SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 1995 Commission file number 0-8426
FIRSTBANK OF ILLINOIS CO.
(exact name of registrant as specified in its charter)
DELAWARE 37-6141253
(State of other jurisdiction (I.R.S. Employer
of
incorporation of Identification No.)
organization)
205 S. Fifth Street
Springfield, Illinois 62701
(address of principal executive (Zip code)
offices)
Registrant's telephone number, including area code (217) 753-7543.
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 and (2) has been subject to the
filing requirements for the past 90 days.
YES __X__ NO _____
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common stock, par value $1.00 per share -- 9,835,590 shares outstanding on
September 30, 1995.
Part I. Financial Information
Item 1. Financial Statements
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(in thousands of dollars except per share data)
September 30, December 31,
1995 1994
ASSETS
Cash and due from banks $ 73,059 $ 72,540
Short-term investments 27,325 15,193
Investment securities:
Available-for-sale, at market value 385,706 407,238
Held-to-maturity, at amortized cost (market values
of $46,105 for 1995 and $51,470 for 1994) 44,399 51,015
Total investment securities 430,105 458,253
Loans 1,160,660 1,140,645
Unearned discount (6,267) (8,606)
Loans, net of unearned discount 1,154,393 1,132,039
Reserve for possible loan losses (17,480) (17,801)
Loans, net 1,136,913 1,114,238
Premises and equipment, net 40,107 41,784
Accrued income receivable 20,463 17,425
Other assets 27,806 33,628
Total assets $1,755,778 $1,753,061
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 237,410 $ 252,420
Interest-bearing 1,274,628 1,224,014
Total deposits 1,512,038 1,476,434
Short-term borrowings 47,234 92,764
Other liabilities 16,050 14,741
Long-term borrowings 155 10,638
Total liabilities 1,575,477 1,594,577
SHAREHOLDERS' EQUITY
Preferred stock, no par value:
Authorized and unissued -- 1,000,000 shares
Common stock, par value $1 per share:
Authorized -- 20,000,000 shares
Issued including shares in treasury--9,838,666 shares
in 1995 and 9,829,362 shares in 1994 9,839 9,829
Capital surplus 39,326 39,439
Retained earnings 132,725 120,711
Unrealized holding losses on investment
securities available-for-sale (1,503) (11,370)
Less treasury stock at cost:
3,076 shares in 1995 and 4,868 shares in 1994 (86) (125)
Total shareholders' equity 180,301 158,484
Total liabilities and shareholders' equity $1,755,778 $1,753,061
See accompanying notes to interim consolidated condensed financial statements.
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(in thousands of dollars except per share data)
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
INTEREST INCOME
Interest and fees on loans $75,613 $67,829 $25,800 $23,541
Interest on investment securities:
Taxable 15,753 18,268 5,148 5,948
Exempt from Federal income tax 1,878 2,490 602 790
Interest on short-term investments 1,598 546 736 173
Total interest income 94,842 89,133 32,286 30,452
INTEREST EXPENSE
Interest on deposits 38,057 28,156 13,675 9,639
Interest on short-term borrowings 1,819 2,483 461 1,128
Interest on long-term borrowings 413 1,040 5 233
Total interest expense 40,289 31,679 14,141 11,000
Net interest income 54,553 57,454 18,145 19,452
Provision for possible loan losses 1,575 2,025 525 675
Net interest income after
provision for possible loan losses 52,978 55,429 17,620 18,777
NONINTEREST INCOME
Securities gains, net 17 136 (3) (1)
Revenues from fiduciary activities 4,647 3,999 1,579 1,309
Service charges on deposit accounts 4,303 4,582 1,442 1,577
Other 6,037 5,587 1,865 2,016
Total noninterest income 15,004 14,304 4,883 4,901
NONINTEREST EXPENSE
Salaries and employee benefits 21,998 23,543 7,418 7,725
Net occupancy 3,293 3,381 1,111 1,053
Equipment 3,475 3,565 1,168 1,265
Other 10,515 13,110 2,993 4,488
Total noninterest expense 39,281 43,599 12,690 14,531
Net income before income taxes 28,701 26,134 9,813 9,147
Income tax expense 10,195 8,787 3,508 3,121
Net income $18,506 $17,347 $ 6,305 $ 6,026
Earnings per common share $ 1.85 $ 1.74 $ 0.63 $ 0.60
See accompanying notes to interim consolidated condensed financial statements.
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited)
(in thousands of dollars)
Nine Months Ended
September 30,
1995 1994
OPERATING ACTIVITIES
Net income $ 18,506 $ 17,347
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 8,397 8,202
Provision for possible loan losses 1,575 2,025
Losses incurred on other real estate owned 2 84
Increase in accrued income receivable (3,038) (1,342)
Gain on sale of loans - (268)
Other, net 1,204 (2,029)
Originations of loans for sale (69,099) (86,876)
Proceeds from sale of loans 66,146 84,743
Net cash provided by operating activities 23,693 21,886
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (72,976) (181,897)
Held-to-maturity - (837)
Proceeds from sales of investment securities
Available-for-sale 51,000 42,283
Proceeds from maturities of and principal payments on
investment securities:
Available-for-sale 54,635 78,239
Held-to-maturity 6,238 12,117
Purchases of premises and equipment (2,053) (4,222)
Proceeds from sales of premises and equipment 52 35
Proceeds from sales of other real estate owned 1,427 3,979
Net loans originated (22,600) (32,047)
Other, net - 117
Net cash provided by (used in) investing activities 15,723 (82,233)
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposit accounts (15,010) (11,554)
Net increase (decrease) in savings, NOW and
money market deposits (32,537) 9,966
Net increase (decrease) in certificates of deposit 83,151 (21,063)
Net increase (decrease) in short-term borrowings (45,530) 75,090
Principal payments under capital lease obligations (133) (120)
Payments to retire long-term debt (10,350) (6,826)
Cash dividends paid (6,307) (5,789)
Proceeds from exercise of common stock options 266 434
Proceeds from dividend reinvestment plan 377 340
Purchase of shares for treasury (692) (175)
Net cash provided by (used in) financing activities (26,765) 40,303
Increase (decrease) in cash and cash equivalents 12,651 (20,044)
Cash and cash equivalents at beginning of year 87,733 105,856
Cash and cash equivalents at end of period $100,384 $ 85,812
Supplemental information:
Income taxes paid $ 8,955 $ 9,300
Interest paid 38,973 31,697
Noncash transfers of loans to other real estate 1,303 1,406
See accompanying notes to interim consolidated condensed financial statements.
PART I. FINANCIAL INFORMATION ... Continued
Item 1. Financial Statement ... Continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)
September 30, 1995
1. The accompanying unaudited interim consolidated condensed
financial statements have been prepared in accordance with the
instructions to Form 10-Q and, therefore, do not include all of
the information and notes required by generally accepted
accounting principles for complete consolidated financial
statements. In the opinion of management, all adjustments
(consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. For further
information, refer to the Company's Annual Report on Form 10-K
for the year ended December 31, 1994.
2. On March 2, 1994, the Company acquired Rowe, Henry & Deal, Inc.
(RHD), an independent registered securities dealer headquartered
in Jacksonville, Illinois. The transaction was an exchange of
13,379 shares of Company common stock for all of the issued and
outstanding common stock of RHD. During 1995, this subsidiary's
name was changed to FFG Investments Inc. This acquisition was
accounted for as a pooling-of-interests; however, prior period
financial statements have not been restated due to immateriality.
3. On April 25, 1994, the Company acquired Colonial Bancshares, Inc.
(Colonial). Colonial, with total assets of approximately $165
million and headquartered in Des Peres, Missouri, operates
Colonial Bank in Des Peres and Ellisville, Missouri. The
transaction, an exchange of 505,376 shares of Company common
stock for all of the issued and outstanding common stock of
Colonial, was recorded under the pooling-of-interests method of
accounting on the date of acquisition. The consolidated
condensed financial statements included herein have been restated
to include Colonial's operating results.
4. On January 25, 1995, the Company's Board of Directors authorized
a three-for-two stock split effected in the form of a 50 percent
stock dividend. One share for each two shares held by
shareholders of record on March 17, 1995 was distributed on April
1, 1995. This resulted in the issuance of 3,279,106 additional
shares of common stock. The par value of the new shares issued
totaled $3,279,106, which was transferred from capital surplus to
the common stock account. In addition, all references to number
of shares, per share amounts, and common stock outstanding for
all periods presented prior to that time have been restated to
reflect the stock split.
5. On June 12, 1995, the Company announced the signing of a
definitive agreement to acquire Confluence Bancshares Corporation
(Confluence) and its wholly owned subsidiary, Duchesne Bank
(Duchesne). Duchesne, headquartered in St. Peters, Missouri,
also operates a separate branch facility in St. Charles,
Missouri. Duchesne had total assets of approximately $82 million
at September 30, 1995. The acquisition calls for payment of
500,000 shares of Firstbank common stock in exchange for all the
outstanding common stock of Confluence. The Company expects this
transaction to be recorded under the pooling-of-interests method
of accounting and close in the fourth quarter of 1995.
6. The Company retired its unsecured term credit facility (credit
facility) with a remaining principal balance of $10,350,000 on
June 26, 1995. The credit facility, which had an original term
of five years, required semiannual principal payments with a
final installment due September 30, 1996. The Company obtained
the $30,000,000 credit facility on April 25, 1991 to finance the
acquisitions of PBM Bancorp, Inc. and Central Banc System, Inc.
7. The Company provides long-term variable and fixed rate financing
on residential real estate through two of its banking
subsidiaries. Originated loans are sold into the secondary
market without recourse, with $66,146,000 and $84,743,000 sold
during the first nine months of 1995 and 1994, respectively. At
September 30, 1995 and December 31, 1994, the Company serviced
loans aggregating $317,922,000 and $322,405,000, respectively,
which were owned by others.
Part I. Financial Information ... Continued
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations (dollars in
thousands, except per share data)
General
The acquisition of Colonial Bancshares, Inc. was consummated
during April of 1994. The transaction was accounted for as a pooling-
of-interests and, accordingly, all previously reported financial
information has been restated to reflect its addition.
As discussed in note 4 to the interim consolidated condensed
financial statements included herein, the Company's Board of Directors
authorized a three-for-two stock split effected in the form of a 50
percent stock dividend distributed April 1, 1995. All references to
number of shares, per share amounts, and common stock outstanding for
all periods presented prior to that time have been restated to reflect
the stock split.
Consolidated Balance Sheet Analysis
Total assets at September 30, 1995 were $1,755,778, up $2,717
from $1,753,061 at December 31, 1994. During the first nine months of
1995, the Company has reduced its reliance on short-term and long-term
borrowings. Short-term borrowings were reduced $45,530 from $92,764
at December 31, 1994, as a result of an increase in interest-bearing
deposits of $50,614. Proceeds from investment securities sales and
maturities, net of investment securities purchases, of $38,897 during
that period provided the liquidity necessary to fund $22,600 in net
loan growth and as discussed in note 6 to the interim consolidated
condensed financial statements included herein, the Company also
retired the remaining $10,350 in long-term borrowings under a 1991
credit facility.
Average earning assets, as a percentage of average total assets,
increased slightly in the third quarter of 1995 to 92.05% from 91.88%
at December 31, 1994. The current loan-to-deposit ratio of 76.35%
decreased from the year-end level of 76.67% as interest-bearing
deposits replaced short-term borrowings and loans, net of unearned
discount, increased $22,354.
Loan Portfolio
The Company's banking group operates and substantially all loans
are made in the states of Illinois and Missouri. The following table
presents the composition of the loan portfolio as of September 30,
1995 and December 31, 1994:
September 30, % of December 31, % of
1995 total 1994 total
Commercial, financial
and agricultural $ 277,683 24.05% $ 265,754 23.48%
Real estate-construction 45,342 3.93 36,983 3.27
Real estate-mortgage 615,508 53.32 620,801 54.84
Installment 215,860 18.70 208,501 18.41
Total loans $1,154,393 100.00% $1,132,039 100.00%
The Company manages exposure to credit risk through loan
portfolio diversification by customer, industry, and loan type.
Credit risk management also includes pricing loans to cover
anticipated future loan losses, funding and servicing cost, and to
allow for a profit margin.
The Company's loan portfolio at September 30, 1995, includes
$99,842, or 8.65% of the total loan portfolio, in loans related to
agribusiness. Such loans are generally secured by farmland, crops or
equipment. Lending officers of the various subsidiary banks work with
their agricultural borrowers in preparing and analyzing cash flow
information used in the lending decision.
Firstbank had no concentration of loans to any other industry on
these dates. Additionally, the Company has refrained from financing
highly leveraged corporate buy-outs, which management believes would
subject Firstbank to an unacceptable level of risk.
The Company is not aware of any loans classified for regulatory
purposes at September 30, 1995, that are expected to have a material
impact on the Company's future operating results, liquidity, or
capital resources. The Company is not aware of any material credits
about which there is serious doubt as to the ability of borrowers to
comply with the loan repayment terms. There are no material
commitments to lend additional funds to customers whose loans were
classified as nonaccrual at September 30, 1995.
Reserve For Possible Loan Losses
The reserve for possible loan losses at September 30, 1995 was
1.51% of outstanding loans as compared to 1.57% at December 31, 1994.
A reserve for possible loan losses that exceeds the level of
identified problem loans reflects management's conservative approach
by providing for other risks inherent in the portfolio. Reserves
cover 143% of the Company's nonperforming loans at September 30, 1995.
The following table summarizes average loans outstanding; changes
in the reserve for possible loan losses arising from loans charged-off
and recoveries on loans previously charged-off, by loan category; and
additions to the allowance that have been charged to expense:
Nine Months Ended Twelve Months Ended
September 30, December 31,
1995 1994
Average loans outstanding $1,138,686 $1,100,872
Reserve at beginning of year $ 17,801 $ 17,861
Provision for possible loan losses 1,575 2,700
Charge-offs:
Commercial, financial and
agricultural loans 1,065 1,895
Real estate - mortgage loans 693 1,169
Real estate - construction loans 2 -
Installment loans 1,217 938
2,977 4,002
Recoveries:
Commercial, financial and
agricultural loans 312 608
Real estate - mortgage loans 295 305
Real estate - construction loans 29 -
Installment loans 445 329
1,081 1,242
Net charge-offs 1,896 2,760
Reserve at end of period $ 17,805 $ 17,801
Net charge-offs to average loans 0.17% 0.25%
In determining an adequate balance in the reserve for possible
loan losses, management places its emphasis as follows: evaluation of
the loan portfolio with regard to potential future exposure on
impaired loans to specific customers and industries; reevaluation of
each nonperforming loan or loan classified by supervisory authorities;
and an overall review of the remaining portfolio in light of past loan
loss experience. Any problems or loss exposure estimated in these
categories was provided for in the total current period reserve.
Loan portfolio quality remains management's top priority.
Management believes the reserve for possible loan losses remains
adequate to absorb losses inherent in the consolidated loan portfolio.
Ongoing reviews of the portfolio, coverage ratios, and trends in the
reserve and net charge-offs support this belief.
Nonaccrual, Restructured and Past Due Loans
Nonperforming loans as a percentage of total loans was 1.06% at
September 30, 1995, down slightly from 1.07% at June 30, 1995 and up
from .61% at December 31, 1994 . After declining modestly in the
first quarter, the Company's level of nonperforming loans increased in
the second quarter of 1995 as a result of placing a $5,700 commercial
loan relationship on nonaccrual status. While equipment collateral
liquidations continue to reduce this amount, settlement of a lawsuit
brought by the borrower will ultimately resolve this situation. This
nonaccrual relationship is currently responsible for approximately $42
per month in lost interest income.
Nonperforming loans at September 30, 1995 and December 31, 1994
include the following:
September 30, December 31,
1995 1994
Commercial, financial and
agricultural $ 4,911 $ 1,591
Real estate - construction 217 124
Real estate - mortgage 5,948 4,477
Installment 1,148 767
Total $12,224 $ 6,959
Nonaccrual loans (1) $ 9,501 $ 4,657
Loans past due 90 days or more (2) 2,347 1,972
Restructured loans (3)(4) 376 330
Total nonperforming loans $12,224 $ 6,959
Nonperforming loans to
total loans 1.06% .61%
(1) It is the policy of the Company to periodically review its
loans and to discontinue the accrual of interest on any loan for
which full collectibility of principal or interest is doubtful.
Subsequent interest payments received on such loans are applied
to principal if there is any doubt as to the collectibility of
such principal; otherwise, these receipts are recorded as
interest income.
(2) Excludes loans accounted for on a nonaccrual basis.
(3) Restructured loans are classified as such only until such time
as the terms are substantially equivalent to terms on which new
loans with comparable risks are being made. For purposes of
this summary, loans renewed on market terms existing at the date
of renewal are not considered restructured loans.
(4) Excludes loans accounted for on a nonaccrual basis and loans
contractually past due 90 days or more as to interest or
principal payments.
In the normal course of business, the practice is to consider and
act upon borrowers' requests for renewal of loans at their maturity.
Evaluation of such requests includes a review of the borrower's credit
history, the collateral securing the loan, and the purpose for such
request. In general, loans which the Company renews at maturity
require payment of accrued interest, a reduction in the loan balance,
and/or the pledging of additional collateral and a potential
adjustment of the interest rate to reflect changes in the economic
conditions.
Potential Problem Loans
As of September 30, 1995, nine loan relationships with a total
principal balance of approximately $2,303 were identified by
management as having possible credit problems that raise doubts as to
the ability of the borrowers to comply with the current repayment
terms. While these commercial or commercial real estate borrowers are
currently meeting all the terms of the applicable loan agreements,
their financial condition has caused management to believe that their
loans may result in disclosure at some future time as nonaccrual, past
due or restructured.
Foreign Outstandings
The Company had no loans to any foreign countries on any of the
dates specified in the tables.
Liquidity and Interest Rate Sensitivity
Interest rate sensitivity is closely monitored through the
Company's asset-liability management procedures. At the end of this
discussion is a table reflecting Firstbank's interest rate gap (rate
sensitive assets minus rate sensitive liabilities) analysis at
September 30, 1995, individually and cumulatively, through various
time horizons.
At December 31, 1994 and September 30, 1995, the static gap
analyses indicated substantial liability sensitivity over a one-year
time horizon. Generally, such a position indicates that an overall
rise in interest rates would result in an unfavorable impact on the
Company's net interest margin, as liabilities would reprice more
quickly than assets. Conversely, the net interest margin would be
expected to improve with an overall decline in interest rates. As
savings, NOW and money market accounts are subject to withdrawal on
demand, they are presented in the analysis as immediately repriceable.
Based on the Company's experience, pricing on such deposits is not
expected to change in direct correlation with changes in the general
level of short-term interest rates. Accordingly, management believes
that a gradual increase in the general level of interest rates will
not have a material effect on the Company's net interest income.
This traditional method of measuring interest rate risk does not,
in management's opinion, adequately assess many of the variables that
affect the Company's net interest margin. As a result Firstbank
places more emphasis on the use of simulation analysis. Using this
technique, the impact of various interest rate scenarios on
Firstbank's net interest margin are analyzed and management strategies
adjusted to maintain the interest margin within certain tolerance
ranges.
The Company's simulation analysis evaluates the effect on net
interest income of alternative interest rate scenarios against
earnings in a stable interest rate environment. At December 31, 1994,
the analysis projected net interest income to decrease 2.2% and the
net interest margin to contract 9 basis points if the general level of
interest rates increased by 2 percentage points over the next 12
months (.50% each quarter). Conversely, the analysis projected net
interest income to increase 1.8% and the net interest margin to expand
by 8 basis points if the general level of interest rates fell by 2
percentage points over the next 12 months (.50% each quarter). The
September 30, 1995 simulation analysis, using the assumptions
described above, projected net interest income to decrease by 3.4% and
the net interest margin to contract by 15 basis points if rates
increase 2 percentage points in the next 12 months. If rates fall 2
percentage points, the net interest income was projected to increase
4.2% and the net interest margin projected to expand 19 basis points.
At the present time, Company management is not aware of any known
trends, events or uncertainties that will have or are reasonably
likely to have a material effect on the Company's liquidity, capital
resources or results of operations. Company management is also
unaware of any current recommendations by the regulatory authorities
which, if they were to be implemented, would have such an effect.
The Company has approximately 90% of its investment portfolio
designated as available-for-sale. The unrealized losses, net of tax,
on that portfolio were $1,503 and $11,370 at September 30, 1995 and
December 31, 1994, respectively, and are reflected as a reduction in
the equity section of the balance sheet. The current unrealized loss,
which has declined to approximately .4% of the total available-for-
sale market value, is an indication that the aggregate yield is very
close to current market rates.
Capital Resources
The Company believes that a strong capital position is vital to
continued profitability and to promote depositor and investor
confidence. The Company's consolidated capital levels are a result of
its capital policy which establishes guidelines for each subsidiary
based on industry standards, regulatory requirements, perceived risk
of the various businesses, and future growth opportunities.
The Company's September 30, 1995 equity-to-asset and tangible
equity-to-asset ratios were 10.27% and 9.48% up from 9.04% and 8.19%,
respectively, at the end of 1994. The increase in the equity ratios
is attributable to the growth in retained earnings and a reduction of
unrealized holding losses on investment securities available-for-sale.
The September 30, 1995 equity-to-asset ratio excluding investment
security unrealized holding losses is 10.34%.
At September 30, 1995, the Company and its banking subsidiaries
all exceed their minimum capital requirements for "well capitalized"
institutions. Tier 1, Total Capital and Tier 1 Leverage ratios were
14.46%, 15.52% and 9.68%, respectively at September 30, 1995. The
minimum capital ratios for "well capitalized" institutions are 6%, 10%
and 5% for Tier 1, Total Capital and Tier 1 Leverage ratios,
respectively.
Shareholders' equity represents book value and tangible book
value per common share of $18.33 and $16.78, respectively, at
September 30, 1995, as compared to $16.13 and $14.48, respectively, at
December 31, 1994.
Consolidated Income Statement Analysis
Net income for the three months ended September 30, 1995 was
$6,305 as compared to net income for the corresponding period of 1994
of $6,026. The improvement in earnings is attributable to the
successful efforts to reduce the Company's net noninterest expense
through a combination of increased revenues and various cost reduction
measures. Earnings per share for the three month period was $.63 as
compared to the 1994 amount of $.60, an increase of 5.0%.
Net income for the nine months ended September 30, 1995 was
$18,506 as compared to net income for the corresponding period of 1994
of $17,347. The improvement in the Company's nine month earnings can
also be attributable to reduction of net noninterest expense and to
the performance of our newest subsidiary, Colonial Bank. Earnings per
share for the nine month period was $1.85 as compared to the 1994
amount of $1.74, an increase of 6.3%.
Net Interest Income
Net interest income for the first nine months of 1995 was
$54,553, or $2,901 below the first nine months of 1994. Net interest
income for the third quarter of 1995 was $18,145, or $1,307 below the
1994 quarter. Interest rates have risen on the Company's funding,
most notably in the time deposit categories, adding pressure to the
Company's interest margin. Net interest income (on a tax-equivalent
basis) as a percentage of average earning assets for the third quarter
was 4.52% versus 4.89% for the same period a year ago as the average
cost of time deposits increased from 4.05% to 5.63% for the same
periods. Average balance sheets and yields are included for each of
those quarters at the end of this discussion.
Provision For Possible Loans Losses
The provision for possible loan losses of $1,575 and $525 for the
first nine months and third quarter of 1995, respectively, represents
a decrease from $2,025 and $675 reported in the comparable 1994
periods. Low nonperforming loan levels, low net charge-offs and
strong reserve coverage levels have allowed the Company to maintain
its reduced provision for possible loan losses in 1995.
Noninterest Income
Noninterest income for the first nine months of 1995 was up 4.9%
as compared to the corresponding period in 1994. Noninterest income
in the third quarter of 1995 decreased .4% from last year largely due
to gains on loans and loan servicing sold during the third quarter of
1994. Revenues from fiduciary activities, which includes fees for
trust and agriculture services, reported increases of 16.2% and 20.6%
for the first nine months and third quarter of 1995 as compared to the
same periods of 1994. Company-wide activities in this area are
coordinated by FFG Trust, Inc., a state-chartered trust company formed
during 1994 to expand these services.
The Company also provides long-term variable and fixed rate
financing on residential real estate through two of its banking
subsidiaries. Originated loans are typically sold into the secondary
market without recourse while continuing to service the loans for
investors. The Company periodically sells off loan servicing. A sale
of approximately $25,000 in mortgage servicing during the second
quarter of 1995 resulted in a gain of $270. The sale will result in
the reduction of approximately $60 in annual servicing income in the
first year following the sale.
Noninterest Expense
Noninterest expense declined 9.9% for the first nine months of
1995 compared to the same period of 1994. Similarly, noninterest
expense was down 12.7% for the current quarter of 1995 as compared
with the third quarter of 1994. Current year expense reductions have
resulted from continued emphasis on operational efficiency. The
consolidation of operations, including item processing, data
processing and retail loan collections, contributed to the expense
reduction. The integration of Colonial Bank, acquired in April 1994,
into the Company also resulted in significant cost savings.
On August 8, 1995, the FDIC Board of Directors voted to reduce
the deposit insurance premiums paid by most members of the Bank
Insurance Fund (BIF). As a result, the Company's banking subsidiaries
received refunds, including interest, totaling $927 for the period
June 1, 1995 to September 30, 1995. These refunds were recorded
during the third quarter of 1995. Additionally, under the new
assessment rate schedule established for the BIF, the Company's
banking subsidiaries will pay an annual rate of four cents per one
hundred dollars in assessable deposits; down from the previous rate of
23 cents per hundred.
Income Taxes
Income taxes of $10,195 and $3,508 for the first nine months and
current quarter of 1995 exceeded the corresponding 1994 period amounts
by 16.0% and 12.4%, respectively. The primary differences between the
two years were higher pre-tax earnings and lower levels of tax-exempt
interest income in the current year. The Company's effective tax rate
for the third quarter of 1995 was 35.7% as compared to 34.1% in the
same period of 1994.
EFFECT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for
Impairment of a Loan" (SFAS 114) and Statement of Financial Accounting
Standards No. 118 "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosures" (SFAS 118), which amends SFAS 114.
SFAS 114 (as amended by SFAS 118) defines the recognition
criteria for loan impairment and the measurement methods for certain
impaired loans and loans for which terms have been modified in
troubled debt restructurings (a restructured loan). Specifically, a
loan is considered impaired when it is probable a creditor will be
unable to collect all amounts due - both principal and interest -
according to the contractual terms of the loan agreement. When
measuring impairment, the expected future cash flows of an impaired
loan are required to be discounted at the loan's effective interest
rate. Alternatively, impairment can be measured by reference to an
observable market price, if one exists, or the fair value of the
collateral for a collateral-dependent loan. Regardless of the
historical measurement method used, SFAS 114 requires a creditor to
measure impairment based on the fair value of the collateral when the
creditor determines foreclosure is probable. Additionally, impairment
of a restructured loan is measured by discounting the total expected
future cash flows at the loan's effective rate of interest as stated
in the original loan agreement.
SFAS 118 amends SFAS 114 to allow a creditor to use existing
methods for recognizing interest income on an impaired loan. The
Company has elected to continue to use its existing nonaccrual methods
for recognizing interest on impaired loans. The Company continues to
apply all payments received on impaired loans to the outstanding
balance of the loan until such time as the loan balance is reduced to
zero, after which payments are applied to interest income until such
time as the forgone interest is recovered, or until such time as an
improvement in the condition of the loan has occurred which would
warrant resumption of interest accruals.
As of the adoption date of January 1, 1995, the Company had
impaired loans in the amount of $4,657 which is represented by the
loans on nonaccrual status at December 31, 1994. No specific reserve
was allocated to impaired loans at January 1, 1995. The adoption of
SFAS 114 and SFAS 118 resulted in no prospective adjustment to the
provision for possible loan losses.
In May 1995, the FASB issued Statement of Financial Accounting
Standard No. 122, "Accounting for Mortgage Servicing Rights" (SFAS
122) which requires that a mortgage banking enterprise recognize as
separate assets the rights to service mortgage loans for others at the
origination or purchase date of the loan, when the enterprise has a
definitive plan to sell or securitize the loans and retain the
mortgage servicing rights, assuming the fair value of the loans and
servicing rights may be practically estimated. Otherwise, servicing
rights should be recognized when the underlying loans are sold or
securitized, using an allocation of total cost of the loans based on
the relative fair values at the date of sale. SFAS 122 also requires
an assessment of capitalized mortgage servicing rights for impairment
to be based on the current fair value of those rights. SFAS 122 is
required to be applied prospectively in fiscal years beginning after
December 31, 1995. The Company is currently studying the expected
impact of this statement on its financial position.
EFFECTS OF INFLATION
Persistent high rates of inflation can have a significant effect
on the reported financial condition and results of operations of all
industries. However, the asset and liability structure of a bank
holding company is substantially different from that of an industrial
company, in that virtually all assets and liabilities of a bank
holding company are monetary in nature. Accordingly, changes in
interest rates also have a significant impact on a bank holding
company's performance. Interest rates do not necessarily move in the
same direction, or in the same magnitude, as the prices of other goods
and services.
Inflation does have an impact on the growth of total assets in
the banking industry, often resulting in a need to increase equity
capital at higher than normal rates to maintain an appropriate equity
to assets ratio.
Although it is obvious that inflation affects the growth of total
assets, it is difficult to measure the impact precisely. Only new
assets acquired in each year are directly affected, so a simple
adjustment of asset totals by use of an inflation index is not
meaningful. The results of operations also have been affected by
inflation, but again there is no simple way to measure the effect on
the various categories of income and expense.
Interest rates in particular are significantly affected by
inflation, but neither the timing nor the magnitude of the changes
coincides with changes in standard measurements of inflation such as
the consumer price index. Additionally, changes in interest rates on
some types of consumer deposits may be delayed. These factors in turn
affect the composition of sources of funds by reducing the growth of
deposits that are less interest sensitive and increasing the need for
funds that are more interest sensitive.
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
<TABLE>
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED AVERAGE BALANCE SHEETS (Unaudited)
(in thousands of dollars)
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1995 September 30, 1994
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans $1,149,705 $25,857 8.92% $1,109,373 $23,643 8.46%
Investment securities:
Taxable 377,513 5,148 5.41 429,673 5,877 5.43
Nontaxable 40,171 812 8.02 57,857 1,174 8.05
Short-term investments:
Federal funds sold 49,571 730 5.84 14,380 168 4.63
Other short-term investments 333 6 7.15 434 5 4.57
Total earning assets 1,617,293 32,553 7.99 1,611,718 30,867 7.60
Nonearning assets:
Cash and due from banks 70,233 67,551
Premises and equipment 40,457 43,117
Reserve for possible loan losses (17,805) (18,386)
Other assets 46,799 46,734
Total nonearning assets 139,684 139,017
Total assets $1,756,977 $1,750,735
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market accounts $ 601,076 $ 3,902 2.58% $ 659,772 $ 3,772 2.27%
Time deposits 689,119 9,773 5.63 574,838 5,867 4.05
Federal funds purchased and securities
sold under repurchase agreements 34,568 453 5.20 92,244 1,121 4.82
Other short-term borrowings 1,056 8 3.01 595 7 4.67
Long-term borrowings 181 5 10.96 14,460 233 6.39
Total interest-bearing liabilities 1,326,000 14,141 4.23 1,341,909 11,000 3.25
Noninterest-bearing deposits 236,922 237,468
Other liabilities 17,604 17,059
Total liabilities 1,580,526 1,596,436
SHAREHOLDERS' EQUITY 176,451 154,299
Total liabilities and
shareholders' equity $1,756,977 $1,750,735
Net interest income/net yield
on earning assets $18,412 4.52% $19,867 4.89%
</TABLE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
<TABLE>
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED INTEREST RATE GAP ANALYSIS (Unaudited)
(in thousands of dollars)
<CAPTION>
September 30, 1995
Remaining Maturity if Fixed Rate;
Earliest Possible Repricing Interval if Floating Rate
3 Over 3 Over 1
months months - year - Over
or 12 5 5
less months years years Total
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 367,427 $ 262,547 $ 494,209 $ 30,210 $1,154,393
Investment securities 30,702 95,809 277,867 25,727 430,105
Other interest-earning assets 27,325 - - - 27,325
Total interest-earning assets $ 425,454 $ 358,356 $ 772,076 $ 55,937 $1,611,823
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 588,751 $ - $ - $ - $ 588,751
C.D.'s over $100,000 33,881 57,571 6,188 - 97,640
All other time deposits 136,874 321,938 128,978 447 588,237
Nondeposit interest-bearing
liabilities 47,279 110 - - 47,389
Total interest-bearing liabilities $ 806,785 $ 379,619 $ 135,166 $ 447 $1,322,017
GAP by Period $(381,331) $ (21,263) $ 636,910 $ 55,490 $ 289,806
Cumulative GAP $(381,331) $(402,594) $ 234,316 $ 289,806 $ 289,806
NOTE: Loans scheduled to reprice are reported in the earliest possible
repricing interval for this analysis.
</TABLE>
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K:
None
A. Exhibit 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Firstbank of Illinois Co.
By: /s/ Chris R. Zettek
Executive Vice President and
Chief Financial Officer
Date: November 14, 1995
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
Computation of Net Earnings per Common Share
Nine Months Ended Three Months Ended
September 30, September 30,
1995 1994 1995 1994
Net Income $18,506,000 $17,347,000 $6,305,000 $6,026,000
Weighted average common
shares outstanding 9,833,114 9,817,416 9,833,559 9,826,887
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 143,420 126,624 152,409 134,861
Weighted average common shares
and common share equivalents
outstanding 9,976,534 9,944,040 9,985,968 9,961,748
Net earnings per common share $ 1.85 $ 1.74 $ 0.63 $ 0.60
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 6-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1995 DEC-31-1995
<PERIOD-END> MAR-31-1995 JUN-30-1995 SEP-30-1995
<CASH> 68183 81834 73059
<INT-BEARING-DEPOSITS> 1277250 1276664 1274628
<FED-FUNDS-SOLD> 48185 30130 27025
<TRADING-ASSETS> 24 26 21
<INVESTMENTS-HELD-FOR-SALE> 375100 368233 385706
<INVESTMENTS-CARRYING> 47912 45231 44399
<INVESTMENTS-MARKET> 48993 46784 46105
<LOANS> 1132005 1143641 1154393
<ALLOWANCE> 17701 17769 17480
<TOTAL-ASSETS> 1742219 1739440 1755778
<DEPOSITS> 1512237 1509779 1512038
<SHORT-TERM> 33655 36144 47234
<LIABILITIES-OTHER> 17940 17484 16050
<LONG-TERM> 10595 200 155
<COMMON> 9839 9839 9839
0 0 0
0 0 0
<OTHER-SE> 157953 165994 170462
<TOTAL-LIABILITIES-AND-EQUITY> 1742219 1739440 1755778
<INTEREST-LOAN> 24350 49813 75613
<INTEREST-INVEST> 6201 11881 17631
<INTEREST-OTHER> 243 862 1598
<INTEREST-TOTAL> 30794 62556 94842
<INTEREST-DEPOSIT> 11436 24382 38057
<INTEREST-EXPENSE> 12574 26148 40289
<INTEREST-INCOME-NET> 18220 36408 54553
<LOAN-LOSSES> 525 1050 1575
<SECURITIES-GAINS> 8 20 17
<EXPENSE-OTHER> 3677 7522 10515
<INCOME-PRETAX> 9360 18888 28701
<INCOME-PRE-EXTRAORDINARY> 9360 18888 28701
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> 6047 12201 18506
<EPS-PRIMARY> .61 1.22 1.85
<EPS-DILUTED> .61 1.22 1.85
<YIELD-ACTUAL> 4.66 4.63 4.56
<LOANS-NON> 4400 9332 9501
<LOANS-PAST> 1679 2551 2347
<LOANS-TROUBLED> 391 367 376
<LOANS-PROBLEM> 9457 9457 2303
<ALLOWANCE-OPEN> 17801 17801 17801
<CHARGE-OFFS> 961 1788 2977
<RECOVERIES> 336 706 1081
<ALLOWANCE-CLOSE> 17701 17769 17805
<ALLOWANCE-DOMESTIC> 6941 7009 7045
<ALLOWANCE-FOREIGN> 0 0 0
<ALLOWANCE-UNALLOCATED> 10760 10760 10760
</TABLE>
