SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d) of
The Securities Exchange Act of 1934
For the Quarter Ended June 30, 1996, 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, Suite 101 61032
Freeport, Illinois (Zip Code)
(Address of Principal executive
offices)
Registrant's telephone number, including area code (815) 233-3671
Number of Shares of Common Stock ($5 Par Value) outstanding as of
June 30, 1996: 6,592,582
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
(This report contains 6 pages)
Part I
Item 1. Financial Statements.
The following consolidated financial statements of the Company which
are submitted herewith as an exhibit and are incorporated herein by
reference:
1. Consolidated Balance Sheets, June 30, 1996 and December 31, 1995.
2. Consolidated Statements of Earnings, quarters ended June 30,
1996 and 1995 and six months ended June 30, 1996 and 1995.
3. Consolidated Statements of Cash Flows, six months ended June
30, 1996 and 1995.
4. Notes to the Unaudited Consolidated Financial Statements.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Premier Financial Services, Inc.'s earnings for the second quarter, 1996
totaled $1,493,000 or $.18 per share versus $1,374,000, or $.17 per share
for the same quarter in 1995. Merger expenses, for the Company's
previously announced intention to merge with Northern Illinois Financial
Corporation into a new Company, Grand Premier Financial Inc., incurred in
the second quarter of 1996 totaled $239,000 decreasing earnings per share
by $.04.
Year to date earnings increased by approximately $309,000 to $2,982,000,
as compared to $2,673,000 in 1995. Year to date earnings per share
increased to $.36, an increase of 12.5% over earnings per share of $.32 in
the first six months of 1995. Return on average assets and common equity
was .91% and 10.35%, respectively, for the six months ended June 30, 1996,
as compared to .86% and 9.97% for the same period in 1995.
Year-to-date net interest income totaled $11.1 million in 1996, as compared
to $10.8 million in 1995. Net interest income in the second quarter of
1996 was $5.6 million, a slight increase from $5.5 million reported in both
the first quarter of 1996 and the second quarter of 1995. The modest
increase is primarily a result of earning asset volume as opposed to rate
or net interest margin improvement. Average earning assets totaled $588.6
million at June 30, 1996, an increase of $4.1 million from $584.4 million
reported at March 31, 1996 and an increase of $35.0 million from $553.6
million reported one year ago. Our net interest margin at 3.95% as of June
30, 1996, increased slightly from 3.94% at March 31, 1996 and reflects a
24 basis point decline from 4.19% at June 30, 1995.
The loan loss provision for the second quarter of 1996 was $150,000, an
increase of $99,000 from the same period in 1995 and $50,000 higher than
the first quarter of 1996. The Company's provision for possible loan
losses is determined as a result of management's evaluation system for
accessing the adequacy of the allowance for possible loan losses. The
system includes assigning a risk grade to individual loans based on credit
risk, as well as reviewing overall loan portfolio composition, size,
economic factors and estimation of potential losses.
Net charge-offs for the quarter ending June 30, 1996 were $232,000 slightly
higher than the $163,000 recorded for the same period in 1995. Year-to-
date net charge-offs as of June 30, 1996 totaled $342,000, a decline of
$302,000 as compared to $644,000 at June 30, 1995. Nonperforming loans
(non-accrual loans, loans past due 90 days or more and still accruing and
renegotiated loans) totaling $2.6 million were unchanged from December 31,
1995. The allowance for possible loan losses as a percent of nonperforming
loans was 143.2% and 149.3% as of June 30, 1996 and December 31, 1995,
respectively.
Noninterest income increased $475,000, or 14.6% in the six months ended
June 30, 1996 as compared to the same period in 1995. The largest
contributors to this increase were net gains from sales of securities
available for sale, trust fees, gains on sale of other real estate, and
other fee income.
Net gains from securities available for sale totaled $114,000 at June 30,
1996, up $54,000 as compared to $60,000 in 1995. Trust fees increased
$89,000, or 6.9%, to $1,375,000 at June 30, 1996 from $1,286,000 at June
30, 1995. Net gains from sale of other real estate in 1996 totaled
$108,000, whereas in 1995 no gains were recognized. Other fee income
included premium income totaling approximately $126,000 from selling
covered call options. The Company did not participate in covered call
writing during the first six months of 1995.
Total noninterest expense as of June 30, 1996 decreased by approximately
$241,000 to $9,968,000 from $10,209,000 at June 30, 1995. The decrease was
primarily due to federal deposit insurance premiums decreasing by $559,000.
Other expense increased by $369,000, to $2,905,000 million at June 30, 1996
from $2,536,000 at June 30, 1995. The increase in other expense was
primarily due to non tax deductible merger expenses (i.e. legal and
professional) totaling $390,000. We anticipate merger expenses relating
to consummating the transaction with Northern Illinois Financial
Corporation to continue during the remainder of the year.
Income taxes for the first six months of 1996 totaled $1.6 million, as
compared to $1.1 million in 1995. The increase in the tax provision is due
to higher pretax earnings, a decrease in tax exempt income and an increase
in non-tax deductible expenses (i.e. merger expenses). The Company's
effective tax rate for the period ended June 30, 1996 was 35.2% as compared
to 29.45% for the same period in 1995.
Financial Condition
Total assets increased from $670.2 million at December 31, 1995 to $671.2
million at June 30, 1996, with no material changes in asset composition.
Cash and cash equivalents declined by approximately $6.2 million from $38.1
million or 5.7% of total assets at December 31, 1995 to $31.9 million or
4.7% of total assets at June 30, 1996. The net change in cash and cash
equivalents is shown in the Consolidated Statement of Cash Flows and arises
from operating, investing and financing activities.
The adjustments to reconcile net income to net cash from operating
activities primarily consisted of $796,000 from amortization of intangible
assets, $599,000 in net amortization of premiums in the investment
portfolio, 494,000 from depreciation and amortization of fixed assets and
$250,000 in provision for loan losses. These items represent expense
included in net income which did not represent an expenditure of cash.
Cash flows from investing activities related primarily to changes in loans
and investments. Securities available for sale increased by $4.0 million,
to $269.3 million at June 30, 1996 as compared to $265.3 million at
December 31, 1995. Gross loans increased $4.0 million to $331.0 million
at June 30, 1996 from $327.0 million at December 31, 1995.
Net cash from financing activities totaled $5.9 million. The major cash
sources from financing activities were net increases in deposits and
securities sold under agreements to repurchase. Total deposits increased
by approximately $16.4 million, from $551.5 million at December 31, 1995
to $567.9 million at June 30, 1996. The net increase was a combination of
a $6.0 million decrease in non-interest bearing deposits offset by
returning approximately $17.8 million of off-balance sheet discretionary
funds back to interest bearing deposits. Securities sold under agreements
to repurchase, which are generally short-term sources of funds and managed
in conjunction with all funding sources, increased by $8.6 million during
the same December 31, 1995 to June 30, 1996 time-frame.
Short term borrowings, which include federal funds purchased and Federal
Home Loan Bank advances declined by $17.8 million to $14.9 million at June
30, 1996 as compared to $32.7 million at December 31, 1995. The reduction
in short term borrowing and payment of $1.3 million in cash dividends were
the only cash usages from financing activities.
Accrued taxes and other expenses decreased by $2.9 million from $5.0
million at December 31, 1995 to $2.1 million at June 30, 1996. A tax
credit in the amount of $2.7 million relating to unrealized gain (loss) on
securities available for sale was recorded in accordance with Statement of
Financial Accounting Standards No. 115, Accounting for Certain Investments
in Debt and Equity Securities.
At June 30, 1996, stockholders' equity totaled $58.6 million, a decline
from $62.1 million at December 31, 1995. The decline was due to recording
$5.2 million decrease in the after tax unrealized gain (loss) on securities
available for sale in accordance with SFAS No. 115. On July 17, 1996, the
Company redeemed all of its Series A perpetual preferred stock in the
amount of $5.0 million by increasing its note payable to a correspondent
bank. Premier's total risk-based capital, tier 1 risk-based capital and
leverage capital ratios subsequent to the redemption were 10.65%, 9.68% and
5.76%, respectively, as compared to 11.95%, 10.98% and 6.53% at June 30,
1996. All capital ratios continue to be well above the regulatory minimums
of 8.00% for total risk-based capital, 4.00% for tier 1 risk base capital,
and 3.00% for leverage.
Part II
Item 4. Submission of Matters to a Vote of Security Holders
The following was submitted to a vote of security
holders during the quarter ended June 30, 1996, at the
Annual Meeting held May 15, 1996.
1. Election of Directors. Stockholders voted to elect to the
Board of Directors three nominees to serve until the Annual
Meeting in 1999. The following Directors were nominated
and elected: R. Gerald Fox, Richard L. Geach, and Edward
G. Maris.
Item 6. Exhibits 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
for the quarter ended June 30, 1996 as follows:
1. Consolidated Balance Sheets, June 30, 1996
and December 31, 1995.
2. Consolidated Statements of Earnings, quarters ended
June 30, 1996 and 1995 and six months ended June 30,
1996 and 1995.
3. Consolidated Statements of Cash Flows, six months
ended June 30, 1996 and 1995.
4. Notes to unaudited Consolidated Financial
Statements.
B. Exhibits as follows:
27. Financial Data Schedule, six months ended June
30, 1996.
2. Reports on Form 8-K - The registrant has not filed any
reports on Form 8-K, nor has it been required to file such
reports, for the quarter ended June 30, 1996.
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PREMIER FINANCIAL SERVICES, INC.
By: /s/ David L. Murray
David L. Murray, Executive Vice President
& Chief Financial Officer
August 2, 1996
(Date)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation. The consolidated financial statements include
the accounts of Premier Financial Services, Inc. ("Premier") and its
subsidiaries, all of which are wholly owned. Significant intercompany
balances and transactions have been eliminated. The consolidated
financial statements as of June 30, 1996 and 1995 have not been
audited by independent public accountants. In the opinion of
management, the interim financial statements reflect all adjustments
(consisting only of adjustments of a normal recurring nature)
necessary for a fair presentation of Premier's financial position,
results of operations and cash flows for the interim periods
presented. The results for such interim periods are not necessarily
indicative of the results for the full year. These financial
statements should be read in conjunction with the consolidated
financial statements and the accompanying notes to the consolidated
financial statements included in Premier's 1995 Annual Report to
Stockholders.
2. Proposed Merger. On January 22, 1996, Premier signed a definitive
agreement to merge its assets and operations with Northern Illinois
Financial Corporation ("NIFCO") located in Wauconda, Illinois and form
a new financial services corporation to be named Grand Premier
Financial Inc. In the proposed merger, which is subject to
shareholder and regulatory approval, NIFCO common shareholders will
receive 4.25 shares of Grand Premier Financial, Inc. for each share
held. Premier common shareholders will receive 1.116 shares of Grand
Premier Financial, Inc. for each share held. Regulatory approval has
been obtained from the Federal Reserve Board in a letter dated May 24,
1996 and from the Office of Banks & Real Estate of the State of
Illinois in a letter dated July 16, 1996. Special meetings for
shareholder approval are scheduled for August 21, 1996. At March 31,
1996, NIFCO had total assets of approximately $945 million. It is
expected that the merger will be accounted for as a pooling-of-
interest and be consummated in August of 1996.
<TABLE>
Consolidated Balance Sheets
- ---------------------------------------------------------------------------------------------------------------
June 30, December 31,
1996 1995
- ---------------------------------------------------------------------------------------------------------------
(unaudited)
Assets
<S> <C> <C>
Cash & non-interest bearing deposits $29,290,971 $37,390,597
Interest bearing deposits 1,282,324 676,367
Federal funds sold 1,325,000 -
- ---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 31,898,295 38,066,964
- ---------------------------------------------------------------------------------------------------------------
Securities available for sale 269,313,341 265,326,397
Loans 331,027,351 326,975,311
Less: Unearned discount ( 235,375) ( 278,242)
Allowance for possible loan losses ( 3,757,870) ( 3,849,863)
- ---------------------------------------------------------------------------------------------------------------
Net loans 327,034,106 322,847,206
- ---------------------------------------------------------------------------------------------------------------
Bank premises & equipment 13,562,479 13,898,077
Excess cost over fair value of net assets acquired 19,211,934 20,008,150
Accrued interest receivable 6,237,713 6,514,630
Other assets 3,918,746 3,557,959
- ---------------------------------------------------------------------------------------------------------------
Total assets $671,176,614 $670,219,383
- ---------------------------------------------------------------------------------------------------------------
Liabilities & stockholders' equity
Non-interest bearing deposits $76,662,097 $82,694,865
Interest bearing deposits 491,223,599 468,797,581
- ---------------------------------------------------------------------------------------------------------------
Deposits 567,885,696 551,492,446
- ---------------------------------------------------------------------------------------------------------------
Short-term borrowings 14,895,000 32,725,000
Securities sold under agreements to repurchase 27,200,316 18,635,335
Accrued taxes & other expenses 2,105,851 5,033,133
Other liabilities 502,534 226,065
- ---------------------------------------------------------------------------------------------------------------
Total liabilities $612,589,397 $608,111,979
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity
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 5,000,000
Series B convertible, $1,000 stated value, 7.50%, 7,250 shares
authorized, issued and outstanding 7,250,000 7,250,000
Series D perpetual, $1,000 stated value, 7.50%, 3,300 shares
authorized, 2,000 shares issued and outstanding 2,000,000 2,000,000
Common stock- $5.00 par value
June 30, December 31,
No. of Shares 1996 1995
Authorized 15,000,000 15,000,000
Issued 6,592,582 6,544,347
Outstanding 6,592,582 6,544,347 32,962,910 32,721,735
Retained earnings 15,446,582 13,893,248
Unrealized gain (loss) on securities available for sale, net of tax ( 4,072,275) 1,242,421
- ---------------------------------------------------------------------------------------------------------------
Stockholders' equity $58,587,217 $62,107,404
- ---------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $671,176,614 $670,219,383
- ---------------------------------------------------------------------------------------------------------------
See notes to unaudited consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Earnings
- -----------------------------------------------------------------------------------------------------------------------------------
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
Interest income
<S> <C> <C> <C> <C>
Interest & fees on loans $14,232,232 $13,301,848 $7,142,866 $6,858,822
Interest & dividends on investment securities:
Taxable 7,243,718 6,957,988 3,753,644 3,624,227
Exempt from federal income tax 835,783 1,112,889 412,809 558,914
Other interest income 135,588 151,235 49,274 48,254
- -----------------------------------------------------------------------------------------------------------------------------------
Interest income 22,447,321 21,523,960 11,358,593 11,090,217
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 10,164,867 9,513,580 5,093,036 4,978,262
Interest on short-term borrowings 1,199,218 1,172,909 661,504 609,122
- -----------------------------------------------------------------------------------------------------------------------------------
Interest expense 11,364,085 10,686,489 5,754,540 5,587,384
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 11,083,236 10,837,471 5,604,053 5,502,833
Provision for possible loan losses 250,000 102,000 150,000 51,000
- -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision
for possible loan losses 10,833,236 10,735,471 5,454,053 5,451,833
- -----------------------------------------------------------------------------------------------------------------------------------
Other income
Trust fees 1,374,657 1,285,976 711,461 637,037
Service charges on deposits 974,449 1,001,561 487,298 501,884
Net gains on loans sold to secondary market 74,418 59,940 ( 21,077) 43,393
Investment securities gains, net 113,895 60,273 44,976 37,755
Other operating income 1,200,810 855,003 600,327 435,141
- -----------------------------------------------------------------------------------------------------------------------------------
Other income 3,738,229 3,262,753 1,822,985 1,655,210
- -----------------------------------------------------------------------------------------------------------------------------------
Other expenses
Salaries 4,053,822 4,043,789 2,069,106 2,036,286
Pension, profit sharing, & other employee benefits 675,747 660,080 322,501 340,063
Net occupancy of bank premises 1,095,401 1,051,687 531,555 513,278
Furniture & equipment 439,245 559,454 203,654 263,672
Federal deposit insurance premiums 3,000 561,548 1,500 280,774
Amortization of excess cost over fair value
of net assets acquired 796,216 796,216 398,108 398,108
Other 2,905,051 2,536,207 1,492,100 1,323,728
- -----------------------------------------------------------------------------------------------------------------------------------
Other expense 9,968,482 10,208,981 5,018,524 5,155,909
- -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 4,602,983 3,789,243 2,258,514 1,951,134
Applicable income taxes 1,620,564 1,116,017 765,834 576,711
- -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $2,982,419 $2,673,226 $1,492,680 $1,374,423
===================================================================================================================================
Earnings per share:
Average weighted shares outstanding 6,754,189 6,686,431 6,763,153 6,683,825
Net earnings $.36 $.32 $.18 $.17
- -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six months ended June 30, 1996 and 1995 (unaudited)
1996 1995
------- -------
Cash flows from operating activities:
<S> <C> <C>
Net earnings $2,982,419 $2,673,226
Adjustments to reconcile net earnings
to net cash from operating activities:
Amortization net, related to:
Investment securities 598,503 687,934
Excess of cost over net assets acquired 796,216 796,216
Other 168,334 167,679
Depreciation 494,292 552,884
Provision for possible loan losses 250,000 102,000
Gain on sale related to:
Investment securities ( 113,895) ( 60,273)
Loans sold to secondary market ( 74,418) ( 59,940)
Change in:
Accrued interest receivable 276,917 ( 956,897)
Other assets ( 360,787) ( 726,466)
Accrued taxes & other expenses ( 2,927,282) 2,742,264
Other liabilities 3,014,343 132,254
-------------------------------------------------------------------------------------------------------
Net cash from operating activities 5,104,642 6,050,881
-------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Purchase of investment securities held-to-maturity - ( 1,249,800)
Purchase of securities available for sale (139,388,180) ( 81,762,186)
Proceeds from:
Maturities of investment securities held-to-maturity - 2,881,563
Maturities of securities available for sale 39,602,762 18,396,359
Sales of securities available for sale 87,261,296 50,709,062
Net (increase) decrease in loans ( 4,503,683) ( 17,367,939)
Purchase of bank premises & equipment ( 185,827) ( 617,184)
-------------------------------------------------------------------------------------------------------
Net cash from investing activities ( 17,213,632) ( 29,010,125)
-------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 16,393,250 20,485,234
Securities sold under agreements to repurchase 8,564,981 657,712
Short term borrowings ( 17,830,000) ( 8,755,000)
Reissuance of treasury stock - 149,762
Exercised stock options 152,860 -
Cash dividends paid ( 1,340,770) ( 1,205,545)
-------------------------------------------------------------------------------------------------------
Net cash from financing activities 5,940,321 11,332,163
-------------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents ( 6,168,669) ( 11,627,081)
Cash and cash equivalents, beginning of year 38,066,964 45,870,359
-------------------------------------------------------------------------------------------------------
Cash and cash equivalents, for six months ended June 30 $31,898,295 $34,243,278
-------------------------------------------------------------------------------------------------------
See notes to unaudited consolidated financial statements.
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 29,290,971
<INT-BEARING-DEPOSITS> 1,282,324
<FED-FUNDS-SOLD> 1,325,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 269,313,341
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 331,027,351
<ALLOWANCE> 3,757,870
<TOTAL-ASSETS> 671,176,614
<DEPOSITS> 567,885,696
<SHORT-TERM> 14,895,000
<LIABILITIES-OTHER> 29,808,701
<LONG-TERM> 0
<COMMON> 32,962,910
0
14,250,000
<OTHER-SE> 11,374,307
<TOTAL-LIABILITIES-AND-EQUITY> 671,176,614
<INTEREST-LOAN> 14,232,232
<INTEREST-INVEST> 8,079,501
<INTEREST-OTHER> 135,588
<INTEREST-TOTAL> 22,447,321
<INTEREST-DEPOSIT> 10,164,867
<INTEREST-EXPENSE> 11,364,085
<INTEREST-INCOME-NET> 11,083,236
<LOAN-LOSSES> 250,000
<SECURITIES-GAINS> 113,895
<EXPENSE-OTHER> 9,968,482
<INCOME-PRETAX> 4,602,983
<INCOME-PRE-EXTRAORDINARY> 2,982,419
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,982,419
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
<YIELD-ACTUAL> 3.95
<LOANS-NON> 1,408,443
<LOANS-PAST> 1,130,889
<LOANS-TROUBLED> 85,303
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,849,863
<CHARGE-OFFS> 544,919
<RECOVERIES> 202,926
<ALLOWANCE-CLOSE> 3,757,870
<ALLOWANCE-DOMESTIC> 2,706,870
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,051,000
</TABLE>
