Beginning
of Year) 1,394 837 208 21 700 3,160
Loans Charged Off 337 36 165 --- --- 538
Recoveries - Loans
Previously Charged
Off 496 31 54 --- --- 581
Net Loan Losses
(Recoveries) (159) 5 111 --- --- (43)
Operating Expense
Provision --- --- --- --- --- ---
Allowance For Loan
Losses (Year End) 1,553 832 97 21 700 3,203
Ratios:
Loans in Category to
Total Loans 54.06% 39.32% 6.22% .40% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans (.16%) .01% .80% --- --- (.02%)
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/90:
Loans-year End
(Gross) $ 94,781 $ 67,110 $ 16,185 $ 1,857 $ --- $179,933
Average Loans
(Gross) 88,431 66,887 15,789 2,204 --- 173,311
Allowance for Loan
Losses (Beginning
of Year) 1,647 824 285 21 700 3,477
Loans Charged Off 712 58 120 --- --- 890
Recoveries - Loans
Previously Charged
Off 459 71 43 --- --- 573
Net Loan Losses
(Recoveries) 253 (13) 77 --- --- 317
Operating Expense
Provision --- --- --- --- --- ---
Allowance For Loan
Losses (Year End) 1,394 837 208 21 700 3,160
Ratios:
Loans in Category to
Total Loans 52.68% 37.30% 9.00% 1.02% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .29% (.02%) .49% --- --- .18%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/89:
Loans-year End
(Gross) $ 82,081 $ 66,663 $ 16,004 $ 30 $ --- $164,778
Average Loans
(Gross) 81,908 66,273 20,184 2,311 --- 166,054
Allowance for Loan
Losses (Beginning
of Year) 1,181 830 301 21 700 3,033
Loans Charged Off 95 124 80 --- --- 299
Recoveries - Loans
Previously Charged
Off 561 118 64 --- --- 743
Net Loan Losses
(Recoveries) (466) 6 16 --- --- (444)
Operating Expense
Provision --- --- --- --- --- ---
Allowance For Loan
Losses (Year End) 1,647 824 285 21 700 3,477
Ratios:
Loans in Category to
Total Loans 49.81% 40.46% 9.71% .02% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans (.57%) .01% .08% --- --- (0.27%)
DEPOSITS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's average daily deposits
for each of the last five years (dollar figures in thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Demand Deposits (Non-
Interest Bearing) $ 39,197 $ 36,437 $ 36,119 $ 38,402 $66,895
Demand Deposits (Interest
Bearing) 34,977 32,948 38,194 44,772 57,937
Savings Deposits 75,155 71,821 67,456 73,684 95,351
Time Deposits 149,846 170,667 138,603 140,815 182,222
Deposits in Foreign Bank
Offices None None None None None
TOTAL DEPOSITS $299,175 $311,873 $280,372 $297,673 $402,405
The following table sets forth the average rate paid on interest
bearing deposits by major category for each of the last five years (dollar
figures in thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Demand Deposits (Interest
Bearing) 5.00% 5.26% 4.83% 3.67% 2.41%
Savings Deposits 6.26% 5.45% 4.89% 3.52% 2.74%
Time Deposits 7.47% 7.50% 6.65% 5.20% 4.09%
TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE
PREMIER FINANCIAL SERVICES, INC.
The following table sets for the registrant's maturity distribution
for all time deposits of $100,000 or more as of December 31, 1993 (in
thousands):
Maturity Amount Outstanding
3 months or less $ 9,583
3 through 6 months 9,936
6 through 12 months 4,970
Over 12 months 6,353
TOTAL $ 30,842
RETURN ON EQUITY AND ASSETS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's return on average
assets, return on average equity, dividend payout ratio, and average equity
to average asset ratio for each of the last five years:
Year Ended December 31
1989 1990 1991 1992 1993
Return on Average Assets .69% .81% 1.01% 1.15% .83%
Return of Average
Common Equity 10.92% 12.53% 14.29% 14.58% 10.80%
Return on Average Equity 10.92% 12.53% 14.29% 14.58% 8.99%
Dividend Payout Ratio 17.09% 16.32% 16.75% 19.73% 29.27%
Average Equity to Average
Asset Ratio 6.33% 6.47% 7.06% 7.90% 9.26%
SHORT TERM BORROWINGS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth a summary of the registrant's short-
term borrowings for each of the last five years (dollar figures in
thousands):
Year Ended December 31
1989 1990 1991 1992 1993
Balance at End of Period:
Federal Funds Purchased $ 1,562 $ 4,272 $ 14,241 $ 4,272 $ ---
Securities Sold Under
Repurchase Agreements 2,757 50,534 43,688 14,854 20,571
Notes Payable to Banks 3,300 1,030 260 1,880 12,410
Other 2,500 2,000 --- --- ---
TOTAL $ 10,119 $ 57,836 $ 58,189 $21,006 $32,981
Weighted Average Interest
Rate at the end of Period:
Federal Funds Purchased 8.26% 7.68% 4.75% 3.53% ---
Securities Sold Under
Repurchase Agreements 7.15% 7.19% 4.53% 3.79% 2.76%
Notes Payable to Banks 10.00% 10.00% 6.50% 6.00% 6.00%
Other 7.00% 6.50% --- --- ---
Highest Amount Outstanding
at Any Month-End:
Federal Funds Purchased $ 3,368 $ 7,072 $ 14,241 $16,614 $18,535
Securities Sold Under
Repurchase Agreements 3,082 50,534 47,033 45,557 23,952
Notes Payable to Banks 8,550 3,300 1,115 1,880 17,500
Other 2,500 2,380 2,000 --- ---
Average Outstanding During
the Year:
Federal Funds Purchased $ 1,759 $ 2,737 $ 6,305 $10,715 8,534
Securities Sold Under
Repurchase Agreements 2,221 8,187 42,320 36,073 15,480
Notes Payable to Banks 8,476 1,370 760 768 7,362
Other 103 176 160 --- ---
Weighted Average Interest
Rate During the Year:
Federal Funds Purchased 9.11% 8.00% 5.78% 3.93% 3.30%
Securities Sold Under
Repurchase Agreements 7.38% 7.31% 5.87% 3.74% 3.58%
Notes Payable to Banks 11.18% 10.17% 8.63% 6.12% 6.14%
Other 7.00% 6.75% 6.40% --- ---
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 25, 1994 in connection with its annual meeting to be held on
April 28, 1994.
Item 405 of Regulation S-K calls for disclosure of any known late
filing or failure by an insider to file a report required by Section 16 of
the Exchange Act. This disclosure is contained in the Registrant's Proxy
Statement dated March 25, 1994 on page 20 under the Section "Compliance
with Section 16 (a) of the Exchange Act" and is incorporated herein by
reference in this Annual Report on Form 10-K.
Item 11. Executive Compensation
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 25, 1994, in connection with its annual meeting to be held on
April 28, 1994.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 25, 1994, in connection with its annual meeting to be held on
April 28, 1994.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Registrant's Proxy Statement
dated March 25, 1994 in connection with its annual meeting to be held on
April 28, 1994.
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. The following documents are filed as a part of this report:
A. Consolidated Financial Statements of the Company which are
included in the annual report of the registrant to its stock-
holders for the year ended December 31, 1993 as follows:
1. Consolidated Balance Sheets, December 31, 1993 and 1992
2. Consolidated Statements of Earnings, for the three years
ended December 31, 1993.
3. Consolidated Statements of Cash Flows, for the three years
ended December 31, 1993.
4. Consolidated Statements of Changes in Stockholders'
Equity, for the three years ended December 31, 1993.
5. Independent Auditors' Report
6. Notes to Consolidated Financial Statements
B. Financial Statement Schedules as follows:
Schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange
Commission have been omitted because they are not required
under the related instructions or the required information
as set forth in the financial statements and related
notes.
C. Exhibits as follows:
13. Premier Financial Services, Inc. Annual Report for 1993.
21. Subsidiaries of the Registrant.
22. Published report regarding matters submitted to vote of
security holders. See previous filing submitted on
March 21, 1994.
23. Consents of Experts and Counsel.
99. Premier Financial Services, Inc. Stock and Savings Plan
Form 11-K Annual Report for the Fiscal Year
ended December 31, 1993.
2. Reports on Form 8-K
The registrant has not filed a report on Form 8-K, during the
quarter ended December 31, 1993.
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.
Premier Financial Services, Inc.
Richard L. Geach
By: Richard L. Geach, President
Chief Executive Officer and Director
Date: March 24, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
D. L. Murray Donald E. Bitz
By: D. L. Murray, Executive Vice President
Chief Financial Officer and Director
Date: March 24, 1994 Date: March 24, 1994
R. Gerald Fox Charles M. Luecke
Date: March 24, 1994 Date: March 24, 1994
Joseph C. Piland H. Barry Musgrove
Date: March 24, 1994 Date: March 24, 1994
H. L. Fenton E. G. Maris
Date: March 24, 1994 Date: March 24, 1994
TO OUR STOCKHOLDERS:
Premier Financial Services, Inc. made a major strategic move in
1993 by merging with First Northbrook Bancorp, Inc. In making
the move, we became a much larger Company (by about 70%) doing
business in some new and exciting markets; McHenry, Lake and Cook
counties.
For many months before we made our final decision to acquire
First Northbrook, your Board of Directors evaluated every
possible aspect of the transaction. For example, we were aware
that immediately after the merger our level of non-performing
assets would increase significantly. As past history indicates,
we're prepared to deal with that situation aggressively and
successfully. The systems have been in place for years, and
improved asset quality is one of our top priorities for 1994. We
also knew that a transaction this size comes with a number of
challenges; pressure on earnings, major systems changes,
geographic dispersion, etc.
For every challenge we identified, however, there were major
opportunities. We've taken a significant step forward in
diversifying our market areas while providing tremendous new
sales opportunities. We've already experienced considerable
success in this area, particularly in Trust and other non-banking
services.
Naturally, a merger of this size will take several years to fully
assimilate. Training, product development and maximizing
available economies are a few of the issues at hand. We're
fortunate in having a fine group of officers and employees in our
new market areas who are committed to distinguishing Premier in
the marketplace by providing high quality, professionally
delivered financial services.
As we progress over the next several years, we plan on continuing
to differentiate Premier from our competition through product
choice, quality delivery and an uncompromising zeal towards
customer service. We remain committed to serving our customer's
needs by providing them with a full line of financial choices
including investments, annuities, mutual funds, transaction
accounts, loans, fiduciary services, insurance and others. Our
focus on the total customer relationship is what makes Premier
special, and different from those who concentrate on selling only
their own products.
The banking industry also continues to undergo massive change.
Regulatory issues notwithstanding, our industry is restructuring
in response to what our customers want and have a right to
expect. Our decision to define our business as "financial
services" rather than "banking" allows us to be more responsive
to customer needs. We intend to continue being the best in those
services we offer.
Your continued support is much appreciated. Our financial
performance in 1993 was not up to the standards we've set for
Premier. We encourage you to read "Management's Discussion and
Analysis of Financial Condition" contained in this report. It
details the major reasons for our lackluster 1993, and should
give you a sense of where we're headed. Please be assured we'll
continue to strive for the superior performance you deserve.
Cordially,
Richard L. Geach
President, & Chief Executive Officer
David L. Murray
Executive Vice President & Chief
Financial Officer
<TABLE>
<CAPTION>
Consolidated Balance Sheets
December 31, 1993 and 1992
1993 1992
- ----------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash & non-interest bearing deposits (note 2) $26,151,048 $18,680,160
Interest bearing deposits 20,227,486 1,010,440
Federal funds sold 9,977,000 2,190,000
- ----------------------------------------------------------------------------------------------------------
Cash and cash equivalents 56,355,534 21,880,600
- ----------------------------------------------------------------------------------------------------------
Investment securities (note 3)
approximate market value: 1993 - $ 41,572,000
1992 - $ 29,718,000 39,787,245 28,314,011
Securities available for sale (note 3)
approximate market value: 1993 - $141,744,000
1992 - $ 78,758,000 140,699,066 77,520,998
Loans (note 4) 331,905,335 220,144,987
Less: Unearned discount ( 517,932) ( 182,295)
Allowance for possible loan losses ( 4,369,290) ( 2,712,863)
- ----------------------------------------------------------------------------------------------------------
Net loans 327,018,113 217,249,829
- ----------------------------------------------------------------------------------------------------------
Bank premises & equipment (note 5) 15,153,969 11,640,584
Excess cost over fair value of net assets acquired 23,193,016 3,009,951
Accrued interest receivable 5,070,332 3,696,238
Other assets 3,385,935 712,199
- ----------------------------------------------------------------------------------------------------------
Total assets $610,663,210 $364,024,410
- ----------------------------------------------------------------------------------------------------------
Liabilities & stockholders' equity
Non-interest bearing deposits 104,976,862 49,979,533
Interest bearing deposits 413,042,081 258,913,579
- ----------------------------------------------------------------------------------------------------------
Deposits 518,018,943 308,893,112
- ----------------------------------------------------------------------------------------------------------
Short-term borrowings (note 6) 12,410,000 6,152,000
Securities sold under agreements to repurchase (note 6) 20,571,658 14,854,410
Accrued taxes & other expenses 3,667,295 2,086,362
Other liabilities 579,275 300,880
- ----------------------------------------------------------------------------------------------------------
Liabilities 555,247,171 332,286,764
- ----------------------------------------------------------------------------------------------------------
Stockholders' equity (notes 8 and 12)
Preferred stock - $1 par value, 1,000,000 shares authorized:
Series A perpetual, $1,000 stated value, 8.25%, 7,000 shares
authorized, 5,000 shares issued and outstanding; 5,000,000 -
Series B convertible, $1,000 stated value, 7.50%, 7,250 shares
authorized, 5,950 shares issued and outstanding; 5,950,000 -
Series C perpetual, $1,000 stated value, 7.00%, 1,950 shares
authorized, issued and outstanding; 1,950,000 -
Series D perpetual, $1,000 stated value, 9.00%, 3,300 shares
authorized, issued and outstanding; 3,300,000 -
Common stock- $5.00 par value
No. of Shares 1993 1992
Authorized 2,500,000 2,500,000
Issued 2,172,863 1,993,146
Outstanding 2,163,107 1,927,536 10,864,315 9,965,730
Surplus 16,134,180 12,533,290
Retained earnings 12,426,322 9,989,149
Less: Treasury stock, (9,756 shares at cost, 1993
and 65,610 shares at cost, 1992) ( 208,778) ( 750,523)
- ----------------------------------------------------------------------------------------------------------
Stockholders' equity 55,416,039 31,737,646
Commitments & contingencies (note 10)
- ----------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity 610,663,210 364,024,410
- ----------------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1993, 1992 and 1991
Interest income 1993 1992 1991
<S> <C> <C> <C>
Interest & fees on loans $22,235,746 $19,821,679 $19,295,440
Interest & dividends on investment securities:
Taxable 6,077,449 6,691,118 9,386,565
Exempt from federal income tax 1,891,854 1,596,176 1,711,685
Other interest income 236,540 244,232 240,477
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income 30,441,589 28,353,205 30,634,167
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 11,461,443 11,558,533 14,357,631
Interest on short-term borrowings 1,289,326 1,800,075 2,920,529
Interest on long-term debt - - 88,142
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense 12,750,769 13,358,608 17,366,302
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 17,690,820 14,994,597 13,267,865
Provision for possible loan losses (note 4) 1,620,000 325,000 -
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 16,070,820 14,669,597 13,267,865
- -----------------------------------------------------------------------------------------------------------------------------------
Other income
Trust fees 2,161,597 1,855,838 1,852,063
Service charges on deposits 1,466,387 934,461 798,246
Net gains on loans sold to secondary market 886,231 649,707 107,082
Investment securities gains, net (note 3) 136,391 358,038 398,189
Other operating income 1,342,701 976,597 760,437
- -----------------------------------------------------------------------------------------------------------------------------------
Other income 5,993,307 4,774,641 3,916,017
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses
Salaries 6,814,448 5,996,881 5,888,896
Pension, profit sharing, & other employee benefits (note 7) 825,066 803,954 872,887
Net occupancy of bank premises 1,523,649 1,117,690 1,022,333
Furniture & equipment 1,064,031 882,818 854,227
Federal deposit insurance premiums 918,447 650,656 611,783
Amortization of excess cost over fair value of net assets acquired 833,838 194,197 194,197
Other 4,493,368 3,462,725 2,818,730
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses 16,472,847 13,108,921 12,263,053
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 5,591,280 6,335,317 4,920,829
Applicable income taxes (note 9) 1,580,070 1,983,202 1,302,434
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $4,011,210 $4,352,115 $3,618,395
===================================================================================================================================
Earnings per share (note 8)
(On weighted average outstanding common
shares of 2,081,699 in 1993, 1,951,929
in 1992 and 1,892,442 in 1991) $1.64 $2.23 $1.91
===================================================================================================================================
See accompanying notes to consolidated financial statements
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1993, 1992 and 1991
1993 1992 1991
------ ------ ------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $4,011,210 $4,352,115 $3,618,395
Adjustments to reconcile net earnings
to net cash from operating activities:
Amortization net, related to:
Investment securities 1,239,194 110,677 95,608
Excess of cost over net assets acquired 833,838 194,197 194,197
Other 178,029 ( 36,348) 39,497
Depreciation 1,076,355 893,735 859,316
Provision for possible loan losses 1,620,000 325,000 -
Gain on sale related to:
Investment securities ( 136,391) ( 358,038) ( 398,189)
Loans sold to secondary market ( 886,231) ( 649,707) ( 107,082)
Loans originated for sale ( 58,485,000) (62,810,000) ( 16,555,000)
Loans sold to secondary market 58,485,000 62,810,000 16,555,000
Deferred income tax (benefit) expense 151,000 ( 38,443) ( 24,206)
Change in:
Securities available for sale ( 64,108,609) - -
Trading account assets - 500,000 1,311,687
Accrued interest receivable ( 1,374,094) 682,283 1,070,925
Other assets ( 4,850,293) 143,885 ( 69,614)
Accrued taxes & other expenses 1,580,933 14,135 ( 187,154)
Other liabilities 127,395 ( 185,852) 152,746
- ----------------------------------------------------------------------------------------------
Net cash from operating activities ( 60,537,664) 5,947,639 6,556,126
- ----------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash portion of acquisition, net of
cash and cash equivalents acquired ( 2,390,348) - -
Purchase of investment securities ( 20,141,426) (78,440,053) ( 36,092,212)
Proceeds from:
Maturities of investment securities 5,038,965 49,218,292 9,401,160
Sales of investment securities 3,456,965 49,024,966 58,657,720
Net increase in loans (110,655,210) ( 5,348,240) ( 34,923,147)
Purchase of bank premises & equipment ( 4,614,612) ( 4,949,619) ( 543,457)
Other - net 212,699 161,690
- ----------------------------------------------------------------------------------------------
Net cash from investing activities (129,305,666) 9,718,045 ( 3,338,246)
- ----------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 209,125,831 22,113,588 ( 4,611,421)
Securities sold under agreements to repurchase 5,717,248 (28,833,142) ( 6,846,929)
Short term borrowings 6,258,000 ( 8,349,000) 7,199,000
Repayments of long-term debt - - ( 1,119,264)
Purchase of treasury stock ( 208,778) - ( 458,268)
Reissuance of treasury stock - - 881,432
Exercised stock options - 74,901 -
Issuance of Series A preferred stock 5,000,000 - -
Cash dividends paid ( 1,574,037) ( 831,206) ( 541,369)
- ----------------------------------------------------------------------------------------------
Net cash from financing activities 224,318,264 (15,824,859) ( 5,496,819)
- ----------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents 34,474,934 ( 159,175) ( 2,278,939)
Cash and cash equivalents, beginning of year 21,880,600 22,039,775 24,318,714
- ----------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $56,355,534 $21,880,600 $22,039,775
- ----------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $12,885,202 $13,663,283 $17,874,269
Income taxes 1,980,000 1,836,881 1,321,656
Investment securities transferred to
securities available for sale - 77,520,998 -
Purchase of Bank Subsidiaries
Fair value of assets acquired 248,018,274 - -
Cash paid ( 16,325,000) - -
Common and preferred stock issued ( 16,450,000) - -
Excess cost over fair value of assets acquired 21,007,210 - -
Fair value of liabilities assumed 236,250,484 - -
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
<CAPTION>
Consolidated Statements of Changes in Stockholders' Equity
Years ended December 31, 1993, 1992, and 1991
ESOP Shares
Preferred Commom Retained Treasury Purchased
Stock Stock Surplus Earnings Stock With Debt Tot
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1991 $ - $8,646,535 $10,316,087 $6,852,711 ( $1,173,687) ( $413,011) $24,2
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 3,618,395 3,6
Cash dividends-$.32/share ( 541,369) ( 5
5% stock dividend (note 8) 404,225 444,648 ( 848,873)
Employee stock ownership plan
debt reduction (note 6) 200,312 2
Treasury stock reissuance (74,761 shares) 881,432 8
Treasury stock purchase (34,490 shares) ( 458,268) ( 4
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31,1991 - 9,050,760 10,760,735 9,080,864 ( 750,523) ( 212,699) 27,9
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 4,352,115 4,3
Cash dividends-$.44/share ( 831,206) ( 8
10% stock dividend (note 8) 870,875 1,741,749 ( 2,612,624)
Employee stock ownership plan
debt reduction (note 6) 212,699 2
Exercised stock options (8,819 shares) 44,095 30,806
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31,1992 - 9,965,730 12,533,290 9,989,149 ( 750,523) - 31,7
- ------------------------------------------------------------------------------------------------------------------------------------
Net earnings 4,011,210 4,0
Cash dividends common stock $.48/share ( 981,755) ( 9
Cash dividends preferred stock ( 592,282) ( 5
Issuance of Series A perpetual pref. shares 5,000,000 5,
Issuance of shares in acquisition (note 12):
Common shares 898,585 3,600,890 4,4
Series B convertible preferred shares 5,950,000 5,9
Series C perpetual preferred shares 1,950,000 1,9
Series D perpetual preferred shares 3,300,000 3,3
Treasury stock reissuance (65,610 shares) 750,523 7
Treasury stock purchase (9,756 shares) ( 208,778) ( 2
- ------------------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 $16,200,000 $10,864,315 $16,134,180 $12,426,322 ( $208,778) - $55,
- ------------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
Independent Auditors' Report
The Board of Directors
Premier Financial Services, Inc.
We have audited the accompanying consolidated balance sheets of Premier
Financial Services, Inc. and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of earnings, changes in stockholders'
equity and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Premier
Financial Services, Inc. and subsidiaries at December 31, 1993 and 1992, and
the results of their operations and their cash flows for each of the years in
the three-year period ended December 31, 1993 in conformity with generally
accepted accounting principles.
KPMG Peat Marwick
Chicago, Illinois
January 28, 1994
Notes to Consolidated Financial Statements
1. Significant accounting policies
The accompanying consolidated financial statements conform to
generally accepted accounting principles and to general practices
within the banking industry. The following is a description of
significant accounting policies.
Principles of consolidation
The accompanying consolidated financial statements include the
accounts of Premier Financial Services, Inc. (the Company) and its
subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
Investment securities
Investment securities are stated at cost adjusted for amortization of
premiums and accretion of discounts on the level yield method over the
life of the security. The adjusted cost of specific securities sold
is used to compute gains or losses on security transactions.
Management has the intent and ability to hold these investment
securities to maturity.
Securities available for sale
Securities which management believes could be sold prior to maturity
in order to manage interest rate, prepayment, or liquidity risk are
classified as "securities available for sale" and are carried at the
lower of aggregate amortized cost or market value. Accordingly, no
valuation allowances were required at December 31, 1993 and 1992. The
adjusted cost of specific securities sold is used to compute gains or
losses on security transactions.
Trading account assets
Assets purchased for trading purposes are held in the trading account
portfolio at market value. Net profits or losses on trading activity
are included in other income or other expense in the accompanying
consolidated statements of earnings. There were no trading account
assets at December 31, 1993 and 1992.
Loans
Loans are stated at face value less unearned discounts. Interest
income on loans not discounted is computed on the principal balance
outstanding. Interest income on discounted loans is computed on a
basis which results in an approximate level rate of return over the
term of the loan. Accrual of interest is discontinued on a loan when
management believes that the borrower's financial condition is such
that collection of interest is doubtful.
Allowance for possible loan losses
The allowance for possible loan losses is increased by provisions
charged to expense and recoveries on loans previously charged off, and
reduced by loans charged off in the period. The allowance is based on
past loan loss experience, management's evaluation of the loan
portfolio considering current economic conditions and such other
factors, which, in management's best judgment, deserve current
recognition in estimating loan losses. Regulatory examiners may
require the Company to recognize additions to the allowances based
upon their judgments about information available to them at the time
of their examination.
Bank premises and equipment
Bank premises and equipment are stated at cost, less accumulated
depreciation and amortization. Depreciation expense is computed on a
straight line basis over the estimated useful life of each asset.
Rates of depreciation are based on the following: building 40 years
and equipment 3-15 years. Cost of major additions and improvements
are capitalized. Expenditures for maintenance and repairs are
reflected as expense when incurred.
Interest rate swaps
Interest rate swap agreements are used to assist in the Company's
asset/liability management process. The net settlement on interest
rate swaps used in asset/liability management is recorded as an
adjustment to interest expense.
Excess cost over fair value of net assets acquired
The excess cost over fair value of net assets acquired is being
amortized over 25 years for acquisitions prior to 1985, and over 15
years for acquisitions subsequent to that date using the straight line
method.
Income taxes
The Company and its subsidiaries file consolidated federal and state
income tax returns. Effective January 1, 1993 the Company adopted
SFAS No. 109, "Accounting for Income Taxes." Prior to this date, the
Company followed APB Opinion No. 11. Statement 109 requires a change
from the deferred method of accounting for income taxes under APB
Opinion
No. 11 to the asset and liability method of accounting for income
taxes. Under the asset and liability method of Statement 109,
deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date. The adoption of SFAS No. 109 had an
immaterial impact on the financial statements of the Company.
Pursuant to the deferred method under APB Opinion 11, which was
applied in 1992 and prior years, deferred income taxes are recognized
for income and expense items that are reported in different years for
financial reporting purposes and income tax purposes using the tax
rate applicable for the year of the calculation.
Under the deferred method, deferred taxes are not adjusted for
subsequent changes in tax rates.
Pension Plan
The projected unit credit method is utilized for measuring net
periodic pension cost over the employee's service life. The Company's
funding policy is to contribute annually an amount calculated under
the unit credit actuarial method.
Earnings per share
Earnings per share is computed by dividing net income (less preferred
stock dividends) by the total of the average number of common shares
outstanding and the additional dilutive effect of stock options
outstanding during the respective period. The dilutive effect of
stock options is computed using the average market price of the
Company's common stock for the period.
2. Cash and noninterest bearing deposits
Cash and noninterest bearing deposits includes reserve balances that
the Company's subsidiary banks are required to maintain with the
Federal Reserve Bank of Chicago. These required reserves are based
principally on deposits outstanding. The average reserves required
for the years ended December 31, 1993 and 1992 were $1,055,000 and
$1,207,000.
3. Investment securities and securities available for sale
The amortized cost and approximate market value of investment
securities at December 31, 1993 and 1992 are as follows
(in thousands):
<TABLE>
<CAPTION>
1993 1992
Gross Gross Approximate Gross Gross Approxi
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Marke
Cost Gains Losses Value Cost Gains Losses Valu
U.S. Government and
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
federal agency obligations $26 $ - $ - $26 $376 $3 $ - $
Obligations of states &
political subdivisions 36,693 1,778 (6) 38,465 24,358 1,371 - 25
Other securities 3,068 13 - 3,081 3,580 35 (5) 3
$ 39,787 $ 1,791 $ (6) $ 41,572 $28,314 $1,409 $(5) $29
</TABLE>
The carrying value and approximate market value of securities
available for sale at December 31, 1993 and 1992 are as follows (in
thousands):
<TABLE>
<CAPTION>
1993 1992
Gross Gross Gross Gross
Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market
Value Gains Losses Value Value Gains Losses Value
<S> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 73,384 $ 511 $ (24) $ 73,871 $36,912 $ 751 - 37,663
U.S. Government agencies 53,853 441 (55) 54,239 35,439 388 (29) 35,798
Mortgage-backed securities 13,462 183 (11) 13,634 5,170 134 (7) 5,297
$ 140,699 $ 1,135 $ (90) $141,744 $77,521 $1,273 (36) $78,758
</TABLE>
The amortized cost and market value of investment securities as of
December 31, 1993 and 1992 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because
borrowers may have the right to call or prepay obligations with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
1993 1992
Approximate Approximate
Amortized Market Amortized Market
Cost Value Cost Value
<S> <C> <C> <C> <C>
Due in one year or less $ 5,817 $ 5,895 $ 3,296 $ 3,371
Due after one year through five years 24,251 24,932 12,056 12,582
Due after five years through ten years 6,238 7,074 10,653 11,461
Due after 10 years 3,455 3,645 2,283 2,278
Mortgage-backed securities 26 26 26 26
$39,787 $41,572 $28,314 $29,718
</TABLE>
The carrying value and market value of securities available for sale
as of December 31, 1993 and 1992 by contractual maturity are shown
below. Expected maturities may differ from contractual maturities
because borrowers may have the right to call or prepay obligations
with or
without call or prepayment penalties.
<TABLE>
<CAPTION>
1993 1992
Approximate Approximate
Carrying Market Carrying Market
Value Value Value Value
<S> <C> <C> <C> <C>
Due in one year or less $26,650 $26,918 $13,511 $13,739
Due after one year through five years 94,916 95,528 58,740 59,621
Due after five years through ten years 5,671 5,663 100 101
Mortgage-backed securities 13,462 13,635 5,170 5,297
$140,699 $141,744 $77,521 $78,758
</TABLE>
Proceeds from sales of investments securities and securities available
for sale during 1993 were $4,457,000. Gross gains of $141,000 and
gross losses of $5,000 were realized on those sales. During 1992,
proceeds from sales of investment securities were $49,025,000. Gross
gains of $386,000 and gross losses of $28,000 were realized on those
sales. During 1991, proceeds from sales of investment securities were
$58,658,000. Gross gains of $416,000 and gross losses of $18,000 were
realized on those sales.
On December 31, 1993 securities with a carrying value of approximately
$106,625,000 were pledged to secure funds and trust deposits and for
other purposes as required or permitted by law.
4. Loans
The following is a summary of loans by major classifications as of
December 31, 1993 and 1992 (in thousands):
1993 1992
Commercial and financial loans $ 121,514 $ 88,341
Agricultural loans 40,972 45,924
Real estate-residential 103,234 54,728
Real estate-commercial 35,832 16,904
Loans to individuals 29,728 13,268
Other loans 625 980
$ 331,905 $220,145
The Company serviced loans for others totaling $81,939,000,
$63,688,000 and $18,725,000 as of December 31, 1993, 1992 and 1991,
respectively.
A summary of changes in the allowance for possible loan losses for the
three years ended December 31 is as follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Balance beginning of year $ 2,713 $3,203 $3,160
Allowance from acquired entity 2,351 - -
Recoveries 205 243 581
Provision charged to operating expense 1,620 325 -
6,889 3,771 3,741
Less:loans charged off 2,520 1,058 538
Balance end of year $4,369 $2,713 $3,203
</TABLE>
The Company's subsidiary banks make loans to their executive officers,
directors, principal holders of the Company's equity securities and to
associates of such persons. At December 31, 1993 and 1992, such loans
aggregated $3,174,000 and $2,675,000, respectively. These loans were
made in the ordinary course of business on the same terms and
conditions, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other
customers and do not involve more than a normal risk. The following
is a summary of activity with respect to such loans for the latest
fiscal year (in thousands):
Balance, January 1, 1993 $2,675
New loans 1,204
Repayments 705
Balance, December 31, 1993 $3,174
As of December 31, 1993 and 1992, the outstanding balance of
nonaccrual loans was approximately $5,791,000 and $2,915,000
respectively. Had interest on such loans been accrued, interest and
fees on loans in the accompanying consolidated statements of earnings
would have been greater by approximately $416,000 and $339,000 in 1993
and 1992, respectively.
5. Bank premises and equipment
Bank premises and equipment are recorded at cost less accumulated
depreciation as follows (in thousands):
1993 1992
Land, buildings and improvements $17,866 $14,289
Furniture, fixtures and equipment 5,328 5,273
23,194 19,562
Less accumulated depreciation 8,040 7,922
$15,154 $11,640
6. Short-term borrowings and securities sold under agreements to
repurchase
Following is a summary of short-term borrowings at December 31, 1993
and 1992 (in thousands):
1993 1992
Federal funds purchased $ - $4,272
Note payable to bank 12,410 1,880
$12,410 $6,152
The note payable to bank totaling $12,410,000 is on a demand basis
with interest at prime (6.00% at December 31, 1993) and is secured by
the Company's common stock holdings in its subsidiaries. The note
payable is a draw on a $20 million revolving credit which matures in
July, 1994. The note agreement contains certain restrictive
covenants. The Company was in compliance with such covenants at
December 31, 1993.
At December 31, 1993 there were no material amounts of assets at risk
with
any one customer under agreements to repurchase securities sold. At
December 31, 1993 and 1992 securities sold under agreements
to repurchase are summarized as follows (in thousands):
Weighted
average Collateral
Repurchase interest Collateral Market
1993 liability rate Book Value Value
Within 30 days $165 2.97% $403 $407
30 - 90 days 3,040 3.41% 4,672 4,736
After 90 days 1,200 3.57% 1,216 1,213
Demand 16,166 2.57% 20,808 21,267
$20,571 2.76% $27,099 $27,623
Weighted
average Collateral
Repurchase interest Collateral Market
1992 liability rate Book Value Value
Within 30 days $4,346 3.16% $4,392 $4,391
30 - 90 days 1,452 3.30% 1,543 1,548
After 90 days 3,650 5.70% 3,768 3,904
Demand 5,406 3.16% 8,706 8,799
$14,854 3.79% $18,406 $18,642
7. Employee benefit plans
The Company has a defined benefit pension plan covering substantially
all of its employees. The benefits are based on years of service and
the employee's compensation during the highest 25 years of
compensation. The Company's policy is to fund pension cost as accrued.
Assumptions used in accounting for the pension plans as of
December 31, 1993 and 1992 were as follows:
1993 1992
Discount rates 7.00% 7.25%
Rates of increase in compensation level 4.00% 4.00%
Expected long-term rates of return on assets 8.50% 8.50%
The following table sets forth the plan's funded status and amounts
recognized in the Company's consolidated balance sheets at
December 31, 1993 and 1992 (in thousands):
<TABLE>
<CAPTION>
1993 1992
Actuarial present value of benefit obligations:
<S> <C> <C>
Accumulated benefit obligation $3,102 $2,750
Vested benefit obligation 2,959 $2,636
Projected benefit obligation for service rendered to date 4,062 $3,573
Plan assets at fair value, primarily listed stocks & US Bonds 3,446 3,329
Plan assets in deficiency of projected benefit obligation (616) (244)
Unrecognized net gain from past experience different from
that assumed and effects of changes in assumptions 960 768
Unrecognized prior service cost (7) (9)
Unrecognized net assets at beginning of year being
recognized over 15 years (404) (461)
Prepaid (accrued) pension cost included in other assets $(67) $ 54
</TABLE>
Net pension cost for 1993, 1992 and 1991 included the following
components (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Service cost-benefits earned during the period $166 $160 $123
Interest cost on projected benefit obligation 255 245 217
Actual return on plan assets (231) (214) (254)
Net amortization and deferral (70) (65) (32)
Net periodic pension expense $120 $126 $54
</TABLE>
The Company has a savings and stock plan for officers and employees.
Company contributions to the plan are discretionary. The plan
includes provisions for employee contributions which are considered
tax-deferred under Section 401(k) of the Internal Revenue Code. The
total expense was $217,661 for 1993, $329,592 for 1992, and $300,000
for 1991.
The Company has a nonqualified stock option plan for key employees.
Options may be exercised at market price on grant date at the rate of
20% of granted shares at the end of each year in the succeeding five-
year period after the grant date. During 1993, options for an
additional 14,526 shares at $21.50 per share were granted.
At December 31, 1993, 8,819 of the options had been exercised. At
December 31, 1993, there were no shares available for additional
options. The following is a summary of options granted, net of
forfeitures:
Grant Share Options Price Expiration
Year Granted per Share Date
1988 34,376 $7.46 July 28, 1998
1989 46,080 9.48 June 22, 1999
1990 19,202 8.23 Dec. 20, 2000
1991 13,154 13.64 Dec. 20, 2001
1992 - - -
1993 14,526 21.50 Sept. 28, 2003
In 1990 a Performance Unit Plan was adopted under which the Company
may grant up to an aggregate of 200,000 units to key employees. The
value of a unit is established at the date of grant and each
succeeding anniversary date by a formula based upon the five-year
weighted average earnings per share, or an amount determined by the
Board of Directors. Distributions under the Plan, if any, are based
on the change in value from the date of grant to the fifth anniversary
of the grant. Units vest at 20% per year, with distributions paid in
cash on the earlier of the fifth anniversary of the grant or
termination of employment for any reason other than discharge for
cause. At December 31, 1993, an aggregate of 18,542 units net of
forfeitures had been granted under the Plan, while 181,458 units
remain available for grant. No distributions have been made under the
Plan.
At December 31, 1993 the Company did not have any post retirement
benefit plans.
8. Stockholders' equity
On January 23, 1992, a 10% stock dividend was declared payable March
31, 1992, to shareholders of record February 28, 1992. As a result of
the dividend, common stock was increased by $870,875, surplus was
increased by $1,741,749 and retained earnings was decreased by
$2,612,624. Average shares outstanding and all per share amounts
included in the 1992 and 1991 consolidated financial statements and
notes are based on the increased numbers of shares giving retroactive
effect to the stock dividend.
The amount of dividends payable by the Company on its common stock is
limited by the provisions of its term loan and revolving credit
agreement. Dividends are not to exceed in the aggregate for all such
dividends paid after December 31, 1988, 33% of earnings in the year of
payment of such dividends. However, any dividends which would have
been permissible to be paid after December 31, 1988, but were not
paid, may be paid in future years. At December 31, 1993, the Company
had $2,450,000 of retained earnings available for the payment of
dividends.
State banking regulations restrict the amount of dividends that a bank
may pay to stockholders. The regulations provide that dividends are
limited to the balance of retained earnings, subject to capital
adequacy requirements, plus an additional amount equal to its net
earnings in 1994 through the date of any declaration of dividends.
9. Income Taxes
As discussed in note 1, the Company adopted Statement 109 as of
January 1, 1993. The cumulative effect of this change in accounting
for income taxes was immaterial. Prior years' financial statements
have not been restated to apply the provisions of Statement 109. The
components of total tax expense (benefit) are as follows (in
thousands):
1993 1992 1991
Current federal $1,472 $2,022 $1,326
Deferred federal 108 (39) (24)
Total income tax expense $1,580 $1,983 $1,302
The amounts of income taxes computed at the statutory federal income
tax rate of 34% are reconciled to income taxes reflected above, as
follows (in thousands):
<TABLE>
<CAPTION>
1993 1992 1991
<S> <C> <C> <C>
Tax expense at statutory rate $1,901 $2,154 $1,673
Tax-exempt interest, net of premium amortization (592) (502) (529)
Amortization of excess cost over net assets acquired 284 66 66
Capitalized acquisition costs 39 76 -
Other, net (52) 189 92
Total income tax expense $1,580 $1,983 $1,302
</TABLE>
The sources of timing differences resulting in deferred income taxes
determined under APB Opinion No. 11 and the tax effect of each for the
years ended December 31, 1992 and 1991 were as follows (in thousands):
1992 1991
Provision for possible loan and
other real estate owned losses $39 $17
Accounting method differences and
changes (7) (31)
Depreciation 23 (25)
Deferred loan fees 12 15
Security accretion (47) -
Accrued software conversion costs (60) -
Other, net 1 -
Total deferred tax benefit $(39) $(24)
The tax effects of existing temporary differences that give rise to
significant portions of the deferred tax liabilities and deferred tax
assets as of December 31, 1993 are as follows (in thousands):
Deferred tax liabilities:
Security accretion $78
Tax depreciation in excess of
book depreciation 329
Difference between tax and
book basis of assets acquired 2,288
Total gross deferred tax
liabilities $2,695
Deferred tax assets:
Alternative minimum tax credit
carry forward $634
Net operating loss
carryforwards 1,488
Provision for other real
estate owned 208
Provision for loan losses 1,048
Deferred loan fees 154
Other 108
Total gross deferred tax
assets $3,640
Less: Valuation allowance (1,000)
Net deferred tax assets 2,640
Net deferred tax liability $ 55
Subsequently recognized tax benefits relating to the valuation
allowance for deferred tax assets as of December 31, 1993 will be
allocated as follows:
Income tax benefit reported in
consolidated statement of earnings $ 940
Excess cost over fair value of net
assets acquired 60
$1,000
At December 31, 1993, the Company has a net operating loss
carryforward for federal income tax purposes of approximately
$611,000. The loss is subject to separate return year limitations,
and is available to offset future federal taxable income of only the
related acquired entities, if any, through 2007. The Company also has
alternative minimum tax credit carryforwards of approximately $634,000
which are available to reduce future federal regular income taxes of
only the related acquired entities, if any, over an indefinite period.
The Company has net operating loss carryforwards for state purposes of
approximately $26,000,000 which expire beginning in 1988 through 2006.
10. Financial instruments with off-balance sheet risk and
contingencies
The company utilizes various financial instruments with off-balance
sheet risk to meet the financing needs of its customers, to generate
profits and to reduce its own exposure to fluctuations in interest
rates. These financial instruments, many of which are so-called "off-
balance sheet" transactions, involve to varying degrees, credit and
interest rate risk in excess of the amount recognized as either an
asset or liability in the consolidated balance sheets.
Credit risk is the possibility that a loss may occur because a party
to a transaction failed to perform according to the terms of the
contract. Interest rate risk is the possibility that future changes
in market interest rates will cause a financial instrument to be
less valuable or more onerous. The Company controls the credit risk
arising from these instruments through its credit approval process and
through the use of risk control limits and monitoring procedures. The
Company uses the same credit policies when entering into financial
instruments with off-balance sheet risk as it does for on-balance
sheet instruments. At December 31, 1993 and 1992, such commitments
and off-balance sheet financial instruments are as follows (in
thousands).
1993 1992
Letters of credit $5,394 $1,502
Lines of credit and other loan commitments 70,300 31,672
Interest rate swaps - 2,000
$75,694 $35,174
Letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit
risk involved in issuing standby letters of credit is essentially the
same as that involved in extending loan facilities to customers.
Commitments to extend credit are agreements to lend to a customer as
long as there is no violation of any condition established in the
contract. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of
the commitments are expected to expire without being drawn upon, the
total commitment amounts do not necessarily represent future cash
requirements.
Interest rate swap transactions generally involve the exchange of
fixed- and floating-rate payment obligations without the exchange of
the underlying principal amounts. The Company minimizes its exposure
to interest rate risk inherent in interest rate swaps by entering into
offsetting swap positions or other instruments that essentially
counterbalance each other.
There are various claims pending against the Company and its
subsidiaries arising in the normal course of business. Management
believes, based upon the opinion of counsel, that liabilities arising
from these proceedings, if any, will not be material to the Company's
financial position.
11. Disclosures about fair value of financial instruments
Provided below is the information required by Statement of Financial
Accounting Standards No. 107, "Disclosures About Fair Value of
Financial Instruments." These amounts represent estimates of fair
values at a point in time. Significant estimates regarding economic
conditions, loss experience, risk characteristics associated with
particular financial instruments and other factors were used for the
purposes of this disclosure. These estimates are subjective in nature
and involve matters of judgment. Therefore, they cannot be
determined with precision. Changes in the assumptions could have a
material impact on the amounts estimated.
The estimated fair values disclosed do not reflect the value of assets
and liabilities that are not considered financial instruments. In
addition, the value of long-term relationships with depositors (core
deposit intangibles) and other customers (trust customers) are not
reflected. The value of these items is significant.
Because of the wide range of valuation techniques and the numerous
estimates which must be made, it may be difficult to make reasonable
comparisons of the Company's fair value information to that of other
financial institutions. It is important that the many uncertainties
discussed above be considered when using the estimated fair value
disclosures and to realize that because of these uncertainties, the
aggregate fair value amount should in no way be construed as
representative of the underlying value of the Company.
Cash and cash equivalents
Cash and cash equivalents are by definition short-term and do not
present any unanticipated credit issues. Therefore, the carrying
amount is a reasonable estimate of fair value.
Investment securities and securities available for sale
The estimated fair values of investment securities and securities
available for sale are provided in Footnote 3 to the financial
statements. These are based on quoted market prices, when available.
If a quoted market price is not available, fair value is estimated
using quoted market prices for similar securities.
Loans
The carrying amount (total outstanding excluding unearned income) and
estimated fair value of loans outstanding at December 31, 1993 are
$331.4 million and $343.7 million, respectively. In order to
determine the fair values for loans the loan portfolio was categorized
based on loan type such as commercial, real estate, agricultural,
individual and nonperforming. Each loan category was further
segmented into fixed and adjustable rate interest terms. For
performing variable rate loans with no significant credit concerns
and frequent repricing, estimated fair values are based on carrying
values. The fair values of other performing loans, except residential
real estate and credit card loans, are estimated using discounted cash
flow analyses. The discount rates used in these analyses are based on
origination rates for similar loans of comparable credit quality. For
performing residential real estate loans, fair value is estimated by
discounting contractual cash flows adjusted for prepayment estimates
using discount rates based on secondary market sources adjusted to
reflect differences in servicing and credit costs. For credit card
loans, cash flows and maturities are estimated based on contractual
interest rates and historical experience and are discounted using
secondary market rates adjusted for differences in servicing and
credit costs. The estimate does not include the value that relates to
estimated cash flows from new loans generated from existing card
holders over the remaining life of the portfolio.
Fair value for significant nonperforming loans is based on recent
external appraisals. If appraisals are not available, estimated cash
flows are discounted using a rate commensurate with the risk
associated with the estimated cash flows. Assumptions regarding
credit risk, cash flows and discount rates are judgmentally determined
using available market information and specific borrower information.
Deposit liabilities
The carrying amount and estimated fair value of deposits outstanding
at December 31, 1993 are $518.0 million and $518.6 million,
respectively. Under SFAS 107, the fair value of deposits with no
stated maturity is equal to the amount payable upon demand.
Therefore, the fair value estimates for these products do not reflect
the benefits that Premier receives from the low-cost, long-term
funding they provide. These benefits are significant. The estimated
fair value of time deposits is based on the discounted value of
contractual cash flows. The discount rate is estimated using the
rates currently offered for deposits of similar remaining maturities.
Short-term borrowings
Short-term borrowings reprice frequently and therefore the carrying
amount is a reasonable estimate of fair value.
Securities sold under agreements to repurchase
The fair value of securities sold under agreements to repurchase is
estimated using the rates currently offered for securities sold under
agreements to repurchase with similar remaining maturities. Both the
carrying values and estimated fair values of Premier's securities sold
under agreements to repurchase as of December 31, 1993 were $20.6
million.
Commitments to extend credit and letters of credit
Pricing of these financial instruments is based on the credit quality
and relationship, fees, interest rates, probability of funding, and
compensating balance and other covenants or requirements. Loan
commitments generally have fixed expiration dates, are variable rate
and contain termination and other clauses which provide for relief
from funding in the event that there is significant deterioration in
the credit quality of the customer. Many loan commitments are
expected to, and typically do, expire without being drawn upon. The
rates and terms of Premier's commitments to lend and letters of
credit are competitive with others in the various markets in which
Premier operates. The carrying amounts are reasonable estimates of
the fair values of these financial instruments. Carrying amounts are
comprised of the unamortized fee income and, where necessary, reserves
for any expected credit losses from these financial instruments.
12. Acquisition
On July 16, 1993, the Company acquired 100% of the common stock of
First Northbrook Bancorp, Inc., Northbrook, Illinois for a total
purchase price of $32,775,000. As a result of the merger Premier
indirectly acquired 100% of the stock of First National Bank of
Northbrook, Northbrook, Illinois and First Security Bank of Cary
Grove, Cary, Illinois. The acquisition was accounted for as a
purchase transaction. The aggregate of cash and shares exchanged for
First Northbrook Bancorp, Inc. was as follows:
<TABLE>
<CAPTION>
<S> <C>
Premier Series B - Convertible Preferred Stock (5,950 shares) $5,950,000
Premier Series C - Noncumulative Perpetual Preferred Stock (1,950 shares) 1,950,000
Premier Series D - Noncumulative Perpetual Preferred Stock (3,300 shares) 3,300,000
Premier Common Stock (245,327 shares) 5,250,000
Cash (loan from third party lender) 16,325,000
Total Purchase Price $32,775,000
</TABLE>
In addition, the Company issued $5,000,000 of new Series A
cumulative perpetual preferred stock. The proceeds were used to
retire First Northbrook Bancorp, Inc.'s perpetual preferred stock in
the amount of $2,000,000 and reduce acquisition debt. A summary of
the features of each series of preferred shares follows:
Series A - Redeemable after three years at option of the Company at
par value. Stock has cumulative dividend feature and is
non-voting. Dividend rate of 8.25% changes to the
higher of 8.25% or the Prime rate plus 1% after July 16,
1996, 8.25% or the Prime rate plus .25% after July 16,
1998, and 8.25% or the Prime rate plus .50% after July
16, 2000.
Series B - Non-voting, convertible to common stock at $28.50 per
share. Conversion price adjusted for cumulative stock
dividends and splits. Regulatory approval required
before conversion of shares. Dividend rate of 7.50%
increases to 8.00% after July 16, 1996.
Series C - Non-voting, redeemable by the Company at any time at par
value with regulatory approval. Dividend rate of 7.00%
increases .25% each year after July 16, 1996 to a
maximum of 9.00%.
Series D - Non-voting. Convertible at any time up to $1,300,000
into Series B shares at par, subject to availability of
sufficient authorized common shares. Dividend rate
of 9.00%.
The unaudited pro forma results of operations which follow (in
thousands) assume the
acquisition had occurred at the beginning of each period presented.
In addition to combining the historical results of operations of the
two companies, the pro forma calculations include adjustments for the
purchase accounting adjustments related to the acquisition and
interest on borrowed funds.
Year ended December 31, 1993
Net interest income $21,902
Earnings before income taxes 3,565
Net earnings $2,462
Primary earnings per common share $ .53
Year ended December 31, 1992
Net interest income $23,023
Earnings before income taxes 5,453
Net earnings $3,816
Primary earnings per common share $1.15
The pro forma results of operations are not necessarily indicative of
the actual results of operations that would have occurred had the
purchase actually been made at the beginning of the respective
periods or of results which may occur in the future.
13. Condensed financial information (Parent Company only)
The following is a summary of condensed financial information for the
Parent Company only (in thousands):
<TABLE>
<CAPTION>
Condensed balance sheets December 31,
1993 1992
Assets
<S> <C> <C>
Investments in subsidiaries $64,472 $29,297
Cash & interest bearing deposits 19 10
Premises and equipment 4,694 4,735
Other assets 313 584
Total assets $69,498 $34,626
Liabilities and stockholders' equity
Short-term borrowings $12,410 $ 1,880
Other liabilities 1,672 1,008
Total liabilities 14,082 2,888
Stockholder's equity 55,416 31,738
Total liabilities and stockholders' equity $69,498 $34,626
</TABLE>
<TABLE>
<CAPTION>
Condensed statement of earnings
For the years ended December 31,
1993 1992 1991
Income:
<S> <C> <C> <C>
Dividends from subsidiaries $8,250 $3,650 $3,000
Other 2,706 1,269 1,211
Total income 10,956 4,919 4,211
Expenses:
Interest 452 47 154
Salaries 2,263 1,346 1,329
Other 1,135 1,015 776
Total expenses 3,850 2,408 2,259
Earnings before income tax benefit and equity
in undistributed earnings of subsidiaries 7,106 2,511 1,952
Income tax benefit 272 61 135
Earnings before equity in undistributed
earnings of subsidiaries 7,378 2,572 2,087
Equity in undistributed earnings of
subsidiaries ( 3,367) 1,780 1,531
Net earnings $ 4,011 $4,352 $3,618
Earnings per share $ 1.64 $ 2.23 $ 1.91
</TABLE>
<TABLE>
<CAPTION>
Condensed statements of cash flows
For the years ended December 31,
1993 1992 1991
Operating activities:
<S> <C> <C> <C>
Net cash provided by operating activities $ 7,649 $2,859 $2,386
Investing activities:
Additional paid in capital to subsidiaries (5,950) (243) (137)
Cash paid for acquisition of subsidiaries (16,325) - -
Purchase of bank premises and equipment ( 47) (4,361) (59)
Net cash used by investing activities (22,322) (4,604) (196)
Financing activities:
Increase (decrease) in short-term debt 10,530 1,620 (770)
Reduction in long-term debt - - (1,119)
Purchase of treasury stock ( 209) - (458)
Reissuance of treasury stock - - 881
Dividends paid ( 1,574) (831) (541)
Other 935 931 (153)
Issuance of stock 5,000 - -
Net cash provided (used) by financing activities 14,682 1,720 (2,160)
Increase (decrease) in cash $ 9 $(25) $ 30
Cash paid (received) for
Interest $ 290 $ 43 $187
Income taxes ( 273) (550) (81)
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
On July 16, 1993 the Company acquired 100% of the common stock of
First Northbrook Bancorp, Inc. ("Northbrook") for a total purchase
price of $32,775,000. As a result of the merger Premier indirectly
acquired 100% of the stock of First National Bank of Northbrook,
Northbrook, Illinois and First Security Bank of Cary-Grove, Cary,
Illinois. The acquisition was accounted for as a purchase
transaction; accordingly, the assets and liabilities of Northbrook
were recorded at fair market value on the acquisition date and the
results of operations have been included in the consolidated
statements of net earnings since July 16, 1993.
The discussion presented below provides an analysis of the Company's
financial condition and results of operations and is intended to cover
significant factors affecting the Company's overall performance for
the past three years. It is designed to provide shareholders with a
more comprehensive review of the operating results and financial
condition than could be obtained from an examination of the financial
statements alone, and should be read in conjunction with the
consolidated financial statements, accompanying notes and other
financial information presented in the 1993 Annual report to
shareholders.
Results of Operations
Net earnings available to common shareholders for 1993 totaled $3.4
million, (net earnings less preferred dividends) or $1.64 per common
share, compared with $4.4 million, or $2.23 per share, in 1992. In
1991, net income was $3.6 million or $1.91 per share.
Earnings in 1993 were sharply reduced by 1) a loan loss provision of
$1.3 million relating to one customer relationship, 2) $.9 million in
nonrecurring merger related expenses, and 3) $.3 million of expenses
associated with other real estate. Taken together, these items
decreased after tax earnings per share by $.80. Premier's 1993 return
on average common equity was 10.80%, compared with 14.58% in 1992 and
14.29% in 1991.
Net Interest Income
Tax equivalent net interest income for 1993 was $18.8 million, as
compared to $15.9 million in 1992 and $14.2 million in 1991. The
increase in 1993 was primarily from earning assets added through the
Northbrook acquisition. Average earning assets totaled $423.4
million in 1993 versus $342.9 million in 1992. Improvements in net
interest income in 1992 and 1991 occurred as a result of a modest
growth in earning assets coupled with an increase in higher yielding
assets (i.e. loans) in the Company's asset mix. Loans represented
64.7% of earning assets in 1993 as compared to 65.1% in 1992 and
56.9% in 1991.
Our net interest margin was 4.43% in 1993 as compared to 4.62% in 1992
and 4.34% in 1991. The decrease in net interest margin from 1992 to
1993 was primarily the result of squeezed spreads due to lower
interest rates. During 1993, our tax equivalent yield on average
earning assets was 1.08% less than in 1992. At the same time however,
our average cost of funds declined by only .89%. An analysis of our
change in net interest margin from 1991 to 1992 reveals an opposite
pattern, with asset yield decreasing by 1.13% while cost of funds
declined by 1.41%. The increase in nonperforming loans experienced
during the fourth quarter of 1993 did not materially effect our
interest margin last year. At year end nonaccrual loans plus other
real estate totaled $7.5 million or 1.78% of earning assets. If
these levels of nonearning assets persist throughout 1994, it will be
difficult to maintain the net interest margin at 1993 levels.
Interest Rate Risk Management
Movements in general market interest rates are a key element in
changes in net interest margin. The impact on earnings of changes in
interest rates, known as interest rate risk, must be measured and
managed to avoid unacceptable levels of risk. Premier uses simulation
modeling to analyze the effect of changes in interest rates on net
interest income and to manage interest rate risk. First, the balance
sheet is evaluated by examining potential repricing. The difference
between the amount of interest earning assets maturing or repricing
within a specific time period and the amount of interest-bearing
liabilities maturing or repricing within that same time period is
defined as the "interest sensitivity gap". Unfortunately, gap
analysis implicitly assumes that all assets and liabilities reprice
by the same magnitude in the event of a change in market interest
rates. Premier's interest sensitivity gap as of December 31, 1993,
which shows the Company was asset sensitive over a one year horizon (
i.e. more assets than liabilities would reprice), was as follows:
Volumes Subject to Repricing
($ in thousands)
within within within over
90 days 180 days 1 year 1 year
Loans (net of unearned
income, excluding
overdrafts and non-
accrual loans).............. $173,047 $13,945 $28,671 $ 96,340
Investment securities ....... 46,303 4,774 26,686 122,328
Other earning assets ........ 9,977 - - -
Total earning assets ...... 229,327 18,719 55,357 218,668
Interest-bearing deposits ... 101,883 37,472 39,109 240,533
Short-term borrowings ....... 32,650 132 200 -
Total interest-bearing
liabilities ............... 134,533 37,604 39,309 240,533
Asset (liability) gap ..... 94,794 (18,885) 16,048 (21,865)
Cumulative asset
(liability) gap .......... 94,794 75,909 91,957 70,092
Using the interest sensitivity gap as a base, the Company simulates
interest rate risk under a variety of interest and repricing
scenarios. Essentially, management tests assumptions regarding market
behavior to changes in rates and makes adjustments, where appropriate,
to maintain an acceptable level of interest rate risk. At year end
Premier's asset/liability mix was sufficiently balanced so that the
effect of anticipated rate movements in either direction would have
been minimal.
Provision for Possible Loan Losses
The amount of the provision for possible loan losses is based on
periodic (but no less than quarterly) evaluations by management. In
these evaluations, we consider numerous factors including, but not
limited to, current economic conditions, loan portfolio composition,
prior loan loss experience, and an estimation of potential losses.
Our provision for loan losses in 1993 totaled $1.6 million as compared
to $325,000 in 1992. Approximately $1.3 million of the 1993 provision
was to cover anticipated losses on a commercial real estate
development operating in Chapter 11 Bankruptcy Reorganization. Under
the Chapter 11 Plan, rents collected from the property's tenants were
to be passed through to the various creditors of the project. When the
pass-through of funds was unexplainably stopped, the property fell
into default prompting foreclosure by other creditors. In our view,
the foreclosure action seriously impairs our collection expectations
and alters the value of our collateral. Under the circumstances, we
elected to recognize the deterioration of this credit by providing for
the full loss. However, we will vigorously pursue all courses of
action available to protect our interests and recover amounts owed us.
At December 31, 1993 the allowance for possible loan losses stood at
$4.4 million, or 1.32% of gross loans compared to $2.7 million, or
1.23% of gross loans at year end 1992. Although we believe that the
present level of the allowance for loan losses is a conservative
assessment of the risk inherent in our loan portfolio, there can be no
assurance that significant provisions for losses will not be required
in the future based on factors such as deterioration of market
conditions, major changes in borrowers' financial conditions,
delinquencies and defaults. (See "Asset Quality.") Future provisions
will continue to be determined in relation to overall asset quality as
well as other factors mentioned previously.
Noninterest Income
Noninterest income, exclusive of investment security gains, increased
by 32.6% to $5.9 million in 1993 from $4.4 million in 1992. This
improvement followed a 25.5% increase in 1992 over 1991. Our ability
to generate revenue from fee based services and products has been a
major contributor to noninterest income growth. We anticipate that
fee income will continue to be a stable income source that is not
volatile in relation to interest rates.
Trust fees, which represent Premier's largest fee-based source of
income, increased by 16.5% to $2.2 million in 1993, from $1.9 million
in both 1992 and 1991. Trust fees are derived from providing
fiduciary, investment management, custodial and related services to
corporate and personal clients. As of December 31, 1993, managed
assets were approximately $.5 billion. We are looking forward to the
expansion of trust services in our new market areas and anticipate
continued fee growth in 1994.
Service charges on deposit accounts rose 56.9%, to $1.5 million in
1993 from $934,000 in 1992 following a 17.1% increase over 1991. The
growth in 1993 was primarily related to the substantial increase in
deposits during the second half of 1993 resulting from the
acquisition. The increase in 1992 from 1991 was primarily due to
repricing aimed at defraying the increased levy by the FDIC for
deposit insurance.
Another significant source of noninterest income over the past two
years has been premiums recognized on sales of residential mortgage
loans to the secondary market. The low interest rate environment
during both 1993 and 1992 led to a dramatic increase in loan
refinancing. As a result, net gains from the sale of approximately
$58.5 million in 1993 and $63 million in 1992 of residential mortgage
loans added $585,000 and $429,000 of after-tax earnings for the years
1993 and 1992, respectively. In 1991 gains on sale of loans totaled
$71,000 net of tax. Refinancing at the pace we've experienced in 1992
and 1993 cannot be expected to continue, particularly as rates begin
to rise. Since Premier retains the servicing rights to loans sold on
the secondary market, however, we anticipate that servicing fees will
offset some of the lost revenue.
Net investment security gains were $136,000 in 1993 compared to
$358,000 in 1992 and $398,000 in 1991. As conditions change over
time, the overall interest rate risk, liquidity demands and potential
return on the investment security portfolio will change. Securities
may be sold in order to manage interest rate risk, optimize overall
investment returns, respond to changes in the credit risk of a
particular security, or meet liquidity needs.
Other operating income increased $366,000 from 1992 to 1993, following
an increase of $216,000 the previous year. The increase in other
operating income was primarily driven by fees from annuity sales and
mortgage loan servicing fees, which provided 27.5% of the annual
increase in 1993 and 35.2% in 1992. Also included in other operating
income are fees from mutual fund sales, stock purchases and sales,
personal and commercial insurance sales, letter of credit fees, safe
deposit box rental fees and financial planning fees. We intend to
continue our efforts to expand fee income by developing new customer
relationships throughout our market area.
NonInterest Expense
Total noninterest expenses increased by 25.7% in 1993 and 6.9% in
1992. Salaries and benefits, the largest category of non-interest
expense, increased $839,000 to $7.6 million in 1993 from $6.8 million
in both 1992 and 1991. The 1993 increase in salary and benefits is
due to the Northbrook acquisition. Full-time equivalent employees
increased from 220 at December 31, 1992, to 285.5 at December 31, 1993.
One-time acquisition related severance payments totaling approximately
$147,000 were paid in 1993.
Beginning in 1993, all employers were required to adopt Financial
Accounting Standards Board Statement No. 106 regarding accounting for
post-retirement benefits, other than pension plans. This Statement
requires recognition of an employer's expected cost of providing post-
retired benefits to retirees on an accrual basis similar to the
treatment afforded pension plans. Post-retirement benefits generally
include costs such as health care, health and life insurance and all
other benefits that are provided to retired employees. Premier's
current health benefit plans do not provide benefits to retirees.
Accordingly, Premier's health plans in their present form required no
charge to earnings.
On June 30, 1993, the Financial Accounting Standards Board issued an
exposure draft of a Proposed Statement of Financial Accounting
Standards, "Accounting for Stock-Based Compensation." The proposed
statement would establish new accounting and reporting standards for
stock options and other forms of stock-based employee compensation and
would supersede APB Opinion 25, "Accounting for Stock Issued to
Employees." Currently, the issuance of stock options does not result
in recognition of compensation costs by the employer upon the award of
stock options. The proposed statement, if issued in its current form,
would require disclosures of the pro forma effects of stock option
plans on net income and earnings per share and, after December 31,
1996, compensation costs related to option awards and increase in the
market value of the shares underlying the options would have to be
recognized by employers at the time of grant of the option and on an
on-going basis.
Combined net occupancy and furniture and fixture expense increased
$587,000 and $124,000 in 1993 and 1992, respectively. The increase in
1993 relates to the six new office locations acquired in Northbrook,
Riverwoods and Cary, Illinois. The 1992 increase related primarily
to costs associated with a new facility housing centralized
operational functions in Freeport, Illinois and opening a full-service
branch in Rockford, Illinois. Premier is currently in the process of
closing a limited service branch located inside an office building in
Northbrook, Illinois. In addition, the Company is exploring
alternatives for relocating its Rockford Branch Office.
In 1993, Premier's subsidiary banks paid $918,000 for federal deposit
(FDIC) insurance as compared to $651,000 in 1992 and $612,000 in
1991. This expense rises as deposits grow or the assessment rate
changes. The 1993 increase is attributable to an increase in deposits
from the Northbrook acquisition, whereas the 1992 increase relates to
higher assessment rates. Based upon the risk-related premium system
which correlates the assessment rate in part to a bank's risk-based
capital levels, an effective assessment rate of approximately $.24 per
$100 of assessable liabilities for the bank subsidiaries is
anticipated in 1994.
Net amortization of intangible assets was $834,000 in 1993, compared
to $194,000 in both 1992 and 1991. The increase in 1993 expense
relates to the additional amortization expense from the excess cost
over fair value of net assets acquired in 1993. This excess cost
resulting from the Northbrook acquisition totaled approximately $21
million and will be amortized over 15 years.
Other operating expenses increased by slightly over $1 million, or
29.76% in 1993. Approximately $750,000 represented merger-related
expenses including write-off of duplicate computer equipment,
software fees, data processing conversion fees and legal/professional
fees. Without these one-time items, other operating expenses would
have increased by about $ 275,000 during the year. We expect to begin
realizing cost savings from the data processing conversion and
consolidation of Company-wide functions beginning in 1994.
Income Taxes
Taxes on earnings decreased to $1.6 million in 1993 from $2.0 million
in 1992 following an increase of $700,000 from $1.3 million in 1991.
The decrease in the 1993 provision for income taxes was due to lower
pre-tax income. In February 1992, the Financial Accounting Standards
Board (FASB) issued Statement of Financial Accounting Standards No.
109, "Accounting for Income Taxes." Statement 109 requires a change
from the deferred method under APB Opinion 11 to the asset and
liability method of accounting for income taxes. Under the asset and
liability method, deferred income taxes are recognized for the future
tax consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income
in the years in which those temporary differences are expected to be
recovered or settled. Under Statement 109, the effect on deferred
taxes of a change in tax rates is recognized in income in the period
that includes the enactment date.
Premier adopted Statement 109 in January 1993 and implementation had
an immaterial effect on results of operations and financial position.
We perform a detailed analysis of our deferred tax position on a
quarterly basis. It includes scheduling both taxable and deductible
temporary differences in accordance with their respective reversal
periods, projecting future taxable income and reviewing available tax
planning strategies. At December 31, 1993, Premier had deferred tax
liabilities of $2.7 million and deferred tax assets of $3.6 million.
A valuation allowance of $1.0 million has been provided for deferred
tax assets. As a result, net deferred tax liabilities recorded in the
consolidated financial statements are $55 thousand.
Financial Condition
At year end 1993, Premier had total assets of $610.7 million, which
represented a 67.8% increase from December 31, 1992. The growth was
primarily attributable to the Northbrook acquisition and provides us
with an exciting, more diversified market. The customer base we now
serve has increased significantly, presenting both challenges and
opportunities. This dramatic change in our balance sheet, as well as
changes in major balance sheet components, will continue to impact
Premier for the foreseeable future.
At December 31, 1993, securities held for investment (i.e. "held to
maturity") increased to $39.8 million from $28.3 million in 1992.
Securities "available for sale" totaled $140.7 million in 1993, as
compared to $77.5 million in 1992 with net unrealized appreciation of
$1.1 million and $1.2 million, respectively.
The Financial Accounting Standards Board has issued FAS No. 115
entitled "Accounting for Certain Investments in Debt and Equity
Securities" and is effective for fiscal years beginning after December
15, 1993. Securities "held for sale" will be reported at fair market
value with unrealized gains and losses excluded from earnings and
reported in a separate valuation account, net of related tax effects,
in stockholders' equity. Adoption of this standard by Premier in 1994
could substantially increase the volatility of Premier's capital
levels. We anticipate the classification of "securities held for
sale" will be similar to our "securities available for sale" at
December 31, 1993.
Total loans were $331.9 million at December 31, 1993 an increase of
$111.8 million over 1992. The growth was primarily due to the
Northbrook acquisition and was concentrated in residential mortgages
(which increased $48.5 million) and in commercial loans (which
increased $33.1 million). Premier's loan portfolio continues to be
characterized by a large customer base, balanced between loans to
individuals, commercial and agricultural customers. Approximately
40.0% of our loans represent credit granted to consumers in the form
of residential mortgages and a variety of other products such as
credit cards, student loans and other open and closed-end consumer
financing. Loans to commercial borrowers represent approximately
47.4% of the total loan portfolio. The remaining 12.6% is
agricultural related. Preserving loan quality and diversifying the
loan portfolio both geographically and by industry continue to be key
objectives for Premier.
Asset Quality
Nonperforming assets consist of loans 90 days past due, loans on
which interest is no longer accrued, restructured loans for which the
interest rate or other terms have been renegotiated and real estate
collateral acquired for loans in default. At year end, nonperforming
assets were $13.2 million, or 2.16% of total assets, up from $3.5
million, or .96% of total assets at December 31, 1992. There are two
major reasons for the increase. As a result of the Northbrook
acquisition, approximately $7.5 million in new, nonperforming loans
were added to the Company's loan portfolio. During its investigation
of Northbrook prior to the acquisition, the Company identified these
loans as well as the underlying reasons for nonperformance. In many
cases, nonperformance was a result of inappropriate structuring
and/or lack of current information as opposed to financial weakness.
Although several large credits exhibit serious risk, management feels
the allowance for possible loan losses is sufficient to provide for
currently identified exposure. The remaining increase in non-
performing assets (approximately $2.2 million) is attributable to a
small number of credits exhibiting financial stress. As is the case
with the newly added nonperforming assets, we feel that our allowance
for possible loan losses is appropriately recognizes the risk inherent
in our loan portfolio.
Premier intends to continue devoting the resources necessary to bring
nonperforming assets within levels consistent with the Company's
historical standards of quality. Although aggressive collection
actions may result in increased costs such as legal fees, expenses
associated with temporarily holding other real estate for sale and
miscellaneous collection costs, we believe aggressive collection is
appropriate.
In June 1993, the FASB issued SFAS No. 114, "Accounting by Creditors
for Impairment of a Loan." SFAS 114 states that impaired loans will
be recorded at the present value of future principal and interest
expected to be collected using the loan's contractual interest rate
adjusted for deferred fees and unamortized premium/discounts. SFAS
No. 114 is effective for financial statements for fiscal years
beginning after December 15, 1994. The Company will adopt SFAS No.
114 on January 1, 1995. Based on the Company's current loan
portfolio, this policy when implemented is not expected to have a
material impact on the financial condition of the Company.
Net charge-offs (recoveries) as a percentage of average loans for 1991
through 1993 were (.02%), .36% and .83%, respectively. Approximately
$1.3 million or 54.6% of the 1993 net charge-offs represented a single
customer relationship. Additional information regarding this credit
as discussed under "provision for loan losses."
Sources of Funds
Premier's primary source of funds is deposits, which totaled $518.0
million at December 31, 1993. Total deposit growth of $209.1 million
during 1993, which occurred primarily because of the Northbrook
acquisition, included $55.0 million in noninterest bearing deposits.
Noninterest bearing deposits as a percentage of total deposits
increased to 20.3% in 1993, from 16.1% in 1992. Premier continues to
see a shift from time deposits to nonbanking investment products.
Management believes this shift in time deposits, as evidenced by the
continuing decline of banking's share of the financial services
market, is attributable to low levels of interest rates in general, a
perceived decline in the value of deposit insurance, and customers
reluctance to commit funds for a defined period of time. Premier
offers nonbanking investment products and services which provide fee
income and satisfies customer preferences.
Liquidity
Premier defines liquidity as having funds available to meet cash flow
requirements. Effective management of balance sheet liquidity is
necessary to fund growth in earning assets, to pay liabilities, to
satisfy depositors' withdrawal requirements and to accommodate changes
in balance sheet mix. Premier has three major sources for meeting
liquidity requirements: 1) primary and secondary market deposits, 2)
its investment portfolio, and 3) lines of credit from unaffiliated
banks. An ongoing analysis of liquidity is performed at the
subsidiary and Holding Company levels. Liquid assets are compared to
the potential needs for funds to determine if the Company has
sufficient coverage should any significant negative events occur.
Management maintains a primary and total liquidity position that
provides 100% coverage relative to the anticipated likelihood of
potential events taking place. At year end, our liquidity coverage
exceeded this position.
Preferred Stock and Debt Service Requirements
Prior to July 1993, Premier had no significant commitments for debt
servicing nor dividends on preferred stock. Concurrent with the
Northbrook acquisition, the Company's commitments in this regard
changed substantially. On December 31, 1992, short-term borrowings
included $ 1.9 million in notes payable to an unaffiliated bank. No
preferred stock was outstanding. As of December 31, 1993, bank debt
totaled $12.4 million, and $16.2 million in preferred stock was
outstanding.
It is estimated that during 1994, cash requirements for interest on
the debt, projected dividends on common stock, and dividends on
preferred stock will approximate $3.1 million. The Company has two
sources of cash to meet these requirements: 1) dividends from
subsidiary banks and 2) additional borrowing. Based upon current
projections, management believes that earnings generated by the
Company's subsidiary banks will be more than sufficient to support
the required dividend and interest payments.
Capital
Total equity capital increased by $23.7 million to $55.4 million at
December 31, 1993, from $31.7 million at December 31, 1992. As a result
of the acquisition, $5.0 million of common stock and $16.2 million of
preferred stock were issued. The remaining increase was due to the
increase in retained earnings.
The Federal Reserve Board currently specifies three capital
measurements under the risk-based capital guidelines: 1) "Tier 1
Capital" (i.e., common stockholders' equity less goodwill to risk-
adjusted assets), 2) "Total Risk-Based Capital" (i.e., Tier 1 Capital
plus the lesser of 1.25% of risk-adjusted assets or the allowance for
possible loan losses to risk-adjusted assets), and 3) "Tier 1 Leverage
Ratio" (i.e., common stockholders' equity less goodwill to total
assets less goodwill). Bank holding companies are required to
maintain minimum risk-based capital ratios of 4% for "Tier 1," 8% for
"Total Risk Based Capital," and a "Leverage Ratio" of 4% or greater.
At December 31, 1993 Premier had a "Tier 1" ratio of 8.98%, well above
the Regulatory minimum. Our "Total Risk-Based Capital Ratio" was
10.20%, and our "Leverage Ratio" was 5.49%, also considerably better
than required. In addition, all of the banking subsidiaries met the
definition of "well-capitalized" under the FDIC's risk related premium
system at December 31, 1993.
Overview
With the addition of First Northbrook in 1993, our Company has a
decidedly different look. We are much larger, with a significantly
more complex balance sheet. Many of the financial challenges we
experienced in 1993 were a direct result of the merger. We anticipate
meeting those challenges aggressively and with positive results.
PREMIER FINANCIAL SERVICES, INC. is a registered bank holding
company.
Premier was established under Delaware Law on December 31, 1976.
The operations of Premier and its subsidiaries consist primarily
of financial activities common to the commercial banking
industry, as well as trust and investment services, data
processing and electronic banking services and insurance.
Services are extended to individuals, businesses, local
government units and institutional customers throughout Northern
Illinois. As of December 31, 1993, Premier's banking offices and
nonbanking affiliations were as follows:
First Bank/Freeport
First Bank/Dixon
First Bank/Mt. Carroll
First Bank/Polo
First Bank/Stockton
First Bank/Sterling
First Security Bank of Cary-Grove
First Bank/Rockford
First National Bank of Northbrook
First Bank/Warren
Premier Trust Services, Inc.
Premier Insurance Services,
Premier Operating Systems, Inc.
Stock information
Our common stock is traded on the over-the-counter market and is
listed on NASDAQ under the symbol PREM. A two-year record, by
quarter, of high and low bid prices, as well as cash dividends
declared, is as follows:
<TABLE>
<CAPTION>
1993 1992
Cash Cash
Quarter High Low Dividends Quarter High Low Dividends
<C> <C> <C> <C> <C> <C> <C> <C>
1st 22.00 19.50 .12 1st 15.75 13.00 .11
2nd 21.75 18.50 .12 2nd 18.00 15.00 .11
3rd 23.00 19.00 .12 3rd 20.50 16.50 .11
4th 23.50 21.25 .12 4th 25.00 19.00 .11
Total .48 Total .44
A stock dividend was declared and paid as follows:
1992
Declaration date January 23, 1992
Record date February 28, 1992
Payable date March 31, 1992
Distributed dividend rate 10%
10K notice
The Annual Report to the Securities and Exchange Commission, Form
10-K, may be obtained by shareholders free of charge upon written
request to the Secretary of the Corporation, Premier Financial
Services, Inc., 27 West Main St., Suite 101, Freeport, IL 61032.
</TABLE>
<TABLE>
<CAPTION>
Five Year Summary of Selected Financial Data
Earnings 1993 1992 1991 1990 1989
<S> <C> <C> <C> <C> <C>
Interest income $30,441,589 $28,353,205 $30,634,167 $31,598,122 $30,558,157
Interest expense 12,750,769 13,358,608 17,366,302 19,898,067 19,112,397
Net interest income 17,690,820 14,994,597 13,267,865 11,700,055 11,445,760
Provision for possible
loan losses 1,620,000 325,000 - - -
Earnings before income
taxes 5,591,280 6,335,317 4,920,829 3,819,099 3,417,739
Net earnings 4,011,210 4,352,115 3,618,395 2,882,105 2,342,239
Net earnings available to
common shareholders 3,418,928 4,352,115 3,618,395 2,882,105 2,342,239
Per share statistics -
Common 1993 1992* 1991* 1990* 1989*
Net earnings $1.64 $2.23 $1.91 $1.47 $1.17
Cash dividend declared .48 .44 .32 .24 .20
Book Value 18.13 16.47 14.56 12.90 11.39
1993 1992 1991 1990 1989
Common shares
outstanding - year end 2,163,107 1,927,536 1,918,717 1,878,446 1,985,585
1993 1992 1991 1990 1989
Rate earned on beginning
stockholders' equity 12.64% 15.58% 14.93% 12.75% 11.60%
Financial position - year
end 1993 1992 1991 1990 1989
Investment securities $39,787,245 $28,314,011 $125,390,853 $157,054,940 $136,710,845
Securities available for
sale 140,699,066 77,520,998 - - -
Loans, net 327,018,113 217,249,829 211,540,534 176,549,802 161,101,792
Allowance for possible
loan losses 4,369,290 2,712,863 3,202,509 3,159,714 3,476,574
Excess cost over fair
value of net assets
acquired 23,193,016 3,009,951 3,204,148 3,399,302 3,593,499
Noninterest bearing
deposits 104,976,862 49,979,533 40,304,642 44,142,877 41,622,572
Interest bearing deposits 413,042,081 258,913,579 246,474,882 247,248,068 264,810,725
Total deposits 518,018,943 308,893,112 286,779,524 291,390,945 306,433,297
Short-term borrowings 12,410,000 6,152,000 14,501,000 7,302,000 7,362,000
Securities sold under
agreements to repurchase 20,571,658 14,854,410 43,687,552 50,534,481 2,756,581
Long-term debt - - - 1,119,264 6,119,264
Stockholders' equity 55,416,039 31,737,646 27,929,137 24,228,635 22,606,385
Total assets 610,663,210 364,024,410 375,494,615 377,431,653 348,587,775
</TABLE>
* Per share statistics have been adjusted to reflect 5% stock
dividends to shareholders of record February 28, 1989, February
28, 1990, February 28, 1991 and a 10% stock dividend to
stockholders of record February 28, 1992.
<TABLE>
<CAPTION>
Board of Directors
Directors Principal Occupation Principal Business
<C> <C> <C>
Donald E. Bitz Retired Chairman of the Board Insurance Company
& Chief Executive Officer
Economy Fire & Casualty Co.
H.L. Fenton Retired Chairman of the Board
& Chief Executive Officer
R. Gerald Fox President & Chief Executive Publisher of financial boooks
Officer F.I.A. Financial books and periodicals
Publishing Company
Richard L. Geach President & Chief Executive
Officer
Charles M. Luecke President, Luecke Jewelers, Inc. Retail Jeweler
Edward G. Maris Vice President-Finance, Secretary Raw steel production and
& Treasurer, Northwestern Steel finished steel/wire products
and Wire Company
David L. Murray Executive Vice President &
Chief Financial Officer
H. Barry Musgrove President, Frantz Manufacturer of overhead
Manufacturing Company doors and ant-friction
products
Dr. Joseph C. Piland Educational Consultant & Retired
President, Highland Community
College
</TABLE>
Exhibit 21
Subsidiaries of Company
Listed below is a list of the Company's subsidiaries and the state
or jurisdiction of their incorporation as of December 31, 1993.
The Company is incorporated in the State of Delaware.
First Bank North Illinois state banking laws
First Bank South Illinois state banking laws
First National Bank of Northbrook National banking laws
First Security Bank of Cary Grove Illinois state banking laws
Premier Acquisition Company State of Delaware
Premier Trust Services, Inc. State of Illinois
Premier Insurance Services, Inc. State of Illinois
Premier Operating Systems, Inc. State of Illinois
Exhibit 23
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the Registration
Statement on Form S-8 of Premier Financial Services, Inc. (Company)
of our report dated January 28, 1994, relating to the consolidated
balance sheets of the Company as of December 31, 1993 and 1992 and
the related consolidated statements of earnings, changes in
stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1993, which report appears in
the December 31, 1993 annual report on Form 10-K of the Company.
KPMG Peat Marwick
Chicago, Illinois
March 25,1994
EXHIBIT 99
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 11-K
ANNUAL REPORT
Pursuant to Section 15 (d) of the
Securities Exchange Act of 1934
For the Fiscal Year Ended December 31, 1993
PREMIER FINANCIAL SERVICES, INC.
EMPLOYEE SAVINGS AND STOCK PLAN
AND TRUST
(Full title of the Plan)
PREMIER FINANCIAL SERVICES, INC.
27 WEST MAIN STREET
FREEPORT, IL 61032
(Name of issuer of the Securities held pursuant to the Plan and
the address of principal executive offices, including Zip Code)
Required Information
Financial Statements.
The following financial statements are filed as part of this report:
(a) Financial Statements of the Plan which are included in the
annual report of the Plan to its Participants for the year
ended December 31, 1993 as follows:
Independent Auditors' Report
Statements of Net Assets Available for Plan Benefits
December 31, 1993 and 1992
Statements of Changes in Net Assets Available for
Plan Benefits for the two years ended December 31, 1993
Notes to Financial Statements
Schedule I - Reportable Transactions for the year
ended December 31, 1993
Schedule II - Allocation of Net Assets Available for
Plan Benefits December 31, 1993 and 1992
Schedule III - Allocation of Changes in Net Assets
for Plan Benefits for the two years ended December 31, 1993
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
trustees have duly caused this annual report to be signed on its behalf
by the undersigned hereunto duly authorized.
Premier Financial Services, Inc.
Employee Savings and Stock Plan
and Trust
March 24, 1994 By: David L. Murray
David L. Murray, Executive Vice
President, Chief Financial Officer
and Director
Appendix
Pursuant to paragraph 232.311 (c) of Regulation S-T, Premier Financial
Services, Inc. is submitting on paper under cover of Form SE the
financial statements of the Plan which are included in the annual report
of the Plan to its participants for the year ended December 31, 1993.
