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, 1995, 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. X
Aggregate market value of voting stock held by non-affiliates of the
registrant as of February 29, 1996, based upon the average bid and asked
price at this date: $52,034,126.00
At February 29, 1996, the registrant had outstanding 6,550,113 shares of
its common stock, $5.00 par value.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the 1995 Annual Report to Shareholders are incorporated by
reference into Part II of the Form 10-K. Portions of the Proxy Statement for
Registrant's 1996 Annual Meeting of Shareholders to be held May 15, 1996 have
been incorporated by reference into Part III of the Form 10-K.
No. of Pages Sequentially Numbered: 30
Exhibit Index is on Page 29
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
subsidiaries.
The primary function of the Company is to coordinate the 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"). The Company
acquired FNBN and FSBCG on July 16, 1993, through the acquisition of all
of the outstanding common stock of First Northbrook Bancorp, Inc., the
parent corporation of FNBN and 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,
DeKalb, 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., a direct subsidiary of the
Company, is a full line casualty and life insurance agency. Premier
Operating Systems, Inc., ("POS"), is also a direct subsidiary of the
Company. POS 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 Trust
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.
On September 29, 1994, the Riegle-Neal Interstate Banking and Branching
Efficiency Act of 1994 (the "Riegle-Neal Act") became law. Since September
29, 1995, the Riegle-Neal Act has permitted adequately capitalized
and adequately managed bank holding companies to acquire banks across
state lines, with Federal Reserve Board approval, without regard to whether
the transaction is permitted under state law, exxcept that state law may
establish the minimum age of the banks in such state (up to a maximum of
five years) that are subject to acquisition by out-of-state bank holding
companies. The acquiring bank holding company must maintain the acquired
bank as a separately chartered institution. Under the Riegle-Neal Act, the
Federal Reserve Board generally may not approve an acquisition if, upon
consummation, the applicant bank holding company would control more than 10%
of the total deposits of U.S. insured depository institutions or 30% or more
of the deposits in the state where the target bank is located. Since
September 29, 1995, the Riegle-Neal Act has also permitted any bank
subsidiary of a bank holding company to receive deposits, renew time deposits,
close loans, service loans and receive payments on loans and other obligations
as agent for a bank or thrift affiliate, whether such affiliate is located
in a different state or in the same state.
Beginning June 1, 1997, banks may, with the approval of the appropriate
Federal bank regulatory ageny, merge across state lines, unless one or more
of the states in which the banks are located has opted-out of interstate
branching. The appropriate Federal bank regulatory agency generally may not
approve such a merger, however, if, after the merger, the resulting entity
would control more than 10% of the total deposits of U.S. insured depository
institutions or 30% or more of the deposits in any state affected by the
merger.
Under the Riegle-Neal Act, a state may adopt legislation permitting
interstate mergers before June 1, 1997 or, alternatively, opting out of
interstate branching. Illinois has adopted legislation permitting interstate
branching beginning June 1, 1997.
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 was to address public concern over the
financial crisis of the thrift industry through the imposition of strict
reforms on that industry, FIRREA granted bank holding companies more
expansive rights of entry into "the savings institution" market through
the acquisition of both healthy and failed savings institutions. FIRREA
also enhanced the enforcement powers of the federal regulatory agencies
over insured depository institutions and provided that an insured depository
institution which is commonly controlled with another insured depository
institution may be held liable for any loss incurred by the Federal Deposit
Insurance Corporation resulting from the failure of, or any assistance
provided by the Federal Deposit Insurance Corporation to, such other
commonly controlled institution.
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 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; (viii) provisions that require the
regulatory agencies to adopt regulations that facilitate cross-industry
transactions, and (ix) provisions for acquisition of banks by thrift
institutions.
As required by FDICIA and subsequently amended by the Riegle
Community Development and Regulatory Improvement Act of 1994, the federal
banking regulators have adopted, effective August 9, 1995, interagency
guidelines establishing standards for safety and soundness for depository
institutions and their holding companies on such matters as internal
controls, loan documentation, credit underwriting, interest rate risk
exposure, asset growth, and compensation and other benefits (the "Guidelines").
In addition, the federal banking regulators have proposed asset quality and
earning standards to be added to the Guidelines. An institution whose
failure to meet one or more of the standards is of such severity that it
could threaten the safe and sound operation of the institution may be
required to file a compliance plan with the regulators. A range of other
regulations adopted as a result of FDICIA include, for example, new
requirements applicable to the closure of branches, additional disclosures
to depositors with respect to terms and interest rates applicable to deposit
accounts, and modification of certain accounting standards to conform to
GAAP, including the reporting of off-balance sheet items and supplemental
disclosure of estimated fair market value of assets and liablities in
financial statements filed with the banking regulators. See also
"Capital Requirements."
The Company's Subsidiaries
FBN, FBS and FSBCG 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
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.
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 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.
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
minimum Tier 1 capital to risk weighted asset ratio of 4% and a total
capital to risk weighted asset ratio of at least 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 exceed
the regulatory capital guidelines as currently defined.
The Company's Tier 1 capital to risk-weighted asset ratio and total
capital to risk-weighted asset ratio as of December 31, 1995 and 1994
were as follows (in thousands):
12/31/94 12/31/95
Total Assets Leverage Ratio:
Tier 1 Capital:
Common Stockholders' Equity $38,227 $47,857
Series A Preferred (1) 5,000 5,000
Series B Convertible Preferred 7,250 7,250
Series D Preferred 2,000 2,000
Unrealized Gain/Loss on SAFS 4,404 (1,242)
Intangible Assets (22,715) (21,010)
Total Tier 1 Capital 34,166 39,855
Adjusted Total Assets:
Total Assets 620,504 670,219
Unrealized Gain/Loss on SAFS 4,404 (1,242)
Intangible Assets (22,715) (21,010)
Total Adjusted Total Assets 602,193 647,967
Total Assets Leverage Ratio 5.67% 6.15%
Tier 1 Capital to Risk-Weighted Assets:
Total Tier 1 Capital (per above) 34,166 39,855
Risk Weighted Assets 329,471 377,471
Total Tier 1 Capital to
Risk-Weighted Assets 10.37% 10.56%
Total Capital to Risk-Weighted Assets:
Total Tier 2 Capital
Allowance for Loan Losses 3,688 3,850
1.25% of Risk-Weighted Assets 4,118 4,718
Lower of Allowance for Loan Losses
or 1.25% of Risk-Weighted Assets 3,688 3,850
Total Tier 1 Capital (per above) 34,166 39,855
Total Tier 2 Capital 37,854 43,705
Risk-Weighted Assets
Ineligible Portion of the
Allowance for Loan Losses - -
Adjusted Risk-Weighted Assets 329,471 377,471
Total Tier 2 Capital to Adjusted
Risk-Weighted Assets 11.49% 11.58%
(1) Series A Perpetual Preferred stock has a cumulative dividend
feature. Inclusion in Tier 1 Capital is limited to 25% of the sum
of all core capital elements.
Monetary Policy and Econmonic 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. Changes in the amount of the
assessments from the Bank Insurance Fund, which insures commercial bank
deposits, also affect earnings. Assessments were reduced in 1995
to reflect the Bank Insurance Fund's fully-funded status. The Company cannot
predict how future changes in the amount of the assessments will impact
earnings.
Employees
As of December 31, 1995, the Company and its subsidiaries had a
total of 258 full-time and 64 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 de novo bank location.
FBN conducts its operations from its offices located in Freeport,
Stockton, Rockford, Warren, Mount Carroll, and DeKalb, 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 sales personnel. 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 2000.
FBN's office in Mount Carroll is located at 102 E. Market Street,
Mount Carroll, Illinois, with a separate drive-in facility located at
315 N. Clay Street (Highway 78), in Mount Carroll. 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
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 the
Company's wholly owned insurance subsidiary, Premier Insurance Services,
Inc.
FBN's Rockford office is located at 3957 Mulford Road, Rockford,
Illinois. Both the building which contains approximately 1358 square
feet and underlying land are owned by the bank.
FBN's office in DeKalb is located at 301-9 East Lincoln Highway,
DeKalb, Illinois. Both the building and underlying land are leased from
an unaffiliated party through August, 1997.
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's office in Polo is 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's Sterling office is 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.
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 is the 4 lane drive-through
and the underlying land. The adjoining parking lot contains 26,000
square feet of land.
FSBCG owns a second banking center at 3114 Northwest Highway, Cary,
Illinois. The building consists of 1,856 square feet, and three drive-
through lanes situated on 145,953 square feet of land.
Premier Operating Systems, Inc. conducts the majority of its
operations from a 13,000 square foot, two story office building at 110
West Stephenson Street, Freeport, Illinois. 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, 1995.
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, 1995.
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters
Information required by this item is incorporated herein by
reference to "Supplementary Business Information -- Stock Information"
and Note 8 to the "Notes to Consolidated Financial Statements" included
in the Registrant's Annual Report to its shareholders for the year ended
December 31, 1995, which is included as an exhibit to this report.
Item 6. Selected Financial Data
Incorporated herein by reference to the "Five Year Summary of
Selected Financial Data" included in the Registrant's Annual Report to
its shareholders for the year ended December 31, 1995, 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. 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 "Management's Discussion and Analysis
of Financial Condition and Results of Operations" included in the
Registrant's Annual Report to its shareholders for the year ended
December 31, 1995, 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, 1995
Loan Portfolio
Loan Maturities and Sensitivity to Changes in Interest Rates,
December 31, 1995
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, 1995
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, 1995, are submitted
herewith as an exhibit, and are incorporated by reference:
1. Consolidated Balance Sheets, December 31, 1995 and 1994
2. Consolidated Statements of Earnings for the three years
ended December 31, 1995
3. Consolidated Statements of Changes in Stockholders' Equity
for the three years ended December 31, 1995
4. Consolidated Statements of Cash Flows for the three years
ended December 31, 1995
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
Item 9. Change in and Disagreements with Accountants on Accounting
and Financial Disclosures
None
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
1991 1992 1993 1994 1995
ASSETS:
Cash & Non-interest bearing
deposits $ 15,129 $ 17,162 $30,003 $ 27,316 $27,036
Interest Bearing Deposits 1,114 880 1,677 12,027 3,606
Taxable Investment Securities 114,281 95,691 102,323 185,110 222,011
Non-Taxable Investment
Securities 26,200 24,374 37,038 40,498 38,200
Total Investment Securities 140,481 120,065 139,361 225,608 260,211
Trading Account Assets 773 2,017 --- --- 333
Federal Funds Sold 1,704 656 4,706 3,737 814
Loans (Net) 182,975 219,684 273,951 287,825 298,508
All Other Assets 16,755 17,450 32,101 46,101 45,001
TOTAL ASSETS $358,931 $377,914 $481,799 $602,614 $635,509
LIABILITIES & STOCKHOLDERS
EQUITY:
Non-Interest Bearing Deposits $ 36,118 $ 38,402 $ 66,895 $ 88,594 $ 75,320
Interest Bearing Deposits 244,253 259,271 335,510 420,530 459,645
Total Deposits 280,371 297,673 402,405 509,124 534,965
Short Term Borrowings 49,544 47,556 24,014 33,033 37,761
Long Term Debt 826 --- --- --- ---
All Other Liabilities
& Reserves 2,861 2,844 10,785 4,619 5,310
Stockholders' Equity 25,329 29,841 44,595 55,838 57,473
TOTAL LIABILITIES & EQUITY $358,931 $377,914 $481,799 $602,614 $635,509
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
1991 1992 1993 1994 1995
Interest Earned:
Interest Bearing Deposits
Interest Earned $ 94 $ 68 $ 104 $ 514 $ 213
Average Yield 8.43% 7.73% 6.20% 4.27% 5.91%
Taxable Investment Securities
Interest Earned 9,387 6,691 6,077 9,929 14,076
Average Yield 8.21% 6.99% 5.94% 5.36% 6.34%
Non-Taxable Investment Securities
(taxable equivalent) (1)
Interest Earned 2,593 2,418 2,938 3,658 3,631
Average Yield 9.89% 9.92% 7.93% 9.03% 9.50%
Trading Account Assets
Interest Earned 58 151 --- --- 20
Average Yield 7.50% 7.49% --- --- 6.01%
Federal Funds Sold
Interest Earned 88 25 133 150 50
Average Yield 5.16% 3.81% 2.83% 4.01% 6.14%
Loans (Excluding Unearned
Discount & Non Accrual Loans)
(taxable equivalent) (1)
Interest & Fees Earned (2) 19,357 19,860 22,262 23,641 27,739
Average Yield (3) 10.56% 9.06% 8.13% 8.21% 9.29%
Interest Paid:
Interest Bearing Deposits
Interest Paid 14,358 11,559 11,461 13,511 19,851
Average Effective Rate Paid 5.87% 4.46% 3.42% 3.21% 4.32%
Borrowed Funds
Interest Paid 2,921 1,800 1,289 1,619 2,309
Average Effective Rate Paid 5.89% 3.79% 5.37% 4.90% 6.11%
Long Term Debt
Interest Paid 88 --- --- --- ---
Average Effective Rate Paid 10.65% --- --- --- ---
Margin Between Rates Earned
and Rates Paid:
All Interest Earnings Assets
(taxable equivalent)
Interest & Fees Earned 31,577 29,213 31,514 37,892 45,729
Average Yield 9.65% 8.52% 7.44% 7.18% 8.11%
All Interest Bearing Liabilities
Interest Paid 17,367 13,359 12,750 15,130 22,160
Average Effective Rate Paid 5.89% 4.35% 3.55% 3.33% 4.46%
Net Interest Earned 14,210 15,854 18,764 22,762 23,569
Net Yield 4.34% 4.62% 4.43% 4.32% 4.18%
(1) Yields on tax exempt securities and loans are full tax equivalent yields at
34%.
(2) Includes fees of $548, $568, $718, $675 and $678 for 1991 through 1995
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)
1994 over 1993 1995 over 1994
Rate Volume Rate Volume
Changes in Interest Earned:
Interest Bearing Deposits $ (42) $ 452 148 (449)
Taxable Investment Securities (644) 4,496 1,984 2,163
Non-taxable Investment Securities
(taxable equivalent) 290 430 186 (213)
Trading Account Assets --- --- --- 20
Fed Funds Sold 48 (31) 55 (155)
Loans (net) 224 1,155 3,196 902
Total $ (124) $6,502 $ 5,569 2,268
Changes in Interest Paid:
Interest Bearing Deposits $ (735) $2,785 4,996 1,344
Short Term Borrowings (121) 451 436 254
Total $ (856) 3,236 5,432 1,598
Changes in Interest Margin $ 732 $3,266 $ 137 $ 670
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, U.S. Government Agencies and Corporations,
State and Political Subdivisions (U.S.), and other securities for each of the
last five years (dollar figures in thousands):
1991 1992 1993 1994 1995
U.S. Treasury and U.S. Agency
Securities $ 89,825 $ 77,897 $140,725 $203,956 $219,315
Obligations of States and
Political Subdivisions 25,258 24,358 36,693 40,513 40,463
Other Securities 10,308 3,580 3,068 4,009 5,548
Total $125,391 $105,835 $180,486 $248,478 $265,326
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,
1995 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 $ 41,512 $ 8,350 $ 86 6.56%
After One Year to Five Years 53,248 18,230 256 7.33%
After Five Years to Ten Years 52,256 7,986 --- 7.84%
Over Ten Years 72,299 5,897 5,206 7.00%
Total $ 219,315 $ 40,463 $ 5,548 7.11%
(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, 1995 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
1991 1992 1993 1994 1995
Commercial & Financial Loans $ 83,777 $ 88,341 $121,514 $ 91,392 $ 97,767
Agricultural Loans 32,428 45,924 40,972 31,564 29,905
Real Estate - Residential
Mortgage Loans 66,256 54,728 103,234 86,105 85,965
Real Estate - Other 18,289 16,904 35,832 53,289 92,000
Loans to Individuals 13,364 13,268 29,728 22,056 21,066
Other Loans 859 980 625 394 272
214,973 220,145 331,905 284,800 326,975
Less:
Unearned Discount 231 182 518 344 278
Allowance for Possible
Loan Losses 3,202 2,713 4,369 3,688 3,850
Net Loans $211,540 $217,250 $327,018 $280,768 $322,847
The following tables set forth the registrant's loan maturity distribution for
certain major categories of loans as of December 31, 1995 (dollar figures in
thousands).
AMOUNT DUE IN
1 Year or Less 1-5 Years After 5 Years
Commercial & Financial Loans $ 72,291 $ 24,294 $ 1,182
Agricultural Loans 18,841 8,386 2,678
Real Estate - Other Loans 23,079 58,302 10,619
Total $ 114,211 $ 90,982 $ 14,479
As of December 31, 1995 loans totaling $105,146, which are due after one
year have predetermined interest rates, while $315 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
1991 1992 1993 1994 1995
Non-accrual Loans $ 3,683 $ 2,915 $ 5,791 $ 4,879 $2,345
Loans Past Due 90 days
or more and accruing 501 152 5,151 144 158
Renegotiated Loans 314 288 523 261 75
Other Real Estate 48 153 1,749 1,403 1,453
Total $ 4,546 $ 3,508 $13,214 $6,687 $4,031
The following table sets forth interest information for certain non-
performing loans for the year ended December 31, 1995 (dollar figures in
thousands):
Non-Accrual Loans Renegotiated Loans
Balance December 31, 1995 $ 2,345 $ 75
Gross interest income that would
have been recorded if the loans
had been current in accordance
with their original terms 230 6
Amount of interest included in
net earnings. 67 8
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 27%
remains 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 12/31/95:
Loans-year End
(Gross) $ 127,672 $177,965 $ 21,066 $ 272 $ --- $326,975
Average Loans
(Gross) 127,829 154,155 20,089 337 --- 302,410
Allowance for Loan
Losses (Beginning
of Year) 638 1,549 429 21 1,051 3,688
Loans Charged Off 1,113 76 216 --- --- 1,405
Recoveries - Loans
Previously Charged
Off 782 28 121 --- --- 931
Net Loan Losses
(Recoveries) 331 48 95 --- --- 474
Operating Expense
Provision 636 --- --- --- --- 636
Allowance For Loan
Losses (Year End) 943 1,501 334 21 1,051 3,850
Ratios:
Loans in Category to
Total Loans 39.05% 54.43% 6.44% .08% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .26% .03% .47% --- --- .16%
Commercial & Real Loans to
Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/94:
Loans-year End
(Gross) $ 122,956 $139,394 $ 22,056 $ 394 $ --- $284,800
Average Loans
(Gross) 131,808 135,561 24,354 581 --- 292,304
Allowance for Loan
Losses (Beginning
of Year) 1,105 1,607 585 21 1,051 4,369
Loans Charged Off 1,081 73 370 --- --- 1,524
Recoveries - Loans
Previously Charged
Off 414 15 214 --- --- 643
Net Loan Losses
(Recoveries) 667 58 156 --- --- 881
Operating Expense
Provision 200 --- --- --- --- 200
Allowance For Loan
Losses (Year End) 638 1,549 429 21 1,051 3,688
Ratios:
Loans in Category to
Total Loans 43.17% 48.95% 7.74% .14% --- 100%
Net Loan Losses
(Recoveries) to
Average Loans .50% .04% .64% --- --- .30%
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%)
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
1991 1992 1993 1994 1995
Demand Deposits (Non-
Interest Bearing) $ 36,119 $ 38,402 $66,895 $ 88,594 $ 75,320
Demand Deposits (Interest
Bearing) 38,194 44,772 57,937 93,788 121,038
Savings Deposits 67,456 73,684 95,351 154,188 126,021
Time Deposits 138,603 140,815 182,222 172,554 212,586
Deposits in Foreign Bank
Offices None None None None None
TOTAL DEPOSITS $280,372 $297,673 $402,405 $509,124 $534,965
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
1991 1992 1993 1994 1995
Demand Deposits (Interest
Bearing) 4.83% 3.67% 2.41% 2.37% 3.11%
Savings Deposits 4.89% 3.52% 2.74% 2.99% 3.33%
Time Deposits 6.65% 5.20% 4.09% 4.30% 5.59%
TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's maturity distribution
for all time deposits of $100,000 or more as of December 31, 1995 (in
thousands):
Maturity Amount Outstanding
3 months or less $ 23,866
3 through 6 months 11,928
6 through 12 months 6,170
Over 12 months 4,366
TOTAL $ 46,330
RETURN ON EQUITY AND ASSETS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's return on average
assets, return on average common equity, 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
1991 1992 1993 1994 1995
Return on Average Assets 1.01% 1.15% .83% .95% .99%
Return on Average
Common Equity 14.29% 14.58% 10.80% 11.11% 11.93%
Return on Average Equity 14.29% 14.58% 8.99% 10.23% 10.90%
Dividend Payout Ratio 16.75% 19.73% 29.27% 26.47% 27.27%
Average Equity to Average
Asset Ratio 7.06% 7.90% 9.26% 9.27% 9.04%
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
1991 1992 1993 1994 1995
Balance at End of Period:
Federal Funds Purchased
and FHLB Advances $ 14,241 $ 4,272 $ --- $ 13,975 $ 23,975
Securities Sold Under
Repurchase Agreements 43,688 14,854 20,571 16,086 18,635
Notes Payable to Banks 260 1,880 12,410 12,210 8,750
Other --- --- --- --- ---
TOTAL $ 58,189 $21,006 $32,981 $ 42,271 $ 51,360
Weighted Average Interest
Rate at the end of Period:
Federal Funds Purchased
and FHLB Advances 4.75% 3.53% --- 5.75% 5.75%
Securities Sold Under
Repurchase Agreements 4.53% 3.79% 2.76% 4.47% 4.73%
Notes Payable to Banks 6.50% 6.00% 6.00% 8.00% 7.43%
Other --- --- --- --- ---
Highest Amount Outstanding
at Any Month-End:
Federal Funds Purchased
and FHLB Advances $ 14,241 $16,614 $18,535 $13,975 $23,975
Securities Sold Under
Repurchase Agreements 47,033 45,557 23,952 23,127 18,635
Notes Payable to Banks 1,115 1,880 17,500 14,555 12,570
Other 2,000 --- --- 1,000 3,000
Average Outstanding During
the Year:
Federal Funds Purchased
and FHLB Advances $ 6,305 $10,715 $ 8,534 $ 3,205 $10,137
Securities Sold Under
Repurchase Agreements 42,320 36,073 15,480 16,872 17,183
Notes Payable to Banks 760 768 7,362 12,755 10,334
Other 160 --- --- 201 107
Weighted Average Interest
Rate During the Year:
Federal Funds Purchased
and FHLB Advances 5.78% 3.93% 3.30% 4.90% 6.55%
Securities Sold Under
Repurchase Agreements 5.87% 3.74% 3.58% 3.26% 4.94%
Notes Payable to Banks 8.63% 6.12% 6.14% 7.07% 8.00%
Other 6.40% --- --- 3.98% 6.25%
PART III
Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to "Information Concerning Nominees"
and "Executive Officers" in the Registrant's Proxy Statement dated April 8,
1996 in connection with its annual meeting to be held on May 15, 1996.
Item 11. Executive Compensation
Incorporated herein by reference to "Directors' Fees and Compensation"
and "Executive Compensation" in the Registrant's Proxy Statement dated April
8, 1996, in connection with its annual meeting to be held on May 15, 1996.
Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to "Security Ownership of Certain
Beneficial Owners and Management" in the Registrant's Proxy Statement dated
April 8, 1996, in connection with its annual meeting to be held on May 15,
1996.
Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to "Executive Compensation" and
"Certain Relationships and Related Transactions" in the Registrant's Proxy
Statement dated April 8, 1996 in connection with its annual meeting to be
held on May 15, 1996.
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, 1995 as follows:
1. Consolidated Balance Sheets, December 31, 1995 and 1994
2. Consolidated Statements of Earnings for the three years
ended December 31, 1995.
3. Consolidated Statements of Cash Flows for the three years
ended December 31, 1995.
4. Consolidated Statements of Changes in Stockholders'
Equity, for the three years ended December 31, 1995.
5. Notes to Consolidated Financial Statements
6. Independent Auditors' Report
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
v notes.
C. Exhibits as follows:
The exhibits listed on the Exhibit Index beginning on page 29 of
this Form 10-K are filed herewith or are incorporated herein by
reference to other filings.
2. Reports on Form 8-K
The registrant did not file any reports on Form 8-K during the
quarter ended December 31, 1995.
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.
/s/ Richard L. Geach
By: Richard L. Geach, President
Chief Executive Officer and Director
Date: March 25, 1996
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.
/s/ David L. Murray
By: D. L. Murray, Executive Vice President /s/ Donald E. Bitz
Chief Financial Officer and Director By: Donald E. Bitz
Date: March 25, 1996 Date: March 12, 1996
/s/ R. Gerald Fox /s/ Charles M. Luecke
By: R. Gerald Fox By: Charles M. Luecke
Date: March 28, 1996 Date: March 15, 1996
/s/ Joseph C. Piland /s/ H. Barry Musgrove
By: Joseph C. Piland By: H. Barry Musgrove
Date: March 28, 1996 Date: March 28, 1996
/s/ E. G. Maris
By: E. G. Maris
Date: March 18, 1996
EXHIBIT INDEX
The following exhibits are filed herewith or incorporated herein by
reference. All documents incorporated by reference to prior filings have
been filed under Commission File No. 0-13425, unless otherwise indicated.
Each management contract or compensatory plan or arrangement required to be
filed as an exhibit to this report has been marked with an asterisk.
Exhibit
Number Description
2.1 Agreement and Plan of Reorganization, date January 22, 1996,
among the Registrant, Northern Illinois Financial Corporation
and Grand Premier Financial, Inc. (incorporated by reference
to the Registrant's Form 8-K, dated January 18, 1996).
2.2 First Amendment to Agreement and Plan of Reorganization, dated
March 18, 1996, among the Registrant, Northern Illinois
Financial Corporation and Grand Premier Financial, Inc.
3.1 Restated Certificate of Incorporation of the Company, as
amended by the Certificate of Amendment, dated May 2, 1994,
together with Certificates of Designation for the Series A
Perpetual Preferred Stock, the Series B Perpetual Preferred
Stock and the Series D Perpetual Preferred Stock incorporated
by reference to the Registrant's Registration Statement on
Form 10-K/A, dated April 5, 1995.
3.2 By-laws of the Registrant, as amended incorporated herein by
reference to the Registrant's Registration Statement on Form
10-K, dated March 23, 1989.
4.1 Agreement, dated July 16, 1993, among Premier Financial
Services, Inc., Premier Acquisition Company, First Northbrook
Bancorp, Thomas D. Flanagan and James M. Flanagan incorporated
by reference to the Registrant's Registration Statement on
Form 8-K, dated July 29, 1993.
10.1* Change in Control and Termination Agreement, dated January 20,
1995, between the Registrant and Richard L. Geach.
10.2* Change in Control and Termination Agreement, dated January 20,
1995, between the Registrant and David L. Murray.
10.3* Change in Control and Termination Agreement, dated January 20,
1995, between the Registrant and Kenneth A. Urban.
10.4* Change in Control and Termination Agreement, dated January 20,
1995, between the Registrant and Steve E. Flahaven.
10.5 Premier Financial Services, Inc. Senior Leadership and
Directors Deferred Compensation Plan, effective August 1,
1994, incorporated by reference to the Regristrant's
Registration Statement on Form S-8, dated October 5, 1994,
Registration No. 33-55793.
10.6 Premier Financial Services, Inc. 1995 Non-Qualified Stock
Option Plan, effective as of January 26, 1995, incorporated by
reference to the Registrant's Registration Statement on Form
S-8, dated May 5, 1995, Registration No. 33-59137.
13 Premier Financial Services, Inc. 1995 Annual Report to
Stockholders.
21 Subsidiaries of the Registrant.
23 Consent of KPMG Peat Marwick LLP
27 Article 9 Financial Data Schedule for the Fiscal Year Ended
December 31, 1995.
To our Stockholders:
Last year was another rewarding chapter in the history of Premier
Financial Services, Inc. During 1995, we experienced excellent growth
in earnings, assets, capital, and most importantly the value of your
investment in our stock. Some of the years' highlights included:
* a 13.2% improvement in earnings per share
* net loan growth of $42 million
* a $9.6 million increase in capital
* a 25% increase in the closing bid price of our common stock, from
$7.00 at year end 1994 to $8.75 at December 31, 1995.
We re very pleased with these results in an industry which can only be
described as volatile, and will continue to strive for similar
achievements in the years ahead.
There were a number of other significant changes during 1995 which
should contribute to future performance.
First was the Federal Deposit Insurance Corporation s decision to reduce
insurance premiums for the banking industry. We, along with the
industry in general, benefitted from that decision; it is a benefit the
industry has earned by replenishing the insurance fund through payment
of high premiums.
Secondly, we continue to benefit from market expansion resulting from
our acquisition of First National Bank of Northbrook and First Security
Bank of Cary-Grove. Their combined performance has exceeded our
expectations and we look forward to continued positive results.
Finally, the progress we made in reducing non-performing assets to $4
million at year end (.60% of total assets) allows us to focus more of
our resources on new growth rather than collection efforts.
The only constant in the financial services industry is change. Premier
has changed more dramatically in the past five years than in its
previous history. We certainly expect that trend to continue in 1996.
We look forward to your continued participation and thank you for your
confidence.
Cordially,
Richard L. Geach David L. Murray
President & Chief Executive Officer Executive Vice
President & Chief
Financial Officer
<TABLE>
Consolidated Balance Sheets
---------------------------------------------------------------------------------------------------------------
December 31, 1995, and 1994
1995 1994
---------------------------------------------------------------------------------------------------------------
Assets
<S> <C> <C>
Cash & non-interest bearing deposits $37,390,597 $31,186,418
Interest bearing deposits 676,367 14,683,941
---------------------------------------------------------------------------------------------------------------
Cash and cash equivalents 38,066,964 45,870,359
---------------------------------------------------------------------------------------------------------------
Securities available for sale at market value 265,326,397 207,964,644
Investments held to maturity (approximate market value):
December 31, 1994 - $40,516,000 - 40,513,480
Loans 326,975,311 284,799,933
Less: Unearned discount ( 278,242) ( 343,902)
Allowance for possible loan losses ( 3,849,863) ( 3,688,386)
---------------------------------------------------------------------------------------------------------------
Net loans 322,847,206 280,767,645
---------------------------------------------------------------------------------------------------------------
Bank premises & equipment 13,898,077 14,254,748
Excess cost over fair value of net assets acquired 20,008,150 21,600,583
Accrued interest receivable 6,514,630 5,835,006
Other assets 3,557,959 3,697,272
---------------------------------------------------------------------------------------------------------------
Total assets $670,219,383 $620,503,737
---------------------------------------------------------------------------------------------------------------
Liabilities & stockholders' equity
Non-interest bearing deposits $82,694,865 $86,018,604
Interest bearing deposits 468,797,581 437,674,799
---------------------------------------------------------------------------------------------------------------
Deposits 551,492,446 523,693,403
---------------------------------------------------------------------------------------------------------------
Short-term borrowings 32,725,000 26,185,000
Securities sold under agreements to repurchase 18,635,335 16,085,872
Accrued taxes & other expenses 5,033,133 1,759,512
Other liabilities 226,065 303,118
---------------------------------------------------------------------------------------------------------------
Liabilities $608,111,979 $568,026,905
---------------------------------------------------------------------------------------------------------------
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, issuedand 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
No. of Shares 1995 1994
Authorized 15,000,000 15,000,000
Issued 6,544,347 6,526,227
Outstanding 6,544,347 6,504,876 32,721,735 32,631,135
Retained earnings 13,893,248 10,149,027
Unrealized gain (loss) on securities available for sale, net of tax 1,242,421 (4,403,568)
Less: Treasury stock, (21,351 shares at cost) - ( 149,762)
---------------------------------------------------------------------------------------------------------------
Stockholders' equity $62,107,404 $52,476,832
---------------------------------------------------------------------------------------------------------------
Total liabilities & stockholders' equity $670,219,383 $620,503,737
---------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Earnings
---------------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995, 1994 and 1993
Interest income 1995 1994 1993
<S> <C> <C> <C>
Interest & fees on loans $27,729,373 $23,625,296 $22,235,746
Interest & dividends on investment securities:
Taxable 14,075,762 9,928,614 6,077,449
Exempt from federal income tax 2,291,917 2,309,789 1,891,854
Other interest income 282,972 663,317 236,540
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest income 44,380,024 36,527,016 30,441,589
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest expense
Interest on deposits 19,851,147 13,510,527 11,461,443
Interest on borrowings 2,308,515 1,618,879 1,289,326
- - -----------------------------------------------------------------------------------------------------------------------------------
Interest expense 22,159,662 15,129,406 12,750,769
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income 22,220,362 21,397,610 17,690,820
Provision for possible loan losses 636,000 200,000 1,620,000
- - -----------------------------------------------------------------------------------------------------------------------------------
Net interest income after provision for possible loan losses 21,584,362 21,197,610 16,070,820
- - -----------------------------------------------------------------------------------------------------------------------------------
Other income
Trust fees 2,459,025 2,367,156 2,161,597
Service charges on deposits 1,960,424 1,907,463 1,466,387
Net gains on loans sold to secondary market 222,333 256,831 886,231
Investment securities gains, net 409,021 35,201 136,391
Other operating income 2,179,330 2,119,461 1,342,701
- - -----------------------------------------------------------------------------------------------------------------------------------
Other income 7,230,133 6,686,112 5,993,307
----------------------------------------------------------------------------------------------------------------------------------
Other expenses
Salaries 8,313,135 7,767,407 6,814,448
Pension, profit sharing, & other employee benefits 1,181,375 1,112,672 825,066
Net occupancy of bank premises 2,160,448 1,981,801 1,523,649
Furniture & equipment 1,068,153 1,088,454 1,064,031
Federal deposit insurance premiums 585,635 1,161,540 918,447
Amortization of excess cost over fair value of net assets acquired 1,592,433 1,592,433 833,838
Other 4,970,549 5,059,412 4,493,368
- - -----------------------------------------------------------------------------------------------------------------------------------
Other expense 19,871,728 19,763,719 16,472,847
- - -----------------------------------------------------------------------------------------------------------------------------------
Earnings before income taxes 8,942,767 8,120,003 5,591,280
Applicable income taxes 2,680,588 2,409,708 1,580,070
- - -----------------------------------------------------------------------------------------------------------------------------------
Net earnings $6,262,179 $5,710,295 $4,011,210
===================================================================================================================================
Earnings per share
(On weighted average outstanding common and common
equivalent shares outstanding of 6,694,059 in 1995,
6,648,744 in 1994 and 6,245,097 in 1993) $.77 $.68 $.55
===================================================================================================================================
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 1995, 1994 and 1993
1995 1994 1993
------- ------- --------
Cash flows from operating activities:
<S> <C> <C> <C>
Net earnings $6,262,179 $5,710,295 $4,011,210
Adjustments to reconcile net earnings
to net cash from operating activities:
Amortization net, related to:
Investment securities 1,225,796 2,002,842 1,239,194
Excess of cost over net assets acquired 1,592,433 1,592,433 833,838
Other 356,741 248,371 178,029
Depreciation 1,091,176 1,135,556 1,076,355
Provision for possible loan losses 636,000 200,000 1,620,000
Gain on sale related to:
Investment securities ( 409,021) ( 35,201) ( 136,391)
Loans sold to secondary market ( 222,333) ( 256,831) ( 886,231)
Loans originated for sale ( 18,942,000) ( 18,864,000) ( 58,485,000)
Loans sold to secondary market 18,942,000 18,864,000 58,485,000
Deferred income tax expense 88,000 239,000 108,000
Change in:
Securities available for sale - - ( 64,108,609)
Accrued interest receivable ( 679,624) ( 764,674) ( 1,374,094)
Other assets 137,540 ( 311,337) ( 4,850,293)
Accrued taxes & other expenses 3,185,622 ( 2,146,783) 1,623,933
Other liabilities ( 2,985,593) ( 276,156) 127,395
---------------------------------------------------------------------------------------------------------------------
Net cash from operating activities 10,278,916 7,337,515 ( 60,537,664)
---------------------------------------------------------------------------------------------------------------------
Cash flows from investing activities:
Cash portion of acquisition, net of
cash and cash equivalents acquired - - ( 2,390,348)
Purchase of investment securities held-to-maturity ( 8,887,616) ( 11,095,547) ( 20,141,426)
Purchase of securities available for sale (202,555,577) ( 131,754,087) -
Proceeds from:
Maturities of investment securities held-to-maturity 6,118,044 6,791,405 5,038,965
Sales of investment securities - - 3,456,965
Maturities of securities available for sale 56,358,609 38,951,206 -
Sales of securities available for sale 139,856,020 22,744,000 -
Net (increase) decrease in loans ( 42,795,702) 46,113,195 (110,655,210)
Purchase of bank premises & equipment ( 788,772) ( 290,602) ( 4,614,612)
---------------------------------------------------------------------------------------------------------------------
Net cash from investing activities ( 52,694,994) ( 28,540,430) (129,305,666)
---------------------------------------------------------------------------------------------------------------------
Cash flows from financing activities:
Net increase (decrease) in:
Deposits 27,799,043 5,674,460 209,125,831
Securities sold under agreements to repurchase 2,549,463 ( 4,485,786) 5,717,248
Short term borrowings 6,540,000 13,775,000 6,258,000
Reissuance (purchase) of treasury stock 149,762 59,016 ( 208,778)
Exercised stock options 50,971 19,000 -
(Redemption) issuance of preferred stock - ( 1,950,000) 5,000,000
Cash dividends paid ( 2,476,556) ( 2,373,950) ( 1,574,037)
---------------------------------------------------------------------------------------------------------------------
Net cash from financing activities 34,612,683 10,717,740 224,318,264
---------------------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and cash equivalents ( 7,803,395) ( 10,485,175) 34,474,934
Cash and cash equivalents, beginning of year 45,870,359 56,355,534 21,880,600
---------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents, end of year $38,066,964 $45,870,359 $56,355,534
---------------------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information
Cash paid during the year for:
Interest $21,653,182 $14,951,689 $12,885,202
Income taxes 3,025,000 2,148,000 1,980,000
Purchase of Bank Subsidiaries and Branch
Fair value of assets acquired - 90,514 248,018,274
Cash received (paid) - 10,037,078 ( 16,325,000)
Common and preferred stock issued - - ( 16,450,000)
Excess cost over fair value of assets acquired - - 21,007,210
Deposit premium - 1,123,304 -
Fair value of liabilities assumed - 11,250,896 236,250,484
Non-cash activities:
Investment securities transferred to
securities available for sale 43,309,651 141,744,000 -
Conversion of preferred stock - 1,300,000 -
See accompanying notes to consolidated financial statements.
</TABLE>
<TABLE>
Consolidated Statements of Changes in Stockholders' Equity
---------------------------------------------------------------------------------------------------------------------------
Years ended December 31, 1995, 1994, and 1993
Unrealized Gain
(Loss) On Securities
Preferred Common Retained Available For Treasury
Stock Stock Surplus Earnings Sale, Net Of Tax Stock Total
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance January 1, 1993 $ - $9,965,730 $12,533,290 $9,989,149 $ - ( $750,523) $31,737,646
---------------------------------------------------------------------------------------------------------------------------
Net earnings 4,011,210 4,011,210
Cash dividends common stock ( 981,755) ( 981,755)
Cash dividends preferred stock ( 592,282) ( 592,282)
Issuance of Class A perpetual
preferred shares 5,000,000 5,000,000
Issuance of shares in acquisition:
Common shares 898,585 3,600,890 4,499,475
Class B convertible
preferred shares 5,950,000 5,950,000
Class C perpetual
preferred shares 1,950,000 1,950,000
Class D perpetual
preferred shares 3,300,000 3,300,000
Treasury stock reissuance 750,523 750,523
Treasury stock purchase ( 208,778) ( 208,778)
---------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1993 16,200,000 10,864,315 16,134,180 12,426,322 - ( 208,778) 55,416,039
---------------------------------------------------------------------------------------------------------------------------
Net earnings 5,710,295 5,710,295
Cash dividends common stock (1,169,392) (1,169,392)
Cash dividends preferred stock (1,204,558) (1,204,558)
Three-for-one stock split 21,728,630 (16,134,180) (5,594,450) -
Redemption of Series C
perpetual preferred stock ( 1,950,000) (1,950,000)
Exercised stock options 38,190 (19,190) 19,000
Unrealized loss on securities
available for sale, net of tax ( 4,403,568) (4,403,568)
Treasury stock reissuance 59,016 59,016
---------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1994 14,250,000 32,631,135 - 10,149,027 ( 4,403,568) ( 149,762) 52,476,832
---------------------------------------------------------------------------------------------------------------------------
Net earnings 6,262,179 6,262,179
Cash dividends common stock (1,370,306) (1,370,306)
Cash dividends preferred stock (1,106,250) (1,106,250)
Exercised stock options 90,600 (39,629) 50,971
Change in unrealized gain
(loss) on securites available
for sale, net of tax 5,645,989 5,645,989
Treasury stock reissuance (1,773) 149,762 147,989
---------------------------------------------------------------------------------------------------------------------------
Balance December 31, 1995 $14,250,000 $32,721,735 $ - $13,893,248 $1,242,421 $ - $62,107,404
---------------------------------------------------------------------------------------------------------------------------
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, 1995 and 1994,
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, 1995. 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, 1995 and
1994, and the results of their operations and their cash flows for each
of the years in the three-year period ended December 31, 1995 in conformity
with generally accepted accounting principles.
KPMG Peat Marwick, LLP
Chicago, Illinois
January 26, 1996
Notes to Consolidated Financial Statements
December 31, 1995, 1994 and 1993
1. Significant accounting policies
The accompanying consolidated financial statements conform to generally
accepted accounting principles and to general practices within the
banking industry. The preparation of financial statements in conformity
with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of income and expense during the reporting period. Actual
results could differ from those estimates. 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.
Securities available for sale
The Company adopted Statement of Financial Accounting Standards (SFAS)
No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," on January 1, 1994. In accordance with SFAS No. 115,
securities classified as securities available for sale are carried at
market value with unrealized gains and losses net of income taxes
excluded from earnings and reported as a separate component of
stockholders' equity. The impact of the adoption of SFAS No. 115
increased stockholders' equity by $690,000 in 1994.
Investments held-to-maturity
Investments held-to-maturity are stated at cost adjusted for
amortization of premiums and accretion of discounts on the level yield
method over the life of the security. Management has the positive
intent and ability to hold these investment securities to maturity. On
November 30, 1995, the Company transferred all securities classified as
held-to-maturity to securities available for sale under the provisions
of the SFAS No. 115 implementation guide.
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 judgement, 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: buildings 40 years and
12
equipment 3-15 years. Cost of major additions and improvements are
capitalized. Expenditures for maintenance and repairs are reflected as
expense when incurred.
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. 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. The effect on deferred taxes of a change in tax
rates is recognized in income in the period that includes the enactment
date.
Nature of operations
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. The
Company's markets are throughout northern Illinois.
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, 1995 and 1994 were $2,821,000 and $1,899,000.
3. Investments held-to-maturity and securities available for sale
The amortized cost and approximate market value of investments held-
to-maturity at December 31, 1994 are as follows (in thousands):
<TABLE>
1994
Gross Gross Approximate
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
<S> <C> <C> <C> <C>
Obligations of states &
political subdivisions 40,483 1,170 (1,167) 40,486
Other securities 30 - - 30
$ 40,513 $ 1,170 $ (1,167) $ 40,516
</TABLE>
The amortized cost and approximate market value of securities available
for sale at December 31, 1995 and 1994 are as follows (in thousands):
<TABLE>
1995 1994
Gross Gross Approx. Gross Gross Approx.
Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market
Cost Gains Losses Value Cost Gains Losses Value
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
U.S. Treasury obligations $ 44,730 $ 347 $ (300) $ 44,777 $ 71,125 $ 16 $(1,721) $ 69,420
U.S. Government agencies 105,964 977 (562) 106,379 103,408 61 (3,754) 99,715
Obligations of state &
political subdivisions 39,653 1,441 (631) 40,463 - - - -
Mortgage-backed securities 67,548 672 (61) 68,159 35,723 33 (1,304) 34,452
Other securities 5,549 - (1) 5,548 4,381 - (3) 4,378
$ 263,444 $ 3,437 $ (1,555) $265,326 $214,637 $ 110 $(6,782) $207,965
</TABLE>
The amortized cost and market value of securities available for sale
as of December 31, 1995 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.
1995
Approximate
Amortized Market
Cost Value
Due in one year or less $51,209 $49,948
Due after one year through five years 70,417 71,734
Due after five years through ten years 59,212 60,242
Due after ten years 15,058 15,243
Mortgage-backed securities 67,548 68,159
$263,444 $265,326
During 1995, proceeds from sales of securities available for sale were
$139,856,000. Gross gains of $548,000 and gross losses of $139,000
were realized on those sales. Proceeds from sales of securities
available for sale during 1994 were $22,744,000. Gross gains of
$40,000 and gross losses of $5,000 were realized on those sales.
During 1993, proceeds from sales of investment securities were
$3,457,000. Gross gains of $141,000 and gross losses of $5,000 were
realized on those sales.
On December 31, 1995 securities with a carrying value of approximately
$116,939,000 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 classification as of
December 31, 1995 and 1994 (in thousands):
1995 1994
Commercial and financial loans $ 97,767 $ 91,392
Agricultural loans 29,905 31,564
Real estate-residential 85,965 86,105
Real estate-commercial 92,000 53,289
Loans to individuals 21,066 22,056
Other loans 272 394
$ 326,975 $ 284,800
The Company serviced loans for others totaling $92,350,000,
$91,806,000, and $81,939,000 as of December 31, 1995, 1994 and 1993,
respectively.
A summary of changes in the allowance for possible loan losses for the
three years ended December 31 is as follows (in thousands):
1995 1994 1993
Balance beginning of year $3,688 $4,369 $ 2,713
Allowance from acquired entity - - 2,351
Recoveries 931 643 205
Provision charged to operating expense 636 200 1,620
5,255 5,212 6,889
Less:loans charged off 1,405 1,524 2,520
Balance end of year $3,850 $3,688 $4,369
The Company adopted the provisions of Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures," effective
January 1, 1995. Prior periods have not been restated. All loans
have been evaluated for collectibility under the provisions of these
statements.
The Company recognized a loan as being impaired when, based on current
information and events,it is probable that the Company will be unable
to collect all amounts due according to the contractual terms of the
loan agreement. The recorded investment in loans for which an
impairment has been recognized at December 31, 1995 was $2,578,000.
The recorded investment in loans for which an impairment has been
recognized and the related allowance for possible loan losses at
December 31, 1995 was $558,000 and $494,000, respectively. The
average recorded investment in impaired loans during 1995 was
$3,319,000. Interest income recognized on impaired loans during 1995
was $68,000.
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. 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, 1995 $2,151
New loans 156
Repayments (228)
Balance, December 31, 1995 $2,079
As of December 31, 1995 and 1994, the outstanding balance of
nonaccrual loans was approximately $2,345,000 and $4,879,000
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 $163,000, $420,000 and
$416,000 in 1995, 1994 and 1993 respectively.
5. Bank premises and equipment
Bank premises and equipment are recorded at cost less accumulated
depreciation as follows (in thousands):
1995 1994
Land, buildings and improvements $18,317 $17,784
Furniture, fixtures and equipment 5,374 5,331
23,691 23,115
Less accumulated depreciation 9,793 8,860
$13,898 $14,255
6. Short-term borrowings and securities sold under agreements to
repurchase
Following is a summary of short-term borrowings at December 31, 1995
and 1994 (in thousands):
1995 1994
Federal funds purchased and FHLB advances $23,975 $13,975
Note payable to bank 8,750 12,210
$32,725 $26,185
The note payable to bank totaling $8,750,000 and $12,210,000 at
December 31, 1995 and 1994, respectively, is due on demand with
variable interest (7.43 and 8.00% at December 31, 1995 and 1994,
respectively) and is secured by the Company's common stock holdings in
its subsidiaries. The note payable is a draw on a $15 million
revolving line of credit which matures in January, 1999. The note
agreement contains certain restrictive covenants. The Company was in
compliance with such covenants at December 31, 1995.
At December 31, 1995 and 1994 there were no material amounts of assets
at risk with any one customer under agreements to repurchase
securities sold. At December 31, 1995 and 1994 securities sold under
agreements to repurchase are summarized as follows (in thousands):
Weighted
average Collateral
Repurchase interest Collateral Market
1995 liability rate Book Value Value
Within 30 days $ 2,035 6.58% $2,004 $ 2,004
30 - 90 days 1,276 6.26% 1,277 1,297
After 90 days 2,687 5.67% 2,715 2,734
Demand 12,637 4.07% 16,772 16,919
$18,635 4.73% $22,768 $22,954
Weighted
average Collateral
Repurchase interest Collateral Market
1994 liability rate Book Value Value
Within 30 days $ - - % $ - $ -
30 - 90 days 1,075 3.79% 1,096 1,084
After 90 days 2,334 5.91% 2,427 2,357
Demand 12,677 4.26% 29,180 28,603
$16,086 4.47% $32,703 $32,044
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 five of the last 10
years of their employment. Effective July 1, 1994 the Company froze
the benefits accumulating to participants. Accrued benefits as of
that date were fully funded.
Assumptions used in accounting for the pension plans as of December
31, 1995 and 1994 were as follows:
1995 1994
Discount rate 7.25% 8.50%
Expected long-term rates of return on assets 8.00% 8.50%
The following table sets forth the plan's funding status and amounts
recognized in the Company's consolidated balance sheets at
December 31, 1995 and 1994 (in thousands):
<TABLE>
1995 1994
<S> <C> <C>
Actuarial present value of accumulated, vested and projected
benefit obligations $3,344 $2,696
Plan assets at fair value, primarily listed stocks & US Bonds 3,871 3,419
Plan assets in excess of projected benefit obligation 527 723
Unrecognized net gain (loss) from past experience different from
that assumed and effects of changes in assumptions 13 (267)
Unrecognized net assets at beginning of year being recognized over
15 years (288) (346)
Prepaid pension cost included in other assets $ 252 $ 110
</TABLE>
Net pension cost for 1995, 1994 and 1993 included the following
components (in thousands):
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Service cost-benefits earned during the period $ - $ 91 $ 166
Interest cost on projected benefits obligation 205 236 255
Actual return on plan assets (584) (103) (231)
Net amortization and deferral 237 (212) (70)
Gain on curtailment - (189) -
Net periodic pension (income) expense $(142) $(177) $ 120
</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 $341,000 for 1995,
$191,000 for 1994, and $218,000 for 1993.
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. The plan provides for the total
number of shares of common stock that may be available for options
under the Plan to be adjusted on January 1 of each calendar year, so
that the total number of shares of common stock that may be issued and
sold under the Plan as of January 1, of each calendar year to be equal
to four percent (4%) of the outstanding shares of common stock of the
Company on such date; provided, however, that no such adjustment will
reduce the total number of shares of common stock that may be issued
and sold under the plan below 200,000. The following table summarizes
option activity under this plan.
Number of Option
Shares Price
Options outstanding at December 31, 1992 311,979 $2.49 to $4.55
Granted 43,578 7.17
Exercised - -
Options outstanding at December 31, 1993 355,557 2.49 to 7.17
Granted - -
Exercised 7,638 2.49
Options outstanding at December 31, 1994 347,919 2.49 to 7.17
Granted 68,000 6.88
Exercised 18,120 2.49 to 4.55
Options outstanding at December 31, 1995 397,799 2.49 to 7.17
At December 31,1995 options to acquire 295,760shares were exercisable.
The Company adopted a Deferred Compensation Plan in 1994 for Directors
and employees designated as Senior Leadership Employees by the Board
of Directors. Participants may elect to defer up to 20% of salary,
50% of any bonus or 100% of directors fees under the Plan. The
Company makes a 25% matching contribution. Amounts deferred are used
to purchase company stock. Two hundred thousand shares are registered
for purchase by the Plan. Participants' deferral amounts are 100%
20
vested, with matching contributions 100% vested on the earlier of the
end of the third year following the year in which deferrals are made
or termination of employment for any reason other than discharge for
cause. Total expense was approximately $19,000 and $9,000 in 1995 and
1994, respectively.
8. Stockholders' equity
On April 28, 1994, the Board of Directors declared a three-for-one
stock split in the form of a stock dividend, payable July 1, 1994 to
stockholders of record on June 8, 1994. The stated par value of each
share remained at $5 per share. The stock split resulted in the
issuance of 4,345,726 additional shares of common stock from
authorized but unissued shares. The issuance of authorized but
unissued shares resulted in the transfer of $16,134,180 from surplus
and $5,594,450 from retained earnings to common stock, representing
the par value of the shares issued. Accordingly, earnings per share,
cash dividends per share, weighted average shares outstanding and
related prices, and the stock option plan information for prior
periods presented have been restated to reflect the stock split.
In 1994, the Company redeemed all of the outstanding Series C
Preferred Stock for $1,950,000 and converted 1,300 shares of Series D
Preferred Stock to Series B convertible Preferred Stock at stated
value.
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. At December 31, 1995, the Company had $3,131,000 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 1996 through the date of any declaration of dividends.
9. Income Taxes
The components of total tax expensereported in the consolidated income
statements for the years ended December31, 1995, 1994, and 1993 areas
follows (in thousands):
1995 1994 1993
Current federal $2,592 $2,171 $1,472
Deferred federal 88 239 108
Total income tax expense $2,680 $2,410 $1,580
21
The actual tax expense differs from the expected tax expense computed by
applying the Federal Corporate tax rate of 34% to earnings before income taxes
as follows (in thousands):
<TABLE>
1995 1994 1993
<S> <C> <C> <C>
Tax expense at statutory rate $3,040 $2,760 $1,901
Tax-exempt interest, net of premium amortization (806) (892) (592)
Amortization of excess cost over net assets acquired 541 541 284
Capitalized acquisition costs 41 - 39
Reduction in valuation allowance (90) - -
Other, net (46) 1 (52)
Total income tax expense $2,680 $2,410 $1,580
</TABLE>
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, 1995 and 1994 are as follows (in thousands):
1995 1994
Deferred tax assets
Alternative minimum tax credit carryforward $ - $448
Net operating loss carryforwards 910 1,275
Provision for loan losses 1,035 842
Deferred loan fees - 117
Other 52 90
Total gross deferred tax assets 1,997 2,772
Less: Valuation allowance (763) (950)
Net deferred tax assets $1,234 $1,822
Deferred tax liabilities: 1995 1994
Security accretion $26 $81
Tax depreciation in excess of
book depreciation 166 272
Difference between tax and
book basis of assets acquired 1,322 1,753
Deferred loan fees 109 -
Other - 17
Total gross deferred tax
liabilities 1,623 2,123
Net deferred tax liability 389 301
Unrealized gain (losses) on
securities available for sale 640 (2,268)
Net deferred tax (asset)
liability $ 1,029 $(1,967)
The net change in the valuation allowance for the year ended December
31, 1995 was a decrease of $187,000.
Future recognition of tax benefits relating to the valuation allowance
for deferred tax assets as of December 31, 1995 will be allocated as
follows:
Income tax benefit reported in the
consolidated statement of earnings $ 655
Excess cost over fair value of net
assets acquired 108
$ 763
The Company has net operating loss carryforwards for state income tax
purposes of approximately $19 million which expire beginning in 2002
through 2007.
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, 1995 and 1994, such commitments
and off-balance sheet financial instruments are as follows (in
thousands).
1995 1994
Letters of credit $8,554 $2,827
Lines of credit and other loan commitments 96,091 80,338
$104,645 $83,165
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.
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 judgement. 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 of $38.1 million is a reasonable estimate of fair value.
Securities available for sale
The estimated fair values of securities available for sale are
provided in note 3 to the consolidated 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, 1995 are
$326.7 million and $327.7 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.
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 flow. 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, 1995 are $551.5 million and $553.5 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 the Company 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, 1995 were $18.6
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>
<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 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 a 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 1.25% after July 16,
1998, 8.25% or the Prime rate plus 1.50% after July
16, 2000 and 8.25% or the Prime rate plus 1.75% after
July 16, 2003.
Series B - Non-voting, convertible to common stock at $9.50 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%. No longer authorized at December 31,
1995.
Series D - Non-voting, up to $1,300,000 convertible at any time
into Series B shares at par, subject to availability of
sufficient authorized common shares. Dividend rate of
9.00% at December 31, 1993 and 7.50% thereafter.
The unaudited pro forma results of operations (in thousands) which
follow assume the acquisition had occurred at the beginning of the
period presented. In addition to combining the historical results of
operations of the two companies, the pro forma calculations include
adjustments for purchase accounting related to the acquisition and
interest on borrowed funds.
December 31,
1993
Net interest income $21,902
Earnings before income taxes 3,565
Net earnings 2,462
Primary earnings per common share $ .18
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 period, 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>
Condensed balance sheets December 31,
1995 1994
Assets
<S> <C> <C>
Investments in subsidiaries $67,742 $61,774
Cash & interest bearing deposits 173 16
Premises and equipment 4,631 4,680
Other assets 221 38
Total assets $72,767 $66,508
Liabilities and stockholder's equity
Short-term borrowings $ 8,750 $12,210
Other liabilities 1,910 1,821
Total liabilities 10,660 14,031
Stockholder's equity 62,107 52,477
Total liabilities and stockholder's equity $72,767 $66,508
</TABLE>
Condensed statements of earnings
<TABLE>
For the years ended December 31,
1995 1994 1993
Income:
<S> <C> <C> <C>
Dividends from subsidiaries $6,888 $5,145 $8,250
Other 2,996 2,940 2,706
9,884 8,085 10,956
Expenses:
Interest 826 902 452
Salaries 2,517 2,670 2,263
Other 1,187 1,285 1,135
4,530 4,857 3,850
Earnings before income tax benefit and equity
in undistributed earnings of subsidiaries 5,354 3,228 7,106
Income tax benefit 456 587 272
Earnings before equity in undistributed
earnings of subsidiaries 5,810 3,815 7,378
Equity in undistributed earnings of
subsidiaries 452 1,895 (3,367)
Net earnings $6,262 $ 5,710 $4,011
Earnings per share $ .77 $ .68 $ .55
</TABLE>
Condensed statements of cash flows
<TABLE>
For the years ended December 31,
1995 1994 1993
Operating activities:
<S> <C> <C> <C>
Net cash provided by operating activities $ 6,033 $ 4,095 $ 7,649
Investing activities:
Cash paid for acquisition of subsidiaries - - (16,325)
Additional paid in capital to subsidiaries - - (5,950)
Purchase of bank premises and equipment (40) (76) (47)
Net cash used by investing activities (45) (76) (22,322)
Financing activities:
Increase (decrease) in short-term debt (3,460) (200) 10,530
Redemption of Series C Preferred stock - (1,950) -
Purchase of treasury stock - - (209)
Reissuance of treasury stock 149 59 -
Dividends paid (2,477) (2,374) (1,574)
Other (43) 443 935
Issuance of stock - - 5,000
Net cash provided (used) by financing activities (5,831) (4,022) 14,682
Increase (decrease) in cash $157 ($3) $9
Cash paid (received) for
Interest $ 837 $1,031 $290
Income taxes (3,525) (1,168) (273)
</TABLE>
14. Subsequent Event
On January 22, 1996, the Company signed a definitive agreement to
merge their assets and operations with Northern Illinois Financial
Corporation (NIFCO) located in Wauconda, Illinois and form a new
financial services organization to be named Grand Premier Financial,
Inc. In the proposed merger, which is subject to director, shareholder
and regulatory approval, NIFCO shareholders will receive 4.25 shares,
of Grand Premier Financial, Inc. for each share held. The Company
shareholders will receive 1.116 shares of Grand Premier Financial,
Inc. for each share held. At December 31, 1995, NIFCO had total
assets of approximately $954 million. It is expected that the merger
will be accounted for as a pooling-of-interests and be consummated in
the third quarter of 1996.
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The discussion presented below provides an analysis of the
Company's financial condition and results of operations for the
past three years, and is intended to cover significant factors
affecting the Company's overall performance during that time. 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 1995 Annual report to shareholders.
Results of Operations
Net earnings available to common shareholders for 1995 (i.e., net
earnings less preferred dividends) totaled $5.2 million, or $.77
per common share, compared with $4.5 million, or $.68 per share, in
1994. In 1993, net earnings available to common shareholders were
$3.4 million or $.55 per share. Premier's return on average common
equity was 11.93% in 1995, 11.11% in 1994 and 10.80% in 1993.
Return on average assets was .99%, .95%, and .83% in 1995, 1994 and
1993, respectively.
Net Interest Income
Tax equivalent net interest income for 1995 was $23.6 million, as
compared to $22.8 million in 1994 and $18.8 million in 1993. The
year-to-year increases were primarily a result of increased earning
asset volume. The growth is directly related to management's
efforts to expand the loan portfolio, and funded with core
deposits. Net interest income earned from the increased earning
asset volume more than offset declines in net interest margin.
Average earning assets totaled $563.7 million in 1995 versus $527.4
million and $423.4 million in 1994 and 1993, respectively. Average
loans, the highest yielding component of earning assets, increased
by $78.8 million over the three year period. The remainder of the
increase is in investment securities.
Our net interest margin was 4.18% in 1995 as compared to 4.32% in
1994 and 4.43% in 1993. The decrease in net interest margin from
1993 to 1995 was the result of a change in earning asset mix.
Although loans increased significantly during the three year
period, they comprised a declining percentage of average earning
assets; 53.6% in 1995, 55.4% in 1994 and 64.7% in 1993. This
change is reflected in the components of net interest margin. From
1994 to 1995, we experienced a 93 basis point increase in the
average yield on earning assets while the average cost of funds
increased 107 basis points. In 1994 the yield on average earning
assets was 26 basis points less than in 1993, while cost of funds
declined by 15 basis points.
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 predicted or assumed
changes in interest rates on balances and subsequently net interest
income, and to manage interest rate risk. Our model provides for
simultaneously comparing four different interest rate scenarios and
their impact on net interest income over a two year horizon. The
"most likely" rate scenario is predicated on an economic consensus
of future movements in short-term interest rates. A "rising" and
"declining" rate scenario are used to identify the potential impact
of rapid changes, up or down, from current rates. The fourth
scenario, i.e. the "base" or "flat rate" simulation, (more
traditionally known as "gap measurement") is used as a control to
quantify the effect of changes in net interest income caused solely
by repricing existing balances at current rates as they mature.
Changes in balances reflecting repayment risk, likely changes in
customer behavior under different interest rate environments and
other "what if" assumptions are also simulated under each scenario.
Our interest sensitivity, i.e., our exposure to change in net
interest income is measured over a rolling 12 month period under
each of the first three scenarios and compared to the base case
forecast. Generally, our policy is to maximize net interest income
while limiting our negative interest sensitivity ( i.e., a decline
in net interest income) to no more than 10% of after tax earnings
under any interest rate scenario. In January, 1996, the simulation
model indicated rate sensitivity (i.e., a change in net interest
income) of less than 1.00% in either a rising or declining rate
environment.
Management uses earnings simulation under a variety of interest
rate and balance assumptions to manage interest rate risk in a
dynamic environment. The following table shows our base or flat
rate measurement (i.e., "gap position") as of December 31, 1995:
Volumes Subject to Repricing
within within within over
90 days 180 days 1 year 1 year
($ in thousands)
Loans (net of unearned
income) .................... $180,246 $15,075 $17,717 $113,659
8Investment securities ....... 45,300 39,041 27,743 153,242
Other earning assets ........ 676 - - -
Total earning assets ...... 226,222 54,116 45,460 266,901
Interest-bearing deposits ... 119,510 36,923 32,658 279,707
Short-term borrowings ....... 38,853 10,850 1,657 -
Total interest-bearing
liabilities ............... 158,363 47,773 34,315 279,707
Asset (liability) gap...... 67,859 6,343 11,145 (12,806)
Cumulative asset gap ...... 67,859 74,202 85,347 72,541
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.
Each loan in the portfolio is graded according to specific financial,
risk and repayment criteria. The aggregate required reserve balance
for the entire portfolio is maintained through earnings provisions as
required. Our provision for loan losses in 1995 totaled $636,000 as
compared to $200,000 and $1.6 million in 1994 and 1993, respectively.
At December 31, 1995 the allowance for possible loan losses totaled
$3.9 million, or 1.17% of gross loans, compared to $3.7 million, or
1.29% of gross loans at December 31, 1994. Net charge-offs as a
percentage of average loans were .16% in 1995, compared with .30% and
.83% in 1994 and 1993, respectively. Although we believe that the
present level of the Allowance for Possible 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. Future provisions will
continue to be determined in relation to overall asset quality as well
as other factors mentioned previously.
NonInterest Income
Total noninterest income increased $544,000, or 8.1%, in 1995 over
1994 following a $693,000, or 11.6%, increase in 1994 over 1993.
Trust fees and service charges on deposits continue to be the primary
components of noninterest income. Revenue from other fee-based
services and products also increased modestly.
Trust fees, which represent Premier's largest fee-based source of
34
income, totalled $2.5 million in 1995, a 3.9% increase over 1994.
This increase followed revenue growth of 9.5% in 1994. The growth in
both years was primarily due to an increasing customer base. Trust
fees are based on providing fiduciary, investment management,
custodial and related services to corporate and personal clients. As
of December 31, 1995, the market value of total managed assets
approximated $.6 billion. We anticipate continued growth in
relationships and fees in 1996.
Service charges on deposit accounts totalled $2.0 million and $1.9
million in 1995 and 1994, respectively. In 1993, service charges on
deposit accounts increased $532,000, or 56.9%, to $1.5 million.
Although total deposits grew approximately $27.8 million in 1995,
modest growth in fees from service charges were experienced due to an
increase in earnings credit on commercial transaction accounts, which
essentially offset higher transaction volume. The increase in service
charges on deposit accounts from 1993 to 1994 was due to an overall
increase in transaction related fees.
Another source of noninterest income over the past several years has
been premiums recognized on sales of residential mortgage loans to the
secondary market. Net gains from the sale of residential mortgage
loans totalled $222,000, $257,000 and $886,000 for the years 1995,
1994 and 1993, respectively. Low interest rate environments such as
those experienced from 1992 through the first quarter of 1994 and
again in the fourth quarter of 1995 create an increase in loan
refinancing. As market rates decrease, both refinancing and premiums
recognized on loans sold to the secondary market generally increase.
Net investment security gains were $409,000 in 1995 as compared to
$35,000 in 1994 and $136,000 in 1993. As conditions change over time,
the overall interest rate risk, liquidity demands and potential return
on the investment security portfolio will change. Securities
available for sale 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 modestly, by $60,000, to $2.2 million
in 1995, following an increase of $776,000 in 1994 from 1993.
Contributing to the 1995 increase were fees from loan servicing,
credit card processing and safe deposit box rental. In 1994, other
operating income included non-recurring income of $396,000 on loans
charged off in prior periods that were recovered in 1994, as well as
income from operating the six new offices acquired in July, 1993 for a
full year.
Noninterest Expense
Total noninterest expense increased modestly, by $110,000, to $19.9
million in 1995 as compared to $19.8 million in 1994. In 1993
noninterest expense totalled $16.5 million. Our efficiency ratio,
which measures the level of operating expense (non-interest expense
35
exclusive of taxes, loan loss provision and non cash charges such as
depreciation and amortization) to total tax equivalent net interest
income plus recurring non-interest revenue, improved from 61.4% in
1993 to 59.2% and 56.5% in 1994 and 1995, respectively.
Salaries and benefits, the largest component of non-interest expense,
totaled $9.5 million in 1995 an increase of $614,000 or 6.9% over 1994
following an increase of approximately $1.2 million over 1993. The
1995 increase was primarily a result of higher incentive pay and
increased employee benefits including medical insurance premiums,
profit-sharing contributions and Company-matched 401-k contributions.
Employee benefits were 12.4% of compensation expense in 1995 compared
with 12.5% in 1994 and 10.8% in 1993. The increase in 1994 over 1993
reflects increased employee benefits and staffing of the six new
offices acquired in July, 1993 for a full year. At December 31, 1995,
full-time equivalent employees totaled 296, as compared to 306 and 286
employees at December 31, 1994 and 1993, respectively.
Combined net occupancy and furniture and fixture expense increased
$158,000 and $483,000 in 1995 and 1994, respectively. The increase in
1995 over 1994 was primarily the result of higher real estate taxes
and a new office location in DeKalb, Illinois. The increase in
combined net occupancy and furniture and fixture expense in 1994 was
largely the result of the six new office locations acquired in
Northbrook, Riverwoods and Cary, Illinois in July 1993. We anticipate
future increases in net occupancy and furniture and fixtures costs for
existing offices will be modest.
In 1995, Premier's subsidiary banks paid $586,000 for federal deposit
(FDIC) insurance as compared to $1.2 million in 1994 and $918,000 in
1993. The decrease in 1995 was the result of the FDIC's restructuring
of deposit insurance premiums to reflect the now fully-funded position
of the insurance fund. Deposit insurance premium rates are based on
individual institution's adequacy of capital. Premier's subsidiary
banks' are currently categorized by the FDIC as "well capitalized"
which allows them to take advantage of the lowest available premium
rate. The increase in 1994 over 1993 was attributable to an increase
in deposits.
Amortization of intangible assets was $1.6 million in both 1995 and
1994 as compared to 834,000 in 1993. The increased amortization in
1994 relates to the additional amortization expense from the excess
cost over fair value of net assets acquired in July, 1993.
Other operating expenses decreased by $88,000, or 1.7%, in 1995,
following a $566,000, or 12.6%, increase in 1994. The primary factor
contributing to the 1995 improvement were lower expenses associated
with temporary holding of other real estate for sale and collection
costs on non-performing assets. Other real estate expense and
collection costs totaled approximately $357,000, $401,000, and
$382,000 in 1995, 1994 and 1993 respectively. The 1994 increase
relates primarily to operating the six offices acquired in July 1993
36
for a full year and start-up costs for the DeKalb office purchased in
December, 1994.
Income Taxes
Income taxes for 1995 totaled $2.7 million as compared to $2.4 million
in 1994 and $1.6 million in 1993. The increase in the tax provision
is due to higher pretax earnings and a decrease in tax-exempt income
as a percentage of pre-tax income. Premier's effective tax rate was
29.97% for 1995 as compared to 29.68% and 28.26% in 1994 and 1993,
respectively.
Financial Condition
At December 31, 1995, Premier had total assets of $670.2 million, as
compared to $620.5 million at December 31, 1994. Average total assets
for 1995 increased $32.9 million, or 5.5%, over 1994. Loan growth and
purchase of securities accounted for much of the increase in total
assets. The increase in assets were funded primarily by interest
bearing deposits and short-term borrowings.
Securities
Securities available for sale are a part of Premier's interest rate
risk management strategy and may be sold in response to changes in
interest rates, changes in prepayment risk, liquidity management and
other factors. At December 31, 1995, we had $265.3 million in
securities available for sale, compared to $208 million at year end
1994. The increase in securities available for sale was due to 1)
reclassifying all of our held to maturity securities into available
for sale in November 1995 and 2) utilization of short-term borrowings
for the purchase of adjustable rate mortgage backed securities. In
November 1995, financial institutions were given a one-time
opportunity from the Financial Accounting Standards Board to
reclassify, without violating the provisions of FAS No. 115, their
investment securities. Bank Regulatory Authorities currently do not
include unrealized gains and losses in evaluating capital adequacy.
By carrying all of our securities in the available for sale category,
management can more actively manage the investment portfolio. At
December 31, 1994 investments held-to-maturity totaled $40.5 million.
Loans
Our lending strategy continues to stress quality growth, diversified
by product, geography and industry. Loans represent the largest
component of Premier's earning assets. At December 31, 1995, total
gross loans outstanding were $327 million, a $42.2 million, or 14.80%
increase as compared to a year ago. This increase was the result of
growth in both the commercial and real estate portfolios. Loan
portfolio distribution at December 31, 1995, was 58% commercial, 33%
retail, and 9% agricultural. The portfolio mix and concentration have
not changed significantly from year-end 1994. Preserving loan quality
and diversifying the loan portfolio both geographically and by
37
industry continue to be key objectives for Premier. We anticipate
total loan growth to continue in 1996.
Asset Quality
Over the past several years, aggressive collection actions combined
with a healthy local and national economy have improved asset quality
significantly. At year end, nonperforming assets declined to $4
million, or .60% of total assets, down from $7.1 million, or 1.14% of
total assets at December 31, 1994. Non-performing assets consist of
loans 90 days or more past due, loans not accruing interest, loans
with renegotiated credit terms, and other real estate owned. Impaired
loans at December 31, 1995 decreased $3.1 million, to $2.6 million,
compared to $5.7 million a year earlier. Impaired loans as a
percentage of loans were .78% and 1.99% at December 31, 1995 and 1994,
respectively. Other real estate owned totaled $1.5 million and $1.4
million at December 31, 1995 and 1994, respectively.
Sources of Funds
We consider core deposits, which include transaction accounts, savings
deposit accounts, and consumer time deposits less than $100,000 as our
most stable source of funding. These core deposits are supplemented
by time deposits from governmental entities, time deposits greater
than $100,000 and repurchase agreements. Short-term borrowings and
stockholders' equity comprise the other portion of our total funding
sources. Total deposits increased $27.8 million, or 5.3% to $551.5
million at December 31, 1995 compared with $523.7 million at December
31, 1994. Core deposits totaled $504.8 million at December 31, 1995
and $500.7 million at December 31, 1994. Non-interest bearing
deposits were 15.0% and 16.4% of total deposits at December 31, 1995
and 1994, respectively. Total short-term borrowings, including
repurchase agreements, were $51.4 million at December 31, 1995
compared with $42.3 million at December 31, 1994.
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 of generating
cash other than through operations: 1) primary and secondary market
deposits, 2) securities available for sale, 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 for future liquidity needs.
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
38
exceeded this position.
Stockholders' Equity
Stockholders' equity increased by $9.6 million during 1995, from $52.5
million at December 31, 1994 to $62.1 million in 1995. The increase
was due to retained net earnings of $4.0 million and recording an
after tax unrealized gain on securities available for sale of
approximately $1.2 million in accordance with Statement of Financial
Accounting Standards No. 115 ("FAS 115") as compared to recording an
after tax unrealized loss of $4.4 million in 1994.
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 3% or greater.
At December 31, 1995, Premier had a "Tier 1" ratio of 10.61%, well
above the Regulatory minimum. Our "Total Risk Based Capital Ratio"
was 11.64%, and our "Leverage Ratio" was 6.14%, 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, 1995.
Current Accounting Developments
In May, 1995, the Financial Accounting Standards Board issued SFAS No.
122, "Accounting for Mortgage Servicing Rights, an amendment of SFAS
No. 65." SFAS 122 requires the recognition as a separate asset the
rights to service mortgage loans for others, however those servicing
rights are acquired. SFAS 122 also requires the assessment of
capitalized mortgage servicing rights for impairment to be based on
the current value of those rights. This statement is effective for
fiscal years beginning after December 15, 1995. The Company adopted
SFAS January 1, 1996 and it did not have a material effect on the
financial position or results of operation of the Company.
On October 23, 1995, the Financial Accounting Standards Board issued
Statement 123, "Accounting for Stock-Based Compensation." The
Statement permits a company to choose either a new fair value based
method or the current APB Opinion 25 intrinsic value based method of
accounting for its stock-based compensation arrangements. The
Statement requires pro forma disclosures of net income and earnings
per share computed as if the fair value based method had been applied
in financial statements of companies that continue to follow current
practice in accounting for such arrangements under APB Opinion 25.
Premier plans to continue accounting for its stock-based compensation
39
plans under APB Opinion 25.
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, 1995, 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
First Bank/DeKalb
Premier Trust Services, Inc.
Premier Insurance Services,
Premier Operating Systems, Inc.
Stock information
Our common stock is traded on the NASDAQ National Over-the-Counter
market and is listed 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:
1995 1994
Cash Cash
Quarter High Low Dividends Quarter High Low Dividends
1st 7.50 6.50 .05 1st 6.33 5.83 .043
40
2nd 8.25 7.25 .05 2nd 6.33 5.83 .043
3rd 8.00 6.75 .05 3rd 8.25 6.75 .047
4th 9.75 7.75 .06 4th 8.25 6.50 .047
Total .21 Total .18
A three-for-one stock split in the form of a 200% stock dividend was
declared and distributed as follows:
1994
Declaration date April 28, 1994
Record date June 8, 1994
Payable date July 1, 1994
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>
Five Year Summary of Selected Financial Data
Earnings 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Interest income $44,380,024 $36,527,016 $30,441,589 $28,353,205 $30,634,167
Interest expense 22,159,662 15,129,406 12,750,769 13,358,608 17,366,302
Net interest income 22,220,362 21,397,610 17,690,820 14,994,597 13,267,865
Provision for possible
loan losses 636,000 200,000 1,620,000 325,000 -
Earnings before income
taxes 8,942,767 8,120,003 5,591,280 6,335,317 4,920,829
Net earnings 6,262,179 5,710,295 4,011,210 4,352,115 3,618,395
Net earnings available to
common shareholders 5,155,929 4,505,737 3,418,928 4,352,115 3,618,395
</TABLE>
<TABLE>
Per share statistics * -
Common 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <C>
Net earnings $.77 $ .68 $ .55 $ .74 $ .64
Cash dividend declared .21 .18 .16 .15 .11
Book Value 7.31 5.88 6.04 5.49 4.85
</TABLE>
<TABLE>
1995 1994 1993 1992 1991
Common shares
<S> <C> <C> <C> <C> <C>
outstanding - year end 6,544,347 6,504,876 6,489,321 5,782,608 5,756,151
</TABLE>
<TABLE>
1995 1994 1993 1992 1991
Rate earned on beginning
<S> <C> <C> <C> <C> <C>
stockholders' equity 11.93% 10.30% 12.64% 15.58% 14.93%
</TABLE>
<TABLE>
Financial position - year
end 1995 1994 1993 1992 1991
<S> <C> <C> <C> <C> <S>
Securities held-to-maturity $ - $40,513,480 $39,787,245 $28,314,011 $125,390,853
Securities available for
sale 265,326,397 207,964,644 140,699,066 77,520,998 -
Loans, net 322,847,206 280,767,645 327,018,113 217,249,829 211,540,534
Allowance for possible loan
losses 3,849,863 3,688,386 4,369,290 2,712,863 3,202,509
Excess cost over fair value
of net assets acquired 20,008,150 21,600,583 23,193,016 3,009,951 3,204,148
Noninterest bearing
deposits 82,694,865 86,018,604 104,976,862 49,979,533 40,304,642
Interest bearing deposits 468,797,581 437,674,799 413,042,081 258,913,579 246,474,882
Total deposits 551,492,446 523,693,403 518,018,943 308,893,112 286,779,524
Short-term borrowings 32,725,000 26,185,000 12,410,000 6,152,000 14,501,000
Securities sold under
agreements to repurchase 18,635,335 16,085,872 20,571,658 14,854,410 43,687,552
Stockholders' equity 62,107,404 52,476,832 55,416,039 31,737,646 27,929,137
Total assets 670,219,383 620,503,737 610,663,210 364,024,410 375,494,615
</TABLE>
* Per share statistics have been adjusted to reflect a 5% stock dividend to
shareholders of record February 28, 1991, 10% stock dividend to shareholders
of record February 28, 1992, and a three-for-one stock split in the form of
a 200% stock dividend to shareholders of record June 8, 1994.
Board of Directors Principal Occupation Principal Business
Donald E. Bitz Retired Chairman of the Insurance Company
Board & Chief Executive
Officer
Economy Fire & Casualty Co.
R. Gerald Fox President & Chief Executive Publisher of financial
Officer books and periodicals
F.I.A. Financial Publishing
Company
Richard L. Geach President & Chief Executive
Officer
Charles M. Luecke President, Luecke Jewelers, Retail Jeweler
Inc.
Edward G. Maris Private Investor
David L. Murray Executive Vice President &
Chief Financial Officer
H. Barry Musgrove President, Frantz Manufacturer of anti-
Manufacturing Company friction products
Dr. Joseph C. Piland Educational Consultant &
Retired President, Highland
Community College
44
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, 1995.
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 CERTIFIED PUBLIC ACCOUNTANTS
We consent to incorporation by reference in the Registration
Statements on Form S-8 of Premier Financial Services, Inc.
of our report dated January 26, 1996, relating to the consolidated
balance sheets of Premier Financial Servives, Inc. and subsidiaries
as of December 31, 1995 and 1994 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, 1995, which report is incorporated by
reference in the December 31, 1995 annual report on Form 10-K of Premier
Financial Services, Inc.
KPMG Peat Marwick LLP
Chicago, Illinois
March 22, 1996
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 37,390,597
<INT-BEARING-DEPOSITS> 676,367
<FED-FUNDS-SOLD> 0
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 265,326,397
<INVESTMENTS-CARRYING> 0
<INVESTMENTS-MARKET> 0
<LOANS> 326,975,311
<ALLOWANCE> 3,849,863
<TOTAL-ASSETS> 670,219,383
<DEPOSITS> 551,492,446
<SHORT-TERM> 32,725,000
<LIABILITIES-OTHER> 23,894,533
<LONG-TERM> 0
<COMMON> 32,721,735
0
14,250,000
<OTHER-SE> 15,135,669
<TOTAL-LIABILITIES-AND-EQUITY> 670,219,383
<INTEREST-LOAN> 27,729,373
<INTEREST-INVEST> 16,367,679
<INTEREST-OTHER> 282,972
<INTEREST-TOTAL> 44,380,024
<INTEREST-DEPOSIT> 19,851,147
<INTEREST-EXPENSE> 22,159,662
<INTEREST-INCOME-NET> 22,220,362
<LOAN-LOSSES> 636,000
<SECURITIES-GAINS> 409,021
<EXPENSE-OTHER> 19,871,728
<INCOME-PRETAX> 8,942,767
<INCOME-PRE-EXTRAORDINARY> 6,262,179
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,262,179
<EPS-PRIMARY> .77
<EPS-DILUTED> .76
<YIELD-ACTUAL> 4.18
<LOANS-NON> 2,345,084
<LOANS-PAST> 158,368
<LOANS-TROUBLED> 75,280
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 3,688,386
<CHARGE-OFFS> 1,405,113
<RECOVERIES> 930,590
<ALLOWANCE-CLOSE> 3,849,863
<ALLOWANCE-DOMESTIC> 2,798,863
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 1,051,000
</TABLE>
FIRST AMENDMENT TO
AGREEMENT AND PLAN OF MERGER
This First Amendment to the Agreement and Plan of
Merger (this "Amendment") is entered into as of March 18, 1996 by
and among NORTHERN ILLINOIS FINANCIAL CORPORATION, an Illinois
corporation ("Northern Illinois"), PREMIER FINANCIAL SERVICES,
INC., a Delaware corporation ("Premier"), and GRAND PREMIER
FINANCIAL, INC., a Delaware corporation ("GPF").
WHEREAS, Northern Illinois, Premier and GPF have
entered into an Agreement and Plan of Merger, dated as of January
22, 1996 (the "Agreement"), providing for the merger of Northern
Illinois and Premier with and into GPF, subject to the terms and
conditions set forth therein; and
WHEREAS, Northern Illinois, Premier and GPF each
believe it to be in their best interests and in the best
interests of their respective stockholders to amend certain
provisions of the Agreement;
NOW THEREFORE, in consideration of the mutual
covenants, representations, warranties and agreements contained
herein, and intending to be legally bound hereby, the parties
agree as follows:
1. Amendments to Agreement. The Agreement is hereby
amended as follows:
1.1 Section 3.4 of the Agreement is amended by
deleting the same in its entirety and substituting in lieu
thereof the following:
3.4 Authority; No Violation. (a) Northern
Illinois has full corporate power and authority to
execute and deliver this Agreement and to consummate
the transactions contemplated hereby. The execution
and delivery of this Agreement and the consummation of
the transactions contemplated hereby have been duly and
validly approved by the Board of Directors of Northern
Illinois. The Board of Directors of Northern Illinois
has directed that this Agreement and the transactions
contemplated hereby be submitted to Northern Illinois'
stockholders for approval at a meeting of such
stockholders and, except for the adoption of this
Agreement by the affirmative vote of the holders of (i)
at least 80% of the outstanding shares of Northern
Illinois Common Stock and (ii) a majority of the
outstanding shares of Northern Illinois Common Stock
not held by Howard A. McKee and his "associates" and
"affiliates" (as defined in Section 7.85 of the IBCA
and Rule 12b-2 under the Exchange Act), no other
corporate proceedings on the part of Northern Illinois
are necessary to approve this Agreement and to
consummate the transactions contemplated hereby. This
Agreement has been duly and validly executed and
delivered by Northern Illinois and (assuming due
authorization, execution and delivery by Premier and
GPF) constitutes a valid and binding obligation of
Northern Illinois, enforceable against Northern
Illinois in accordance with its terms.
1.2. Section 3.5 of the Agreement is hereby amended by
deleting the same in its entirety and substituting in lieu
thereof the following:
3.5 Consents and Approvals. No consents or
approvals of or filings or registrations with any
court, administrative agency or commission or other
governmental authority or instrumentality (each a
"Governmental Entity") or with any third party are
necessary in connection with the execution and delivery
by Northern Illinois of this Agreement and the
consummation by Northern Illinois of the Merger and the
other transactions contemplated hereby except for (a)
the filing by GPF of an application with the Board of
Governors of the Federal Reserve System (the "Federal
Reserve Board") under the BHC Act and the approval of
such application, (b) the filing by Keeco, Inc., an
Illinois corporation, and Northland Insurance Agency,
Inc., an Illinois corporation, of an application with
the Federal Reserve System under the BHC Act and the
approval of such application, (c) the filing with the
Securities and Exchange Commission (the "SEC") of a
joint proxy statement in definitive form relating to
the meetings of Northern Illinois' and Premier's
stockholders to be held in connection with this
Agreement and the transactions contemplated hereby (the
"Joint Proxy Statement") and the registration statement
on Form S-4 (the "S-4") in which such Joint Proxy
Statement will be included as a prospectus, (d) the
filing of a registration statement on Form 8-A (the "8-
A") registering the GPF Common Stock under Section
12(g) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), (e) the filing of
articles of merger with, and the issuance of a
certificate of merger by, the Illinois Secretary under
the IBCA, and the filing of a certificate of merger
with the Delaware Secretary pursuant to the DGCL, (f)
the filing of a consent to service of process, an
appointment of the Illinois Secretary as agent for
service of process, and an agreement with respect to
any Dissenting Shares required to be filed by GPF with
the Illinois Secretary pursuant to Section 11.35 of the
IBCA, (g) such filings and approvals as are required to
be made or obtained under the securities or "Blue Sky"
laws of various states in connection with the issuance
of the shares of GPF Common Stock and GPF Preferred
Stock pursuant to this Agreement, (h) the approval of
an application to list the GPF Common Stock on The
Nasdaq Stock Market's National Market, subject to
official notice of issuance, and (i) the approval of
this Agreement by the requisite vote of the
stockholders of Northern Illinois and Premier.
1.3. Paragraph (a) of Section 4.2 of the Agreement is
hereby amended by deleting the same in its entirety and
substituting in lieu thereof the following:
4.2 Capitalization. (a) The authorized capital
stock of Premier consists of 15,000,000 shares of
Premier Common Stock, of which, as of December 31,
1995, 6,544,347 shares were issued and outstanding, and
1,000,000 shares of Preferred Stock, par value $1.00
per share (the "Premier Preferred Stock", of which (i)
7,000 shares were designated and 5,000 shares were
issued and outstanding as Premier Series A Perpetual
Preferred Stock, (ii) 7,250 shares were designated and
issued and outstanding as Premier Series B Perpetual
Preferred Stock, and (iii) 2,000 shares were designated
and issued and outstanding as Premier Series D
Perpetual Preferred Stock. During the fiscal year
ended December 31, 1994, (i) Premier redeemed all 1,950
shares of Premier Series C Perpetual Preferred Stock,
with a par value of $1.00 and a stated value of $1,000
per share, that had previously been authorized and
issued, and such shares reverted to authorized but
unissued shares of Premier Preferred Stock in
accordance with the terms of the Certificate of
Designation establishing the Premier Series C Perpetual
Preferred Stock, and (ii) 1,300 shares of Premier
Series D Perpetual Preferred Stock were converted into
1,300 shares of Premier Series B Perpetual Preferred
Stock and such 1,300 shares of Series D Perpetual
Preferred Stock reverted to authorized but unissued
shares of Premier Preferred Stock, in accordance with
the terms and conditions of the Certificate of
Designation establishing the Premier Series D Perpetual
Preferred Stock. The shares of Premier Series B
Perpetual Preferred Stock and Premier Series D
Perpetual Preferred Stock are subject to a letter
agreement, dated as of the date of their issuance,
pursuant to which Premier has agreed to amend the terms
of the Premier Series B Perpetual Preferred Stock and
the Premier Series D Perpetual Preferred Stock to
provide for the payment of cumulative, rather than non-
cumulative dividends, at such time as such cumulative
preferred stock may be counted as "Tier 1 Capital"
under applicable regulations of the Federal Reserve
Board. As of December 31, 1995, no shares of Premier
Common Stock were held in treasury. On December 31,
1995, no shares of Premier Common Stock or Premier
Preferred Stock were reserved for issuance, except for
(i) 397,799 shares of Premier Common Stock reserved for
issuance upon the exercise of stock options pursuant to
the Premier Stock Plans, (ii) 763,157 shares of Premier
Common Stock reserved for issuance upon the conversion
of the Series B Perpetual Preferred Stock, (iii) the
shares of Premier Common Stock issuable pursuant to the
Premier Option Agreement, and (iv) 200,000 shares of
Premier Common Stock reserved for issuance pursuant to
the Premier Benefit plans, other than the stock option
plans. All of the issued and outstanding shares of
Premier Common Stock and Premier Preferred Stock have
been duly authorized and validly issued and are fully
paid, nonassessable and free of preemptive rights, with
no personal liability attaching to the ownership
thereof. As of the date of this Agreement, except for
the Premier Option Agreement, certain provisions of the
Certificates of Designation of the Premier Series B
Perpetual Preferred Stock and the Premier Series D
Perpetual Preferred Stock, and the Premier Stock Plans,
Premier does not have and is not bound by any
outstanding subscriptions, options, warrants, calls,
commitments or agreements of any character calling for
the purchase or issuance of any shares of Premier
Common Stock or Premier Preferred Stock or any other
equity securities of Premier or any securities
representing the right to purchase or otherwise receive
any shares of Premier Common Stock or Premier Preferred
Stock. Assuming compliance by Northern Illinois and
GPF with Article I of this Agreement, after the
Effective Time, there will not be any outstanding
subscriptions, options, warrants, calls, commitments or
agreements of any character by which Premier or any of
the Premier Subsidiaries will be bound calling for the
purchase or issuance of any shares of the capital stock
of Premier. Premier has previously provided Northern
Illinois with a list of the option holders, the date of
each option to purchase Premier Common Stock granted,
the number of shares subject to each such option, the
expiration date of each such option, and the price at
which each such option may be exercised under an
applicable Premier Stock Plan. Since September 30,
1995, Premier has not issued any shares of its capital
stock or any securities convertible into or exercisable
for any shares of its capital stock, other than
pursuant to the exercise of employee stock options
granted prior to such date.
1.4. Section 7.1 of the Agreement is hereby amended by
deleting paragraph (h) thereof.
1.5. The Agreement is amended by (i) deleting Exhibit G
as an exhibit thereto, (ii) re-lettering Exhibits H and I as
Exhibits G and H, respectively, (iii) deleting the reference to
Exhibit H in Section 7.2(e) of the Agreement and substituting in
lieu thereof a reference to Exhibit G, and (iv) deleting the
reference to Exhibit I in Section 7.3(e) of the Agreement and
substituting in lieu thereof a reference to Exhibit H.
1.6. The Agreement is amended by deleting the form of
Amended and Restated Certificate of Incorporation of Grand
Premier Financial, Inc. attached as Exhibit C thereto and
substituting in lieu thereof, as Exhibit C thereto, the form of
Amended and Restated Certificate of Incorporation of Grand
Premier Financial, Inc. attached to this Amendment.
2. Board Ratification. This Amendment and the
execution and delivery thereof are subject to ratification by the
Boards of Directors of each of Premier, Northern Illinois and
GPF.
3. References. All references in the Agreement to
"this Agreement" shall hereafter refer to the Agreement as
amended hereby.
4. Counterparts. This Amendment may be executed in
counterparts, all of which shall be considered one and the same
instrument, it being understood that all parties need not sign
the same counterpart.
IN WITNESS WHEREOF, Premier, Northern Illinois and GPF
have caused this Amendment to be executed by their respective
officers thereunto duly authorized as of the date first above
written.
PREMIER FINANCIAL SERVICES, INC. NORTHERN ILLINOIS
FINANCIAL
CORPORATION
By:/s/ Richard L. Geach By: /s/ Robert W. Hinman
Richard L. Geach Robert W. Hinman
President and Chief Executive Officer President and Chief
Executive Officer
GRAND PREMIER FINANCIAL, INC.
By:/s/ Richard L. Geach
Richard L. Geach
Chief Executive Officer
By:/s/ Robert W. Hinman
Robert W. Hinman
President
CHANGE IN CONTROL AND TERMINATION AGREEMENT
This Change in Control and Termination Agreement
("Agreement") is entered into as of this 20th day of
January, 1995, by and between Premier Financial
Services, Inc., a Delaware corporation ("Premier") and
Richard L. Geach ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Premier as its
President and Chief Executive Officer; and
WHEREAS, Premier desires to provide security to Executive in
connection with Executive's employment with Premier in the event
of a Change in Control of Premier; and
WHEREAS, Executive and Premier desire to enter into this
Agreement pertaining to the terms of the security Premier is
providing to Executive with respect to his employment in the
event of a Change in Control;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Term. The term of this Agreement shall be the period
beginning on the date hereto and terminating on the date 36
months after the date hereof (the "Term"), provided that for each
day from and after the date hereof the Term will automatically be
extended for an additional day, unless either Premier or
Executive has given written notice to the other party of its or
his election to cease such automatic extension, in which case the
Term shall end at the expiration of the 36 month period beginning
on the date such notice is received by such other party.
2. Definitions. For purposes of this Agreement:
(a) "Affiliate" or "Associate" shall have the meaning
set forth in Rule 12b-2 under the Securities Exchange Act of
1934 (the "Exchange Act").
(b) "Base Salary" shall mean Executive's monthly base
salary at the rate in effect on the date of a termination of
employment under circumstances described in subsections 3(a)
or (b) below; provided, however, that such rate shall in no
event be less than the highest rate in effect for Executive
at any time during the Term.
(c) "Beneficiary" shall mean the person or entity
designated by the Executive, by written instrument delivered
to Premier, to receive the benefits payable under this
Agreement in the event of his death. If the Executive fails
to designate a Beneficiary, or if no Beneficiary survives
the Executive, such death benefits shall be paid:
(i) to the Executive's surviving spouse; or
(ii) if there is no surviving spouse, to the
Executive's living descendants per stirpes; or
(iii) if there is neither a surviving spouse nor
descendants, to the Executive's duly
appointed and qualified executor or personal
representative.
(d) A "Change in Control" of Premier shall be deemed
to have occurred if:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person
shall be deemed to be the "beneficial owner" of
all shares that any such person has the right to
acquire pursuant to any agreement or arrangement
or upon exercise of conversion rights, warrants,
options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or
indirectly, of securities representing 25% or more
of the combined voting power of Premier's then
outstanding securities; or
(ii) at any time during any period of two consecutive
years (not including any period prior to January
1, 1995) individuals who at the beginning of such
period constituted the Board (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board; provided, however,
that any individual becoming a director subsequent
to such date whose election, or nomination for
election by Premier's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a person other than
the Board.
(e) "Good Cause" shall be deemed to exist if, and only
if:
(i) Executive engages in acts or omissions
constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or
malfeasance, in each case that results in
substantial harm to Premier or any Affiliate; or
(ii) Executive is convicted of a criminal violation
involving fraud or dishonesty.
(e) "Good Reason" shall be deemed to exist if, and
only if, Executive terminates his employment because,
without his express written consent:
(i) Premier assigns to Executive duties of a
nonexecutive nature or for which Executive is not
reasonably equipped by his skills and experience;
(ii) Premier reduces the salary of Executive, or
materially reduces the amount of paid vacation to
which he is entitled, or his fringe benefits and
perquisites;
(iii) Premier requires Executive to relocate his
principal business office or his principal
place of residence, or assign to Executive
duties that would reasonably require such
relocation;
(iv) Premier requires Executive, or assign duties to
Executive which would reasonably require him to
spend more than 30 normal working days away from
his principal business office or his principal
place of residence during any consecutive twelve-
month period;
(v) Premier fails to provide office facilities,
secretarial services, and other administrative
services to Executive which are substantially
equivalent to the facilities and services provided
to Executive on the date hereof; or
(vi) Premier terminates any Incentive, Retirement or
Welfare Plans, or reduces or limits Executive's
participation therein relative to the level of
participation of other executives of similar rank,
to such an extent as to materially reduce the
aggregate value of Executive's incentive
compensation and benefits below their aggregate
value as of the date hereof.
(f) "Retirement Plan" shall mean any qualified or
supplemental employee pension benefit plan, as defined in
Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), currently or hereinafter made
available by Premier in which Executive is eligible to
participate, including, but not limited to, the Premier
Financial Services, Inc. Employee Savings and Stock Plan and
Trust (the "Savings Plan") and the Premier Financial
Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan (the "Deferred Compensation Plan").
(g) "Severance Period" shall mean the period beginning
on the date Executive's employment with Premier terminates
under circumstances described in subsection 3(a) and ending
on the date 12 months thereafter.
(h) "Substantial Portion of the Property of Premier"
shall mean 50% of the aggregate book value of the assets of
Premier and its Affiliates and Associates as set forth on
the most recent balance sheet of Premier, prepared on a
consolidated basis, by its regularly employed, independent,
certified public accountants.
(i) "Welfare Plan" shall mean any health and dental
plan, disability plan, survivor income plan or life
insurance plan, as defined in Section 3(1) of ERISA,
currently or hereafter made available by Premier in which
Executive is eligible to participate.
(j) "Incentive Plan" shall mean any incentive or bonus
plan currently or hereinafter made available by Premier in
which Executive is eligible to participate, including, but
not limited to, the Premier Financial Services, Inc. 1995
Stock Option Plan, and any successor thereto..
3. Benefits Upon Termination of Employment. The following
provisions will apply if a Change in Control occurs during the
Term, and at any time during the 24 months after the Change in
Control occurs (whether during or after the expiration of the
Term), the employment of Executive with Premier is terminated by
Premier for any reason other than Good Cause, or Executive
terminates his employment with Premier for Good Reason:
(a) Premier shall pay Executive an amount equal to
Executive's Base Salary multiplied by 12. Such amount shall
be paid to Executive in a lump sum within 90 days after his
date of termination of employment; provided, however,
Executive, by written notice to Premier, may elect to
receive such payment on any date that is no earlier than the
later to occur of: (i) the date 10 days after the date of
termination; and (ii) the date 10 days after receipt of such
notice.
(b) During the Severance Period Executive and his
spouse and other dependents will continue to be covered by
all Welfare Plans maintained by Premier in which he and his
spouse and other dependents were participating immediately
prior to the date of his termination, as if he continued to
be an employee of Premier, and Premier will continue to pay
the costs of coverage of Executive and his spouse and other
dependents under such Welfare Plans on the same basis as is
applicable to active employees covered thereunder; provided
that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Premier will
provide substantially identical benefits. Coverage under
any such Welfare Plan will cease if and when Executive
obtains employment with another employer during the
Severance Period, and becomes eligible for coverage under
any substantially similar Welfare Plan provided by his new
employer.
(c) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment: (i) a
bonus in the amount that would have been payable under any
Incentive Plan for the year of such employment termination
had he not terminated employment, but pro rated according to
the number of months the Executive was employed by Premier
for that year; and (ii) an additional bonus amount that is
equal to the average of the annual bonus amount paid to
Executive during the three years preceding the year of his
employment termination.
(d) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment an amount
equal to the amount that would have been contributed by
Premier on behalf of the Executive under the Savings Plan
and under the Deferred Compensation Plan for the 12 month
period following the Executive's employment termination had
he not terminated employment and had he made contributions
and deferrals under the Plans at the same level as he made
during the 12 month preceding his employment termination.
(e) Executive shall receive any and all benefits
accrued under any Retirement Plan, Welfare Plan, Incentive
Plan or other plan or program in which he participates at
the date of termination of employment, to the date of
termination of employment, the amount, form and time of
payment of such benefits to be determined by the terms of
such Retirement Plan, Welfare Plan, Incentive Plan and other
plan or program. Executive's employment shall be deemed to
have terminated by reason of retirement, and without regard
to vesting limitations in all such Plans and other plans or
programs not subject to the qualification requirements of
Section 401(a) of the Internal Revenue Code of 1986
("Code"), under circumstances that have the most favorable
result for Executive thereunder for all purposes of such
Plans and other plans or programs. Payment shall be made at
the earliest date permitted under any such Plan.
(f) If upon the date of termination of Executive's
employment, Executive holds any options with respect to
stock of Premier, all such options will immediately become
fully vested and exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on
stock of Premier owned by Executive on the date of
termination of his employment will lapse on such date. To
the extent such acceleration of exercise of such options, or
such lapse of restrictions, is not permissible under the
terms of any plan pursuant to which the options or
restricted stock were granted, Premier will pay to
Executive: (i) an amount equal to the excess, if any, of the
aggregate fair market value of all stock of Premier subject
to such options, determined on the date of termination of
employment, over the aggregate exercise price of such stock,
and Executive will surrender all such options unexercised;
and (ii) the aggregate fair market value on the date of
termination of employment of all such restricted stock and
Executive shall transfer such stock to Premier. Payments
pursuant to the preceding sentence will be made to Executive
in a lump sum within 90 days after his date of termination
of employment; provided, however, Executive, by written
notice to Premier, may elect to receive such payments on any
date that is not earlier than the later to occur of (i) the
date 10 days after the date of termination, and (ii) the
date 10 days after receipt of such notice.
If the employment of Executive with Premier is terminated by
Premier for Good Cause or by Executive other than for Good
Reason, Executive's Base Salary shall be paid through the date of
his termination, and Premier shall have no further obligation to
Executive or any other person under this Agreement. Such
termination shall have no effect upon Executive's other rights,
including but not limited to rights under the Retirement, Welfare
and Incentive Plans.
Notwithstanding anything herein to the contrary, in the
event Premier or an Affiliate shall terminate the employment of
Executive for Good Cause hereunder, Premier shall give Executive
at least thirty (30) days prior written notice specifying in
detail the reason or reasons for Executive's termination.
This Agreement shall have no effect, and Premier shall have
no obligations hereunder, if Executive's employment terminates
for any reason at any time other than during the 24 months
following a Change in Control.
4. Excise Tax. It is the intention of Premier and
Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of Executive under any other
agreement or plan, be deemed to be an "Excess Parachute Payment"
as defined in Section 280G of the Code, or its successors. It is
agreed that the present value of and payments to or for the
benefit of Executive in the nature of compensation, receipt of
which is contingent on the Change in Control of Premier, and to
which Section 280G of the Code applies (in the aggregate "Total
Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that Premier may pay without loss of
deduction under Section 280G(a) of the Code. Present value for
purposes of this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60) days following
the earlier of (i) the giving of the notice of termination or
(ii) the giving of notice by Premier to Executive of its belief
that there is a payment or benefit due Executive which will
result in an excess parachute payment as defined in Section 280G
of the Code, Executive and Premier, at Premier's expense, shall
obtain the opinion of such legal counsel and certified public
accountants as Executive may choose (notwithstanding the fact
that such persons have acted or may also be acting as the legal
counsel or certified public accountants for Premier), which
opinions need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of Executive (as defined in Code
Section 280G), (ii) the present value of Total Payments; and
(iii) the amount and present value of any excess parachute
payments. In the event that such opinion determines that there
would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in
Total Payments shall be modified, reduced or eliminated as
specified by Executive in writing delivered to Premier within
thirty (30) days of his receipt of such opinions or, if Executive
fails to so notify Premier, then as Premier shall reasonably
determine, so that under the bases of calculation set forth in
such opinions there will be no excess parachute payment. In the
event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no
further force or effect.
5. Set-Off. No payments or benefits payable to or with
respect to Executive pursuant to this Agreement shall be reduced
by any amount that: (i) Executive or his spouse or Beneficiary,
or any other beneficiary under the Retirement and Welfare Plans,
may earn or receive from employment with another employer or from
any other source, except as expressly provided in subsection
3(b); or (ii) Premier claims is owed to Premier or an Affiliate
by Executive.
6. Death. Upon Executive's death following his
termination of employment: (i) all unpaid amounts payable to
Executive under subsections 3(a), (b), (c), (d) and (f), if any,
shall be paid to his Beneficiary, all amounts payable under
subsection 3(e) shall be paid pursuant to the terms of said
subsection to his spouse or other beneficiary under the
Retirement Plan; and (ii) the Executive's spouse and other
dependents shall continue to be covered under all applicable
Welfare Plans during the remainder of the Severance Period, if
any, pursuant to subsection 3(b).
7. No Solicitation of Representatives and Employees.
Executive agrees that he shall not, during the Term or the
Severance Period, directly or indirectly, in his individual
capacity or otherwise, induce, cause, persuade (or attempt to
induce or persuade), any representative, agent or employee of
Premier or any of its Affiliates to terminate such person's
employment relationship with Premier or any of its Affiliates, or
to violate the terms of any agreement between said
representative, agent or employee and Premier or any of its
Affiliates.
8. Confidentiality. Executive acknowledges that
preservation of a continuing business relationship between
Premier or its Affiliates and their respective customers,
representatives, and employees is of critical importance to the
continued business success of Premier and its Affiliates and that
it is the active policy of Premier and its Affiliates to guard as
confidential certain information not available to the public and
relating to the business affairs of Premier and its Affiliates.
In view of the foregoing, Executive agrees that he shall not
during the Term and at any time thereafter, without the prior
written consent of Premier, disclose to any person or entity any
such confidential information that was obtained by Executive in
the course of his employment by Premier or any of its Affiliates.
This section shall not be applicable if and to the extent
Executive is required to testify in a legislative, judicial or
regulatory proceeding pursuant to an order of Congress, any state
or local legislature, a judge, or an administrative law judge or
is otherwise required by law to disclose such information.
9. Forfeiture. If Executive shall at any time violate any
obligation of his under Sections 7 or 8 in a manner that results
in material damage to the Premier or its business, he shall
immediately forfeit his right to any benefits under this
Agreement, and Premier thereafter shall have no further
obligation hereunder to Executive or his spouse, Beneficiary or
any other person.
10. Executive Assignment. No interest of Executive, his
spouse or any Beneficiary, or any other beneficiary under the
Retirement, Welfare or Incentive Plans, or under this Agreement,
or any right to receive any payment or distribution hereunder,
shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or
involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary
or other beneficiary, including claims for alimony, support,
separate maintenance, and claims in bankruptcy proceedings.
11. Benefits Unfunded. All rights under this Agreement of
Executive and his spouse, Beneficiary or other beneficiary shall
at all times be entirely unfunded, and no provision shall at any
time be made with respect to segregating any assets of Premier
for payment of any amounts due hereunder. None of Executive, his
spouse, Beneficiary or any other beneficiary under the
Retirement, Welfare or Incentive Plans shall have any interest in
or rights against any specific assets of Premier, and Executive
and his spouse, Beneficiary or other beneficiary shall have only
the rights of a general unsecured creditor of Premier.
Notwithstanding the preceding provisions of this Section, the
parties hereto may at any time mutually agree that amounts
payable to Executive or his Beneficiary hereunder be paid to the
trustee of a trust established by Premier for the benefit of
Executive and his Beneficiary that contains terms and conditions
mutually satisfactory to the parties.
12. Waiver. No waiver by any party at any time of any
breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.
13. Litigation Expenses. Premier shall pay Executive's
reasonable attorneys' fees and legal expenses in connection with
any judicial proceeding to enforce this Agreement, or to construe
or determine the validity of this Agreement or otherwise in
connection therewith, if Executive is successful in such
litigation.
14. Applicable Law. This Agreement shall be construed and
interpreted pursuant to the laws of Illinois.
15. Entire Agreement. This Agreement contains the entire
Agreement between Premier and the Executive and supersedes any
and all previous agreements, written or oral, between the parties
relating to the subject matter hereof. No amendment or
modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by
Premier and Executive.
16. No Employment Contract. Nothing contained in this
Agreement shall be construed to be an employment contract between
Executive and Premier.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original.
18. Severability. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of
this Agreement shall not be affected thereby.
19. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives and successors. In the event of a Change
in Control of Premier, Premier shall cause its purchaser,
transferee or successor to adopt and assume this Agreement. This
Agreement shall not be terminated by a transfer or sale of assets
of Premier, or by the merger or consolidation of Premier into or
with any other corporation or other entity, rather this Agreement
shall be continued after such sale, merger or consolidation by
the transferee, purchaser or successor entity.
20. Employment with an Affiliate. For purposes of this
Agreement: (i) employment or termination of employment of
Executive shall mean employment or termination of employment with
Premier and all Affiliates; (ii) Base Salary shall include
remuneration received by Executive from Premier and all
Affiliates; and (iii) the terms Incentive Plan, Retirement Plan
and Welfare Plan maintained or made available by Premier shall
include any such plans of any Affiliate of Premier.
21. Notice. Notices required under this Agreement shall be
in writing and sent by registered mail, return receipt requested,
to the following addresses or to such other address as the party
being notified may have previously furnished to the other party
by written notice:
If to Premier: Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
Attention: Director of Human Resources
If to Executive: Richard L. Geach
c/o Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
Premier has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
PREMIER FINANCIAL SERVICES, INC.
By: /s/ David L. Murray
Title: Executive Vice President & CFO
/s/ Richard L. Geach
Executive
CHANGE IN CONTROL AND TERMINATION AGREEMENT
This Change in Control and Termination Agreement
("Agreement") is entered into as of this 20th day of
January, 1995, by and between Premier Financial
Services, Inc., a Delaware corporation ("Premier") and
David L. Murray ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Premier as its
; and
WHEREAS, Premier desires to provide security to Executive in
connection with Executive's employment with Premier in the event
of a Change in Control of Premier; and
WHEREAS, Executive and Premier desire to enter into this
Agreement pertaining to the terms of the security Premier is
providing to Executive with respect to his employment in the
event of a Change in Control;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Term. The term of this Agreement shall be the period
beginning on the date hereto and terminating on the date 36
months after the date hereof (the "Term"), provided that for each
day from and after the date hereof the Term will automatically be
extended for an additional day, unless either Premier or
Executive has given written notice to the other party of its or
his election to cease such automatic extension, in which case the
Term shall end at the expiration of the 36 month period beginning
on the date such notice is received by such other party.
2. Definitions. For purposes of this Agreement:
(a) "Affiliate" or "Associate" shall have the meaning
set forth in Rule 12b-2 under the Securities Exchange Act of
1934 (the "Exchange Act").
(b) "Base Salary" shall mean Executive's monthly base
salary at the rate in effect on the date of a termination of
employment under circumstances described in subsections 3(a)
or (b) below; provided, however, that such rate shall in no
event be less than the highest rate in effect for Executive
at any time during the Term.
(c) "Beneficiary" shall mean the person or entity
designated by the Executive, by written instrument delivered
to Premier, to receive the benefits payable under this
Agreement in the event of his death. If the Executive fails
to designate a Beneficiary, or if no Beneficiary survives
the Executive, such death benefits shall be paid:
(i) to the Executive's surviving spouse; or
(ii) if there is no surviving spouse, to the
Executive's living descendants per stirpes; or
(iii) if there is neither a surviving spouse nor
descendants, to the Executive's duly
appointed and qualified executor or personal
representative.
(d) A "Change in Control" of Premier shall be deemed
to have occurred if:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person
shall be deemed to be the "beneficial owner" of
all shares that any such person has the right to
acquire pursuant to any agreement or arrangement
or upon exercise of conversion rights, warrants,
options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or
indirectly, of securities representing 25% or more
of the combined voting power of Premier's then
outstanding securities; or
(ii) at any time during any period of two consecutive
years (not including any period prior to January
1, 1995) individuals who at the beginning of such
period constituted the Board (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board; provided, however,
that any individual becoming a director subsequent
to such date whose election, or nomination for
election by Premier's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a person other than
the Board.
(e) "Good Cause" shall be deemed to exist if, and only
if:
(i) Executive engages in acts or omissions
constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or
malfeasance, in each case that results in
substantial harm to Premier or any Affiliate; or
(ii) Executive is convicted of a criminal violation
involving fraud or dishonesty.
(e) "Good Reason" shall be deemed to exist if, and
only if, Executive terminates his employment because,
without his express written consent:
(i) Premier assigns to Executive duties of a
nonexecutive nature or for which Executive is not
reasonably equipped by his skills and experience;
(ii) Premier reduces the salary of Executive, or
materially reduces the amount of paid vacation to
which he is entitled, or his fringe benefits and
perquisites;
(iii) Premier requires Executive to relocate his
principal business office or his principal
place of residence, or assign to Executive
duties that would reasonably require such
relocation;
(iv) Premier requires Executive, or assign duties to
Executive which would reasonably require him to
spend more than 30 normal working days away from
his principal business office or his principal
place of residence during any consecutive twelve-
month period;
(v) Premier fails to provide office facilities,
secretarial services, and other administrative
services to Executive which are substantially
equivalent to the facilities and services provided
to Executive on the date hereof; or
(vi) Premier terminates any Incentive, Retirement or
Welfare Plans, or reduces or limits Executive's
participation therein relative to the level of
participation of other executives of similar rank,
to such an extent as to materially reduce the
aggregate value of Executive's incentive
compensation and benefits below their aggregate
value as of the date hereof.
(f) "Retirement Plan" shall mean any qualified or
supplemental employee pension benefit plan, as defined in
Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), currently or hereinafter made
available by Premier in which Executive is eligible to
participate, including, but not limited to, the Premier
Financial Services, Inc. Employee Savings and Stock Plan and
Trust (the "Savings Plan") and the Premier Financial
Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan (the "Deferred Compensation Plan").
(g) "Severance Period" shall mean the period beginning
on the date Executive's employment with Premier terminates
under circumstances described in subsection 3(a) and ending
on the date 12 months thereafter.
(h) "Substantial Portion of the Property of Premier"
shall mean 50% of the aggregate book value of the assets of
Premier and its Affiliates and Associates as set forth on
the most recent balance sheet of Premier, prepared on a
consolidated basis, by its regularly employed, independent,
certified public accountants.
(i) "Welfare Plan" shall mean any health and dental
plan, disability plan, survivor income plan or life
insurance plan, as defined in Section 3(1) of ERISA,
currently or hereafter made available by Premier in which
Executive is eligible to participate.
(j) "Incentive Plan" shall mean any incentive or bonus
plan currently or hereinafter made available by Premier in
which Executive is eligible to participate, including, but
not limited to, the Premier Financial Services, Inc. 1995
Stock Option Plan, and any successor thereto..
3. Benefits Upon Termination of Employment. The following
provisions will apply if a Change in Control occurs during the
Term, and at any time during the 24 months after the Change in
Control occurs (whether during or after the expiration of the
Term), the employment of Executive with Premier is terminated by
Premier for any reason other than Good Cause, or Executive
terminates his employment with Premier for Good Reason:
(a) Premier shall pay Executive an amount equal to
Executive's Base Salary multiplied by 12. Such amount shall
be paid to Executive in a lump sum within 90 days after his
date of termination of employment; provided, however,
Executive, by written notice to Premier, may elect to
receive such payment on any date that is no earlier than the
later to occur of: (i) the date 10 days after the date of
termination; and (ii) the date 10 days after receipt of such
notice.
(b) During the Severance Period Executive and his
spouse and other dependents will continue to be covered by
all Welfare Plans maintained by Premier in which he and his
spouse and other dependents were participating immediately
prior to the date of his termination, as if he continued to
be an employee of Premier, and Premier will continue to pay
the costs of coverage of Executive and his spouse and other
dependents under such Welfare Plans on the same basis as is
applicable to active employees covered thereunder; provided
that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Premier will
provide substantially identical benefits. Coverage under
any such Welfare Plan will cease if and when Executive
obtains employment with another employer during the
Severance Period, and becomes eligible for coverage under
any substantially similar Welfare Plan provided by his new
employer.
(c) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment: (i) a
bonus in the amount that would have been payable under any
Incentive Plan for the year of such employment termination
had he not terminated employment, but pro rated according to
the number of months the Executive was employed by Premier
for that year; and (ii) an additional bonus amount that is
equal to the average of the annual bonus amount paid to
Executive during the three years preceding the year of his
employment termination.
(d) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment an amount
equal to the amount that would have been contributed by
Premier on behalf of the Executive under the Savings Plan
and under the Deferred Compensation Plan for the 12 month
period following the Executive's employment termination had
he not terminated employment and had he made contributions
and deferrals under the Plans at the same level as he made
during the 12 month preceding his employment termination.
(e) Executive shall receive any and all benefits
accrued under any Retirement Plan, Welfare Plan, Incentive
Plan or other plan or program in which he participates at
the date of termination of employment, to the date of
termination of employment, the amount, form and time of
payment of such benefits to be determined by the terms of
such Retirement Plan, Welfare Plan, Incentive Plan and other
plan or program. Executive's employment shall be deemed to
have terminated by reason of retirement, and without regard
to vesting limitations in all such Plans and other plans or
programs not subject to the qualification requirements of
Section 401(a) of the Internal Revenue Code of 1986
("Code"), under circumstances that have the most favorable
result for Executive thereunder for all purposes of such
Plans and other plans or programs. Payment shall be made at
the earliest date permitted under any such Plan.
(f) If upon the date of termination of Executive's
employment, Executive holds any options with respect to
stock of Premier, all such options will immediately become
fully vested and exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on
stock of Premier owned by Executive on the date of
termination of his employment will lapse on such date. To
the extent such acceleration of exercise of such options, or
such lapse of restrictions, is not permissible under the
terms of any plan pursuant to which the options or
restricted stock were granted, Premier will pay to
Executive: (i) an amount equal to the excess, if any, of the
aggregate fair market value of all stock of Premier subject
to such options, determined on the date of termination of
employment, over the aggregate exercise price of such stock,
and Executive will surrender all such options unexercised;
and (ii) the aggregate fair market value on the date of
termination of employment of all such restricted stock and
Executive shall transfer such stock to Premier. Payments
pursuant to the preceding sentence will be made to Executive
in a lump sum within 90 days after his date of termination
of employment; provided, however, Executive, by written
notice to Premier, may elect to receive such payments on any
date that is not earlier than the later to occur of (i) the
date 10 days after the date of termination, and (ii) the
date 10 days after receipt of such notice.
If the employment of Executive with Premier is terminated by
Premier for Good Cause or by Executive other than for Good
Reason, Executive's Base Salary shall be paid through the date of
his termination, and Premier shall have no further obligation to
Executive or any other person under this Agreement. Such
termination shall have no effect upon Executive's other rights,
including but not limited to rights under the Retirement, Welfare
and Incentive Plans.
Notwithstanding anything herein to the contrary, in the
event Premier or an Affiliate shall terminate the employment of
Executive for Good Cause hereunder, Premier shall give Executive
at least thirty (30) days prior written notice specifying in
detail the reason or reasons for Executive's termination.
This Agreement shall have no effect, and Premier shall have
no obligations hereunder, if Executive's employment terminates
for any reason at any time other than during the 24 months
following a Change in Control.
4. Excise Tax. It is the intention of Premier and
Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of Executive under any other
agreement or plan, be deemed to be an "Excess Parachute Payment"
as defined in Section 280G of the Code, or its successors. It is
agreed that the present value of and payments to or for the
benefit of Executive in the nature of compensation, receipt of
which is contingent on the Change in Control of Premier, and to
which Section 280G of the Code applies (in the aggregate "Total
Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that Premier may pay without loss of
deduction under Section 280G(a) of the Code. Present value for
purposes of this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60) days following
the earlier of (i) the giving of the notice of termination or
(ii) the giving of notice by Premier to Executive of its belief
that there is a payment or benefit due Executive which will
result in an excess parachute payment as defined in Section 280G
of the Code, Executive and Premier, at Premier's expense, shall
obtain the opinion of such legal counsel and certified public
accountants as Executive may choose (notwithstanding the fact
that such persons have acted or may also be acting as the legal
counsel or certified public accountants for Premier), which
opinions need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of Executive (as defined in Code
Section 280G), (ii) the present value of Total Payments; and
(iii) the amount and present value of any excess parachute
payments. In the event that such opinion determines that there
would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in
Total Payments shall be modified, reduced or eliminated as
specified by Executive in writing delivered to Premier within
thirty (30) days of his receipt of such opinions or, if Executive
fails to so notify Premier, then as Premier shall reasonably
determine, so that under the bases of calculation set forth in
such opinions there will be no excess parachute payment. In the
event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no
further force or effect.
5. Set-Off. No payments or benefits payable to or with
respect to Executive pursuant to this Agreement shall be reduced
by any amount that: (i) Executive or his spouse or Beneficiary,
or any other beneficiary under the Retirement and Welfare Plans,
may earn or receive from employment with another employer or from
any other source, except as expressly provided in subsection
3(b); or (ii) Premier claims is owed to Premier or an Affiliate
by Executive.
6. Death. Upon Executive's death following his
termination of employment: (i) all unpaid amounts payable to
Executive under subsections 3(a), (b), (c), (d) and (f), if any,
shall be paid to his Beneficiary, all amounts payable under
subsection 3(e) shall be paid pursuant to the terms of said
subsection to his spouse or other beneficiary under the
Retirement Plan; and (ii) the Executive's spouse and other
dependents shall continue to be covered under all applicable
Welfare Plans during the remainder of the Severance Period, if
any, pursuant to subsection 3(b).
7. No Solicitation of Representatives and Employees.
Executive agrees that he shall not, during the Term or the
Severance Period, directly or indirectly, in his individual
capacity or otherwise, induce, cause, persuade (or attempt to
induce or persuade), any representative, agent or employee of
Premier or any of its Affiliates to terminate such person's
employment relationship with Premier or any of its Affiliates, or
to violate the terms of any agreement between said
representative, agent or employee and Premier or any of its
Affiliates.
8. Confidentiality. Executive acknowledges that
preservation of a continuing business relationship between
Premier or its Affiliates and their respective customers,
representatives, and employees is of critical importance to the
continued business success of Premier and its Affiliates and that
it is the active policy of Premier and its Affiliates to guard as
confidential certain information not available to the public and
relating to the business affairs of Premier and its Affiliates.
In view of the foregoing, Executive agrees that he shall not
during the Term and at any time thereafter, without the prior
written consent of Premier, disclose to any person or entity any
such confidential information that was obtained by Executive in
the course of his employment by Premier or any of its Affiliates.
This section shall not be applicable if and to the extent
Executive is required to testify in a legislative, judicial or
regulatory proceeding pursuant to an order of Congress, any state
or local legislature, a judge, or an administrative law judge or
is otherwise required by law to disclose such information.
9. Forfeiture. If Executive shall at any time violate any
obligation of his under Sections 7 or 8 in a manner that results
in material damage to the Premier or its business, he shall
immediately forfeit his right to any benefits under this
Agreement, and Premier thereafter shall have no further
obligation hereunder to Executive or his spouse, Beneficiary or
any other person.
10. Executive Assignment. No interest of Executive, his
spouse or any Beneficiary, or any other beneficiary under the
Retirement, Welfare or Incentive Plans, or under this Agreement,
or any right to receive any payment or distribution hereunder,
shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or
involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary
or other beneficiary, including claims for alimony, support,
separate maintenance, and claims in bankruptcy proceedings.
11. Benefits Unfunded. All rights under this Agreement of
Executive and his spouse, Beneficiary or other beneficiary shall
at all times be entirely unfunded, and no provision shall at any
time be made with respect to segregating any assets of Premier
for payment of any amounts due hereunder. None of Executive, his
spouse, Beneficiary or any other beneficiary under the
Retirement, Welfare or Incentive Plans shall have any interest in
or rights against any specific assets of Premier, and Executive
and his spouse, Beneficiary or other beneficiary shall have only
the rights of a general unsecured creditor of Premier.
Notwithstanding the preceding provisions of this Section, the
parties hereto may at any time mutually agree that amounts
payable to Executive or his Beneficiary hereunder be paid to the
trustee of a trust established by Premier for the benefit of
Executive and his Beneficiary that contains terms and conditions
mutually satisfactory to the parties.
12. Waiver. No waiver by any party at any time of any
breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.
13. Litigation Expenses. Premier shall pay Executive's
reasonable attorneys' fees and legal expenses in connection with
any judicial proceeding to enforce this Agreement, or to construe
or determine the validity of this Agreement or otherwise in
connection therewith, if Executive is successful in such
litigation.
14. Applicable Law. This Agreement shall be construed and
interpreted pursuant to the laws of Illinois.
15. Entire Agreement. This Agreement contains the entire
Agreement between Premier and the Executive and supersedes any
and all previous agreements, written or oral, between the parties
relating to the subject matter hereof. No amendment or
modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by
Premier and Executive.
16. No Employment Contract. Nothing contained in this
Agreement shall be construed to be an employment contract between
Executive and Premier.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original.
18. Severability. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of
this Agreement shall not be affected thereby.
19. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives and successors. In the event of a Change
in Control of Premier, Premier shall cause its purchaser,
transferee or successor to adopt and assume this Agreement. This
Agreement shall not be terminated by a transfer or sale of assets
of Premier, or by the merger or consolidation of Premier into or
with any other corporation or other entity, rather this Agreement
shall be continued after such sale, merger or consolidation by
the transferee, purchaser or successor entity.
20. Employment with an Affiliate. For purposes of this
Agreement: (i) employment or termination of employment of
Executive shall mean employment or termination of employment with
Premier and all Affiliates; (ii) Base Salary shall include
remuneration received by Executive from Premier and all
Affiliates; and (iii) the terms Incentive Plan, Retirement Plan
and Welfare Plan maintained or made available by Premier shall
include any such plans of any Affiliate of Premier.
21. Notice. Notices required under this Agreement shall be
in writing and sent by registered mail, return receipt requested,
to the following addresses or to such other address as the party
being notified may have previously furnished to the other party
by written notice:
If to Premier: Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
Attention: Director of Human Resources
If to Executive: Richard L. Geach
c/o Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
Premier has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
PREMIER FINANCIAL SERVICES, INC.
By: /s/ Richard L. Geach
Title: President & CEO
/s/ David L. Murray
Executive
CHANGE IN CONTROL AND TERMINATION AGREEMENT
This Change in Control and Termination Agreement
("Agreement") is entered into as of this 20th day of
January , 1995, by and between Premier Financial
Services, Inc., a Delaware corporation ("Premier") and
Kenneth A. Urban ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Premier as its
Division Head - Non-Bank Services; and
WHEREAS, Premier desires to provide security to Executive in
connection with Executive's employment with Premier in the event
of a Change in Control of Premier; and
WHEREAS, Executive and Premier desire to enter into this
Agreement pertaining to the terms of the security Premier is
providing to Executive with respect to his employment in the
event of a Change in Control;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Term. The term of this Agreement shall be the period
beginning on the date hereto and terminating on the date 36
months after the date hereof (the "Term"), provided that for each
day from and after the date hereof the Term will automatically be
extended for an additional day, unless either Premier or
Executive has given written notice to the other party of its or
his election to cease such automatic extension, in which case the
Term shall end at the expiration of the 36 month period beginning
on the date such notice is received by such other party.
2. Definitions. For purposes of this Agreement:
(a) "Affiliate" or "Associate" shall have the meaning
set forth in Rule 12b-2 under the Securities Exchange Act of
1934 (the "Exchange Act").
(b) "Base Salary" shall mean Executive's monthly base
salary at the rate in effect on the date of a termination of
employment under circumstances described in subsections 3(a)
or (b) below; provided, however, that such rate shall in no
event be less than the highest rate in effect for Executive
at any time during the Term.
(c) "Beneficiary" shall mean the person or entity
designated by the Executive, by written instrument delivered
to Premier, to receive the benefits payable under this
Agreement in the event of his death. If the Executive fails
to designate a Beneficiary, or if no Beneficiary survives
the Executive, such death benefits shall be paid:
(i) to the Executive's surviving spouse; or
(ii) if there is no surviving spouse, to the
Executive's living descendants per stirpes; or
(iii) if there is neither a surviving spouse nor
descendants, to the Executive's duly
appointed and qualified executor or personal
representative.
(d) A "Change in Control" of Premier shall be deemed
to have occurred if:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person
shall be deemed to be the "beneficial owner" of
all shares that any such person has the right to
acquire pursuant to any agreement or arrangement
or upon exercise of conversion rights, warrants,
options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or
indirectly, of securities representing 25% or more
of the combined voting power of Premier's then
outstanding securities; or
(ii) at any time during any period of two consecutive
years (not including any period prior to January
1, 1995) individuals who at the beginning of such
period constituted the Board (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board; provided, however,
that any individual becoming a director subsequent
to such date whose election, or nomination for
election by Premier's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a person other than
the Board.
(e) "Good Cause" shall be deemed to exist if, and only
if:
(i) Executive engages in acts or omissions
constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or
malfeasance, in each case that results in
substantial harm to Premier or any Affiliate; or
(ii) Executive is convicted of a criminal violation
involving fraud or dishonesty.
(e) "Good Reason" shall be deemed to exist if, and
only if, Executive terminates his employment because,
without his express written consent:
(i) Premier assigns to Executive duties of a
nonexecutive nature or for which Executive is not
reasonably equipped by his skills and experience;
(ii) Premier reduces the salary of Executive, or
materially reduces the amount of paid vacation to
which he is entitled, or his fringe benefits and
perquisites;
(iii) Premier requires Executive to relocate his
principal business office or his principal
place of residence, or assign to Executive
duties that would reasonably require such
relocation;
(iv) Premier requires Executive, or assign duties to
Executive which would reasonably require him to
spend more than 30 normal working days away from
his principal business office or his principal
place of residence during any consecutive twelve-
month period;
(v) Premier fails to provide office facilities,
secretarial services, and other administrative
services to Executive which are substantially
equivalent to the facilities and services provided
to Executive on the date hereof; or
(vi) Premier terminates any Incentive, Retirement or
Welfare Plans, or reduces or limits Executive's
participation therein relative to the level of
participation of other executives of similar rank,
to such an extent as to materially reduce the
aggregate value of Executive's incentive
compensation and benefits below their aggregate
value as of the date hereof.
(f) "Retirement Plan" shall mean any qualified or
supplemental employee pension benefit plan, as defined in
Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), currently or hereinafter made
available by Premier in which Executive is eligible to
participate, including, but not limited to, the Premier
Financial Services, Inc. Employee Savings and Stock Plan and
Trust (the "Savings Plan") and the Premier Financial
Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan (the "Deferred Compensation Plan").
(g) "Severance Period" shall mean the period beginning
on the date Executive's employment with Premier terminates
under circumstances described in subsection 3(a) and ending
on the date 12 months thereafter.
(h) "Substantial Portion of the Property of Premier"
shall mean 50% of the aggregate book value of the assets of
Premier and its Affiliates and Associates as set forth on
the most recent balance sheet of Premier, prepared on a
consolidated basis, by its regularly employed, independent,
certified public accountants.
(i) "Welfare Plan" shall mean any health and dental
plan, disability plan, survivor income plan or life
insurance plan, as defined in Section 3(1) of ERISA,
currently or hereafter made available by Premier in which
Executive is eligible to participate.
(j) "Incentive Plan" shall mean any incentive or bonus
plan currently or hereinafter made available by Premier in
which Executive is eligible to participate, including, but
not limited to, the Premier Financial Services, Inc. 1995
Stock Option Plan, and any successor thereto..
3. Benefits Upon Termination of Employment. The following
provisions will apply if a Change in Control occurs during the
Term, and at any time during the 24 months after the Change in
Control occurs (whether during or after the expiration of the
Term), the employment of Executive with Premier is terminated by
Premier for any reason other than Good Cause, or Executive
terminates his employment with Premier for Good Reason:
(a) Premier shall pay Executive an amount equal to
Executive's Base Salary multiplied by 12. Such amount shall
be paid to Executive in a lump sum within 90 days after his
date of termination of employment; provided, however,
Executive, by written notice to Premier, may elect to
receive such payment on any date that is no earlier than the
later to occur of: (i) the date 10 days after the date of
termination; and (ii) the date 10 days after receipt of such
notice.
(b) During the Severance Period Executive and his
spouse and other dependents will continue to be covered by
all Welfare Plans maintained by Premier in which he and his
spouse and other dependents were participating immediately
prior to the date of his termination, as if he continued to
be an employee of Premier, and Premier will continue to pay
the costs of coverage of Executive and his spouse and other
dependents under such Welfare Plans on the same basis as is
applicable to active employees covered thereunder; provided
that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Premier will
provide substantially identical benefits. Coverage under
any such Welfare Plan will cease if and when Executive
obtains employment with another employer during the
Severance Period, and becomes eligible for coverage under
any substantially similar Welfare Plan provided by his new
employer.
(c) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment: (i) a
bonus in the amount that would have been payable under any
Incentive Plan for the year of such employment termination
had he not terminated employment, but pro rated according to
the number of months the Executive was employed by Premier
for that year; and (ii) an additional bonus amount that is
equal to the average of the annual bonus amount paid to
Executive during the three years preceding the year of his
employment termination.
(d) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment an amount
equal to the amount that would have been contributed by
Premier on behalf of the Executive under the Savings Plan
and under the Deferred Compensation Plan for the 12 month
period following the Executive's employment termination had
he not terminated employment and had he made contributions
and deferrals under the Plans at the same level as he made
during the 12 month preceding his employment termination.
(e) Executive shall receive any and all benefits
accrued under any Retirement Plan, Welfare Plan, Incentive
Plan or other plan or program in which he participates at
the date of termination of employment, to the date of
termination of employment, the amount, form and time of
payment of such benefits to be determined by the terms of
such Retirement Plan, Welfare Plan, Incentive Plan and other
plan or program. Executive's employment shall be deemed to
have terminated by reason of retirement, and without regard
to vesting limitations in all such Plans and other plans or
programs not subject to the qualification requirements of
Section 401(a) of the Internal Revenue Code of 1986
("Code"), under circumstances that have the most favorable
result for Executive thereunder for all purposes of such
Plans and other plans or programs. Payment shall be made at
the earliest date permitted under any such Plan.
(f) If upon the date of termination of Executive's
employment, Executive holds any options with respect to
stock of Premier, all such options will immediately become
fully vested and exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on
stock of Premier owned by Executive on the date of
termination of his employment will lapse on such date. To
the extent such acceleration of exercise of such options, or
such lapse of restrictions, is not permissible under the
terms of any plan pursuant to which the options or
restricted stock were granted, Premier will pay to
Executive: (i) an amount equal to the excess, if any, of the
aggregate fair market value of all stock of Premier subject
to such options, determined on the date of termination of
employment, over the aggregate exercise price of such stock,
and Executive will surrender all such options unexercised;
and (ii) the aggregate fair market value on the date of
termination of employment of all such restricted stock and
Executive shall transfer such stock to Premier. Payments
pursuant to the preceding sentence will be made to Executive
in a lump sum within 90 days after his date of termination
of employment; provided, however, Executive, by written
notice to Premier, may elect to receive such payments on any
date that is not earlier than the later to occur of (i) the
date 10 days after the date of termination, and (ii) the
date 10 days after receipt of such notice.
If the employment of Executive with Premier is terminated by
Premier for Good Cause or by Executive other than for Good
Reason, Executive's Base Salary shall be paid through the date of
his termination, and Premier shall have no further obligation to
Executive or any other person under this Agreement. Such
termination shall have no effect upon Executive's other rights,
including but not limited to rights under the Retirement, Welfare
and Incentive Plans.
Notwithstanding anything herein to the contrary, in the
event Premier or an Affiliate shall terminate the employment of
Executive for Good Cause hereunder, Premier shall give Executive
at least thirty (30) days prior written notice specifying in
detail the reason or reasons for Executive's termination.
This Agreement shall have no effect, and Premier shall have
no obligations hereunder, if Executive's employment terminates
for any reason at any time other than during the 24 months
following a Change in Control.
4. Excise Tax. It is the intention of Premier and
Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of Executive under any other
agreement or plan, be deemed to be an "Excess Parachute Payment"
as defined in Section 280G of the Code, or its successors. It is
agreed that the present value of and payments to or for the
benefit of Executive in the nature of compensation, receipt of
which is contingent on the Change in Control of Premier, and to
which Section 280G of the Code applies (in the aggregate "Total
Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that Premier may pay without loss of
deduction under Section 280G(a) of the Code. Present value for
purposes of this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60) days following
the earlier of (i) the giving of the notice of termination or
(ii) the giving of notice by Premier to Executive of its belief
that there is a payment or benefit due Executive which will
result in an excess parachute payment as defined in Section 280G
of the Code, Executive and Premier, at Premier's expense, shall
obtain the opinion of such legal counsel and certified public
accountants as Executive may choose (notwithstanding the fact
that such persons have acted or may also be acting as the legal
counsel or certified public accountants for Premier), which
opinions need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of Executive (as defined in Code
Section 280G), (ii) the present value of Total Payments; and
(iii) the amount and present value of any excess parachute
payments. In the event that such opinion determines that there
would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in
Total Payments shall be modified, reduced or eliminated as
specified by Executive in writing delivered to Premier within
thirty (30) days of his receipt of such opinions or, if Executive
fails to so notify Premier, then as Premier shall reasonably
determine, so that under the bases of calculation set forth in
such opinions there will be no excess parachute payment. In the
event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no
further force or effect.
5. Set-Off. No payments or benefits payable to or with
respect to Executive pursuant to this Agreement shall be reduced
by any amount that: (i) Executive or his spouse or Beneficiary,
or any other beneficiary under the Retirement and Welfare Plans,
may earn or receive from employment with another employer or from
any other source, except as expressly provided in subsection
3(b); or (ii) Premier claims is owed to Premier or an Affiliate
by Executive.
6. Death. Upon Executive's death following his
termination of employment: (i) all unpaid amounts payable to
Executive under subsections 3(a), (b), (c), (d) and (f), if any,
shall be paid to his Beneficiary, all amounts payable under
subsection 3(e) shall be paid pursuant to the terms of said
subsection to his spouse or other beneficiary under the
Retirement Plan; and (ii) the Executive's spouse and other
dependents shall continue to be covered under all applicable
Welfare Plans during the remainder of the Severance Period, if
any, pursuant to subsection 3(b).
7. No Solicitation of Representatives and Employees.
Executive agrees that he shall not, during the Term or the
Severance Period, directly or indirectly, in his individual
capacity or otherwise, induce, cause, persuade (or attempt to
induce or persuade), any representative, agent or employee of
Premier or any of its Affiliates to terminate such person's
employment relationship with Premier or any of its Affiliates, or
to violate the terms of any agreement between said
representative, agent or employee and Premier or any of its
Affiliates.
8. Confidentiality. Executive acknowledges that
preservation of a continuing business relationship between
Premier or its Affiliates and their respective customers,
representatives, and employees is of critical importance to the
continued business success of Premier and its Affiliates and that
it is the active policy of Premier and its Affiliates to guard as
confidential certain information not available to the public and
relating to the business affairs of Premier and its Affiliates.
In view of the foregoing, Executive agrees that he shall not
during the Term and at any time thereafter, without the prior
written consent of Premier, disclose to any person or entity any
such confidential information that was obtained by Executive in
the course of his employment by Premier or any of its Affiliates.
This section shall not be applicable if and to the extent
Executive is required to testify in a legislative, judicial or
regulatory proceeding pursuant to an order of Congress, any state
or local legislature, a judge, or an administrative law judge or
is otherwise required by law to disclose such information.
9. Forfeiture. If Executive shall at any time violate any
obligation of his under Sections 7 or 8 in a manner that results
in material damage to the Premier or its business, he shall
immediately forfeit his right to any benefits under this
Agreement, and Premier thereafter shall have no further
obligation hereunder to Executive or his spouse, Beneficiary or
any other person.
10. Executive Assignment. No interest of Executive, his
spouse or any Beneficiary, or any other beneficiary under the
Retirement, Welfare or Incentive Plans, or under this Agreement,
or any right to receive any payment or distribution hereunder,
shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or
involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary
or other beneficiary, including claims for alimony, support,
separate maintenance, and claims in bankruptcy proceedings.
11. Benefits Unfunded. All rights under this Agreement of
Executive and his spouse, Beneficiary or other beneficiary shall
at all times be entirely unfunded, and no provision shall at any
time be made with respect to segregating any assets of Premier
for payment of any amounts due hereunder. None of Executive, his
spouse, Beneficiary or any other beneficiary under the
Retirement, Welfare or Incentive Plans shall have any interest in
or rights against any specific assets of Premier, and Executive
and his spouse, Beneficiary or other beneficiary shall have only
the rights of a general unsecured creditor of Premier.
Notwithstanding the preceding provisions of this Section, the
parties hereto may at any time mutually agree that amounts
payable to Executive or his Beneficiary hereunder be paid to the
trustee of a trust established by Premier for the benefit of
Executive and his Beneficiary that contains terms and conditions
mutually satisfactory to the parties.
12. Waiver. No waiver by any party at any time of any
breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.
13. Litigation Expenses. Premier shall pay Executive's
reasonable attorneys' fees and legal expenses in connection with
any judicial proceeding to enforce this Agreement, or to construe
or determine the validity of this Agreement or otherwise in
connection therewith, if Executive is successful in such
litigation.
14. Applicable Law. This Agreement shall be construed and
interpreted pursuant to the laws of Illinois.
15. Entire Agreement. This Agreement contains the entire
Agreement between Premier and the Executive and supersedes any
and all previous agreements, written or oral, between the parties
relating to the subject matter hereof. No amendment or
modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by
Premier and Executive.
16. No Employment Contract. Nothing contained in this
Agreement shall be construed to be an employment contract between
Executive and Premier.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original.
18. Severability. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of
this Agreement shall not be affected thereby.
19. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives and successors. In the event of a Change
in Control of Premier, Premier shall cause its purchaser,
transferee or successor to adopt and assume this Agreement. This
Agreement shall not be terminated by a transfer or sale of assets
of Premier, or by the merger or consolidation of Premier into or
with any other corporation or other entity, rather this Agreement
shall be continued after such sale, merger or consolidation by
the transferee, purchaser or successor entity.
20. Employment with an Affiliate. For purposes of this
Agreement: (i) employment or termination of employment of
Executive shall mean employment or termination of employment with
Premier and all Affiliates; (ii) Base Salary shall include
remuneration received by Executive from Premier and all
Affiliates; and (iii) the terms Incentive Plan, Retirement Plan
and Welfare Plan maintained or made available by Premier shall
include any such plans of any Affiliate of Premier.
21. Notice. Notices required under this Agreement shall be
in writing and sent by registered mail, return receipt requested,
to the following addresses or to such other address as the party
being notified may have previously furnished to the other party
by written notice:
If to Premier: Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
Attention: Director of Human Resources
If to Executive: Richard L. Geach
c/o Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
Premier has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
PREMIER FINANCIAL SERVICES, INC.
By: /s/ Richard L. Geach
Title: President & CEO
/s/ Kenneth A. Urban
Executive
CHANGE IN CONTROL AND TERMINATION AGREEMENT
This Change in Control and Termination Agreement
("Agreement") is entered into as of this 20th day of
January, 1995, by and between Premier Financial
Services, Inc., a Delaware corporation ("Premier") and
Steven E. Flahaven ("Executive").
WITNESSETH:
WHEREAS, Executive is currently employed by Premier as its
Division Head - Commercial Banking; and
WHEREAS, Premier desires to provide security to Executive in
connection with Executive's employment with Premier in the event
of a Change in Control of Premier; and
WHEREAS, Executive and Premier desire to enter into this
Agreement pertaining to the terms of the security Premier is
providing to Executive with respect to his employment in the
event of a Change in Control;
NOW, THEREFORE, in consideration of the mutual covenants and
promises contained herein, and other good and valuable
consideration, the receipt of which is hereby acknowledged, the
parties agree as follows:
1. Term. The term of this Agreement shall be the period
beginning on the date hereto and terminating on the date 36
months after the date hereof (the "Term"), provided that for each
day from and after the date hereof the Term will automatically be
extended for an additional day, unless either Premier or
Executive has given written notice to the other party of its or
his election to cease such automatic extension, in which case the
Term shall end at the expiration of the 36 month period beginning
on the date such notice is received by such other party.
2. Definitions. For purposes of this Agreement:
(a) "Affiliate" or "Associate" shall have the meaning
set forth in Rule 12b-2 under the Securities Exchange Act of
1934 (the "Exchange Act").
(b) "Base Salary" shall mean Executive's monthly base
salary at the rate in effect on the date of a termination of
employment under circumstances described in subsections 3(a)
or (b) below; provided, however, that such rate shall in no
event be less than the highest rate in effect for Executive
at any time during the Term.
(c) "Beneficiary" shall mean the person or entity
designated by the Executive, by written instrument delivered
to Premier, to receive the benefits payable under this
Agreement in the event of his death. If the Executive fails
to designate a Beneficiary, or if no Beneficiary survives
the Executive, such death benefits shall be paid:
(i) to the Executive's surviving spouse; or
(ii) if there is no surviving spouse, to the
Executive's living descendants per stirpes; or
(iii) if there is neither a surviving spouse nor
descendants, to the Executive's duly
appointed and qualified executor or personal
representative.
(d) A "Change in Control" of Premier shall be deemed
to have occurred if:
(i) any "person" or "group" (as such terms are used in
Sections 13(d) and 14(d) of the Exchange Act is or
becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act, except that a person
shall be deemed to be the "beneficial owner" of
all shares that any such person has the right to
acquire pursuant to any agreement or arrangement
or upon exercise of conversion rights, warrants,
options or otherwise, without regard to the sixty
day period referred to in such Rule), directly or
indirectly, of securities representing 25% or more
of the combined voting power of Premier's then
outstanding securities; or
(ii) at any time during any period of two consecutive
years (not including any period prior to January
1, 1995) individuals who at the beginning of such
period constituted the Board (the "Incumbent
Board") cease for any reason to constitute at
least a majority of the Board; provided, however,
that any individual becoming a director subsequent
to such date whose election, or nomination for
election by Premier's shareholders, was approved
by a vote of at least a majority of the directors
then comprising the Incumbent Board shall be
considered as though such individual were a member
of the Incumbent Board, but excluding, for this
purpose, any such individual whose initial
assumption of office occurs as a result of either
an actual or threatened election contest (as such
terms are used in Rule 14a-11 or Regulation 14A
promulgated under the Exchange Act) or other
actual or threatened solicitation of proxies or
consents by or on behalf of a person other than
the Board.
(e) "Good Cause" shall be deemed to exist if, and only
if:
(i) Executive engages in acts or omissions
constituting dishonesty, intentional breach of
fiduciary obligation or intentional wrongdoing or
malfeasance, in each case that results in
substantial harm to Premier or any Affiliate; or
(ii) Executive is convicted of a criminal violation
involving fraud or dishonesty.
(e) "Good Reason" shall be deemed to exist if, and
only if, Executive terminates his employment because,
without his express written consent:
(i) Premier assigns to Executive duties of a
nonexecutive nature or for which Executive is not
reasonably equipped by his skills and experience;
(ii) Premier reduces the salary of Executive, or
materially reduces the amount of paid vacation to
which he is entitled, or his fringe benefits and
perquisites;
(iii) Premier requires Executive to relocate his
principal business office or his principal
place of residence, or assign to Executive
duties that would reasonably require such
relocation;
(iv) Premier requires Executive, or assign duties to
Executive which would reasonably require him to
spend more than 30 normal working days away from
his principal business office or his principal
place of residence during any consecutive twelve-
month period;
(v) Premier fails to provide office facilities,
secretarial services, and other administrative
services to Executive which are substantially
equivalent to the facilities and services provided
to Executive on the date hereof; or
(vi) Premier terminates any Incentive, Retirement or
Welfare Plans, or reduces or limits Executive's
participation therein relative to the level of
participation of other executives of similar rank,
to such an extent as to materially reduce the
aggregate value of Executive's incentive
compensation and benefits below their aggregate
value as of the date hereof.
(f) "Retirement Plan" shall mean any qualified or
supplemental employee pension benefit plan, as defined in
Section 3(2) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), currently or hereinafter made
available by Premier in which Executive is eligible to
participate, including, but not limited to, the Premier
Financial Services, Inc. Employee Savings and Stock Plan and
Trust (the "Savings Plan") and the Premier Financial
Services, Inc. Senior Leadership and Directors Deferred
Compensation Plan (the "Deferred Compensation Plan").
(g) "Severance Period" shall mean the period beginning
on the date Executive's employment with Premier terminates
under circumstances described in subsection 3(a) and ending
on the date 12 months thereafter.
(h) "Substantial Portion of the Property of Premier"
shall mean 50% of the aggregate book value of the assets of
Premier and its Affiliates and Associates as set forth on
the most recent balance sheet of Premier, prepared on a
consolidated basis, by its regularly employed, independent,
certified public accountants.
(i) "Welfare Plan" shall mean any health and dental
plan, disability plan, survivor income plan or life
insurance plan, as defined in Section 3(1) of ERISA,
currently or hereafter made available by Premier in which
Executive is eligible to participate.
(j) "Incentive Plan" shall mean any incentive or bonus
plan currently or hereinafter made available by Premier in
which Executive is eligible to participate, including, but
not limited to, the Premier Financial Services, Inc. 1995
Stock Option Plan, and any successor thereto..
3. Benefits Upon Termination of Employment. The following
provisions will apply if a Change in Control occurs during the
Term, and at any time during the 24 months after the Change in
Control occurs (whether during or after the expiration of the
Term), the employment of Executive with Premier is terminated by
Premier for any reason other than Good Cause, or Executive
terminates his employment with Premier for Good Reason:
(a) Premier shall pay Executive an amount equal to
Executive's Base Salary multiplied by 12. Such amount shall
be paid to Executive in a lump sum within 90 days after his
date of termination of employment; provided, however,
Executive, by written notice to Premier, may elect to
receive such payment on any date that is no earlier than the
later to occur of: (i) the date 10 days after the date of
termination; and (ii) the date 10 days after receipt of such
notice.
(b) During the Severance Period Executive and his
spouse and other dependents will continue to be covered by
all Welfare Plans maintained by Premier in which he and his
spouse and other dependents were participating immediately
prior to the date of his termination, as if he continued to
be an employee of Premier, and Premier will continue to pay
the costs of coverage of Executive and his spouse and other
dependents under such Welfare Plans on the same basis as is
applicable to active employees covered thereunder; provided
that, if participation in any one or more of such Welfare
Plans is not possible under the terms thereof, Premier will
provide substantially identical benefits. Coverage under
any such Welfare Plan will cease if and when Executive
obtains employment with another employer during the
Severance Period, and becomes eligible for coverage under
any substantially similar Welfare Plan provided by his new
employer.
(c) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment: (i) a
bonus in the amount that would have been payable under any
Incentive Plan for the year of such employment termination
had he not terminated employment, but pro rated according to
the number of months the Executive was employed by Premier
for that year; and (ii) an additional bonus amount that is
equal to the average of the annual bonus amount paid to
Executive during the three years preceding the year of his
employment termination.
(d) Premier shall pay to Executive in a lump sum
within 90 days after his termination of employment an amount
equal to the amount that would have been contributed by
Premier on behalf of the Executive under the Savings Plan
and under the Deferred Compensation Plan for the 12 month
period following the Executive's employment termination had
he not terminated employment and had he made contributions
and deferrals under the Plans at the same level as he made
during the 12 month preceding his employment termination.
(e) Executive shall receive any and all benefits
accrued under any Retirement Plan, Welfare Plan, Incentive
Plan or other plan or program in which he participates at
the date of termination of employment, to the date of
termination of employment, the amount, form and time of
payment of such benefits to be determined by the terms of
such Retirement Plan, Welfare Plan, Incentive Plan and other
plan or program. Executive's employment shall be deemed to
have terminated by reason of retirement, and without regard
to vesting limitations in all such Plans and other plans or
programs not subject to the qualification requirements of
Section 401(a) of the Internal Revenue Code of 1986
("Code"), under circumstances that have the most favorable
result for Executive thereunder for all purposes of such
Plans and other plans or programs. Payment shall be made at
the earliest date permitted under any such Plan.
(f) If upon the date of termination of Executive's
employment, Executive holds any options with respect to
stock of Premier, all such options will immediately become
fully vested and exercisable upon such date and will be
exercisable for 200 days thereafter. Any restrictions on
stock of Premier owned by Executive on the date of
termination of his employment will lapse on such date. To
the extent such acceleration of exercise of such options, or
such lapse of restrictions, is not permissible under the
terms of any plan pursuant to which the options or
restricted stock were granted, Premier will pay to
Executive: (i) an amount equal to the excess, if any, of the
aggregate fair market value of all stock of Premier subject
to such options, determined on the date of termination of
employment, over the aggregate exercise price of such stock,
and Executive will surrender all such options unexercised;
and (ii) the aggregate fair market value on the date of
termination of employment of all such restricted stock and
Executive shall transfer such stock to Premier. Payments
pursuant to the preceding sentence will be made to Executive
in a lump sum within 90 days after his date of termination
of employment; provided, however, Executive, by written
notice to Premier, may elect to receive such payments on any
date that is not earlier than the later to occur of (i) the
date 10 days after the date of termination, and (ii) the
date 10 days after receipt of such notice.
If the employment of Executive with Premier is terminated by
Premier for Good Cause or by Executive other than for Good
Reason, Executive's Base Salary shall be paid through the date of
his termination, and Premier shall have no further obligation to
Executive or any other person under this Agreement. Such
termination shall have no effect upon Executive's other rights,
including but not limited to rights under the Retirement, Welfare
and Incentive Plans.
Notwithstanding anything herein to the contrary, in the
event Premier or an Affiliate shall terminate the employment of
Executive for Good Cause hereunder, Premier shall give Executive
at least thirty (30) days prior written notice specifying in
detail the reason or reasons for Executive's termination.
This Agreement shall have no effect, and Premier shall have
no obligations hereunder, if Executive's employment terminates
for any reason at any time other than during the 24 months
following a Change in Control.
4. Excise Tax. It is the intention of Premier and
Executive that no portion of any payment under this Agreement, or
payments to or for the benefit of Executive under any other
agreement or plan, be deemed to be an "Excess Parachute Payment"
as defined in Section 280G of the Code, or its successors. It is
agreed that the present value of and payments to or for the
benefit of Executive in the nature of compensation, receipt of
which is contingent on the Change in Control of Premier, and to
which Section 280G of the Code applies (in the aggregate "Total
Payments") shall not exceed an amount equal to one dollar less
than the maximum amount that Premier may pay without loss of
deduction under Section 280G(a) of the Code. Present value for
purposes of this Agreement shall be calculated in accordance with
Section 280G(d)(4) of the Code. Within sixty (60) days following
the earlier of (i) the giving of the notice of termination or
(ii) the giving of notice by Premier to Executive of its belief
that there is a payment or benefit due Executive which will
result in an excess parachute payment as defined in Section 280G
of the Code, Executive and Premier, at Premier's expense, shall
obtain the opinion of such legal counsel and certified public
accountants as Executive may choose (notwithstanding the fact
that such persons have acted or may also be acting as the legal
counsel or certified public accountants for Premier), which
opinions need not be unqualified, which sets forth: (i) the
amount of the Base Period Income of Executive (as defined in Code
Section 280G), (ii) the present value of Total Payments; and
(iii) the amount and present value of any excess parachute
payments. In the event that such opinion determines that there
would be an excess parachute payment, the payment hereunder or
any other payment determined by such counsel to be includable in
Total Payments shall be modified, reduced or eliminated as
specified by Executive in writing delivered to Premier within
thirty (30) days of his receipt of such opinions or, if Executive
fails to so notify Premier, then as Premier shall reasonably
determine, so that under the bases of calculation set forth in
such opinions there will be no excess parachute payment. In the
event that the provisions of Sections 280G and 4999 of the Code
are repealed without succession, this Section shall be of no
further force or effect.
5. Set-Off. No payments or benefits payable to or with
respect to Executive pursuant to this Agreement shall be reduced
by any amount that: (i) Executive or his spouse or Beneficiary,
or any other beneficiary under the Retirement and Welfare Plans,
may earn or receive from employment with another employer or from
any other source, except as expressly provided in subsection
3(b); or (ii) Premier claims is owed to Premier or an Affiliate
by Executive.
6. Death. Upon Executive's death following his
termination of employment: (i) all unpaid amounts payable to
Executive under subsections 3(a), (b), (c), (d) and (f), if any,
shall be paid to his Beneficiary, all amounts payable under
subsection 3(e) shall be paid pursuant to the terms of said
subsection to his spouse or other beneficiary under the
Retirement Plan; and (ii) the Executive's spouse and other
dependents shall continue to be covered under all applicable
Welfare Plans during the remainder of the Severance Period, if
any, pursuant to subsection 3(b).
7. No Solicitation of Representatives and Employees.
Executive agrees that he shall not, during the Term or the
Severance Period, directly or indirectly, in his individual
capacity or otherwise, induce, cause, persuade (or attempt to
induce or persuade), any representative, agent or employee of
Premier or any of its Affiliates to terminate such person's
employment relationship with Premier or any of its Affiliates, or
to violate the terms of any agreement between said
representative, agent or employee and Premier or any of its
Affiliates.
8. Confidentiality. Executive acknowledges that
preservation of a continuing business relationship between
Premier or its Affiliates and their respective customers,
representatives, and employees is of critical importance to the
continued business success of Premier and its Affiliates and that
it is the active policy of Premier and its Affiliates to guard as
confidential certain information not available to the public and
relating to the business affairs of Premier and its Affiliates.
In view of the foregoing, Executive agrees that he shall not
during the Term and at any time thereafter, without the prior
written consent of Premier, disclose to any person or entity any
such confidential information that was obtained by Executive in
the course of his employment by Premier or any of its Affiliates.
This section shall not be applicable if and to the extent
Executive is required to testify in a legislative, judicial or
regulatory proceeding pursuant to an order of Congress, any state
or local legislature, a judge, or an administrative law judge or
is otherwise required by law to disclose such information.
9. Forfeiture. If Executive shall at any time violate any
obligation of his under Sections 7 or 8 in a manner that results
in material damage to the Premier or its business, he shall
immediately forfeit his right to any benefits under this
Agreement, and Premier thereafter shall have no further
obligation hereunder to Executive or his spouse, Beneficiary or
any other person.
10. Executive Assignment. No interest of Executive, his
spouse or any Beneficiary, or any other beneficiary under the
Retirement, Welfare or Incentive Plans, or under this Agreement,
or any right to receive any payment or distribution hereunder,
shall be subject in any manner to sale, transfer, assignment,
pledge, attachment, garnishment, or other alienation or
encumbrance of any kind, nor may such interest or right to
receive a payment or distribution be taken, voluntarily or
involuntarily, for the satisfaction of the obligations or debts
of, or other claims against, Executive or his spouse, Beneficiary
or other beneficiary, including claims for alimony, support,
separate maintenance, and claims in bankruptcy proceedings.
11. Benefits Unfunded. All rights under this Agreement of
Executive and his spouse, Beneficiary or other beneficiary shall
at all times be entirely unfunded, and no provision shall at any
time be made with respect to segregating any assets of Premier
for payment of any amounts due hereunder. None of Executive, his
spouse, Beneficiary or any other beneficiary under the
Retirement, Welfare or Incentive Plans shall have any interest in
or rights against any specific assets of Premier, and Executive
and his spouse, Beneficiary or other beneficiary shall have only
the rights of a general unsecured creditor of Premier.
Notwithstanding the preceding provisions of this Section, the
parties hereto may at any time mutually agree that amounts
payable to Executive or his Beneficiary hereunder be paid to the
trustee of a trust established by Premier for the benefit of
Executive and his Beneficiary that contains terms and conditions
mutually satisfactory to the parties.
12. Waiver. No waiver by any party at any time of any
breach by the other party of, or compliance with, any condition
or provision of this Agreement to be performed by such other
party shall be deemed a waiver of any other provisions or
conditions at the same time or at any prior or subsequent time.
13. Litigation Expenses. Premier shall pay Executive's
reasonable attorneys' fees and legal expenses in connection with
any judicial proceeding to enforce this Agreement, or to construe
or determine the validity of this Agreement or otherwise in
connection therewith, if Executive is successful in such
litigation.
14. Applicable Law. This Agreement shall be construed and
interpreted pursuant to the laws of Illinois.
15. Entire Agreement. This Agreement contains the entire
Agreement between Premier and the Executive and supersedes any
and all previous agreements, written or oral, between the parties
relating to the subject matter hereof. No amendment or
modification of the terms of this Agreement shall be binding upon
the parties hereto unless reduced to writing and signed by
Premier and Executive.
16. No Employment Contract. Nothing contained in this
Agreement shall be construed to be an employment contract between
Executive and Premier.
17. Counterparts. This Agreement may be executed in
counterparts, each of which shall be deemed an original.
18. Severability. In the event any provision of this
Agreement is held illegal or invalid, the remaining provisions of
this Agreement shall not be affected thereby.
19. Successors. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective
heirs, representatives and successors. In the event of a Change
in Control of Premier, Premier shall cause its purchaser,
transferee or successor to adopt and assume this Agreement. This
Agreement shall not be terminated by a transfer or sale of assets
of Premier, or by the merger or consolidation of Premier into or
with any other corporation or other entity, rather this Agreement
shall be continued after such sale, merger or consolidation by
the transferee, purchaser or successor entity.
20. Employment with an Affiliate. For purposes of this
Agreement: (i) employment or termination of employment of
Executive shall mean employment or termination of employment with
Premier and all Affiliates; (ii) Base Salary shall include
remuneration received by Executive from Premier and all
Affiliates; and (iii) the terms Incentive Plan, Retirement Plan
and Welfare Plan maintained or made available by Premier shall
include any such plans of any Affiliate of Premier.
21. Notice. Notices required under this Agreement shall be
in writing and sent by registered mail, return receipt requested,
to the following addresses or to such other address as the party
being notified may have previously furnished to the other party
by written notice:
If to Premier: Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
Attention: Director of Human Resources
If to Executive: Richard L. Geach
c/o Premier Financial Services, Inc.
27 West Main Street
Suite 101
Freeport, IL 61032
IN WITNESS WHEREOF, Executive has hereunto set his hand, and
Premier has caused these presents to be executed in its name on
its behalf, all as of the day and year first above written.
PREMIER FINANCIAL SERVICES, INC.
By: /s/ Richard L. Geach
Title: President & CEO
/s/ Steven E. Flahaven
Executive
