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, 1996 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 of (I.R.S. Employer
incorporation of organization) Identification No.)
205 S. Fifth Street
Springfield, Illinois 62701
(address of principal executive offices) (Zip code)
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 -- 10,289,717 shares outstanding on
September 30, 1996.
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,
1996 1995
ASSETS
Cash and due from banks $ 88,470 $ 83,738
Short-term investments 25,991 13,886
Investment securities:
Available-for-sale, at market value 421,738 412,299
Held-to-maturity, at amortized cost (market values
of $38,949 for 1996 and $46,156 for 1995) 37,939 44,620
Total investment securities 459,677 456,919
Loans 1,280,033 1,242,377
Unearned discount (3,686) (5,579)
Loans, net of unearned discount 1,276,347 1,236,798
Reserve for possible loan losses (18,924) (18,047)
Loans, net 1,257,423 1,218,751
Premises and equipment, net 42,209 41,457
Accrued income receivable 18,731 19,119
Other assets 30,795 29,424
Total assets $1,923,296 $1,863,294
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 272,522 $ 260,910
Interest-bearing 1,389,960 1,357,359
Total deposits 1,662,482 1,618,269
Short-term borrowings 41,109 35,388
Other liabilities 18,199 18,548
Long-term borrowings 8 108
Total liabilities 1,721,798 1,672,313
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--10,352,403 shares
in 1996 and 10,348,026 shares in 1995 10,352 10,348
Capital surplus 42,306 42,826
Retained earnings 151,860 138,541
Unrealized losses on investment
securities, net (1,090) (343)
Less treasury stock at cost:
62,686 shares in 1996 and 12,551 shares in 1995 (1,930) (391)
Total shareholders' equity 201,498 190,981
Total liabilities and shareholders' equity $1,923,296 $1,863,294
See accompanying notes to interim consolidated condensed financial statements.
Page 1
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,
1996 1995 1996 1995
INTEREST INCOME
Loans $82,522 $79,414 $27,993 $27,186
Investment securities:
Taxable 18,412 16,347 6,111 5,371
Exempt from Federal income tax 1,514 1,937 477 629
Short-term investments 1,900 1,806 913 828
Total interest income 104,348 99,504 35,494 34,014
INTEREST EXPENSE
Deposits 43,684 40,302 14,737 14,523
Short-term borrowings 1,582 1,832 598 467
Long-term borrowings 6 413 3 5
Total interest expense 45,272 42,547 15,338 14,995
Net interest income 59,076 56,957 20,156 19,019
Provision for possible loan losses 2,151 1,740 717 587
Net interest income after
provision for possible loan losses 56,925 55,217 19,439 18,432
NONINTEREST INCOME
Securities gains, net 168 17 159 (3)
Service charges on deposit accounts 4,557 4,365 1,593 1,463
Trust services 3,214 3,346 1,017 1,150
Agricultural services 1,170 1,301 350 429
Investment services 1,732 1,188 463 364
Mortgage lending activities 2,098 1,525 684 448
Other 3,498 3,411 1,088 1,111
Total noninterest income 16,437 15,153 5,354 4,962
NONINTEREST EXPENSE
Salaries and employee benefits 23,572 22,718 8,154 7,665
Net occupancy 3,536 3,390 1,216 1,144
Equipment 3,461 3,571 1,166 1,199
FDIC and other insurance 419 2,033 126 48
Postage, printing and supplies 1,977 1,876 623 648
Professional 1,597 1,453 517 479
Other 6,393 5,779 2,076 2,095
Total noninterest expense 40,955 40,820 13,878 13,278
Net income before income taxes 32,407 29,550 10,915 10,116
Income tax expense 11,654 10,518 3,887 3,623
Net income $20,753 $19,032 $ 7,028 $ 6,493
Earnings per common share $ 1.98 $ 1.82 $ 0.67 $ 0.62
See accompanying notes to interim consolidated condensed financial statements.
Page 2
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,
1996 1995
OPERATING ACTIVITIES
Net income $ 20,753 $ 19,032
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 6,583 8,455
Provision for possible loan losses 2,151 1,740
Writedowns in value and net losses (gains)
incurred on other real estate owned (66) 2
Decrease (increase) in accrued income receivable 388 (3,215)
Gain on sale of loans (980) (356)
Other, net (2,893) 1,324
Originations of loans for sale (106,933) (69,099)
Proceeds from sale of loans 105,742 66,146
Net cash provided by operating activities 24,745 24,029
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (542,124) (82,901)
Held-to-maturity (3,343) (1,442)
Proceeds from sales of investment securities
Available-for-sale 125,374 52,962
Proceeds from maturities of and principal payments on
investment securities:
Available-for-sale 404,214 58,840
Held-to-maturity 9,962 6,717
Purchases of premises and equipment (4,362) (2,124)
Proceeds from sales of premises and equipment 11 52
Proceeds from sales of other real estate owned 951 1,427
Net loans originated (39,136) (32,076)
Net cash provided by (used in) investing activities (48,453) 1,455
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing 11,612 (13,967)
deposit accounts
Net increase (decrease) in savings, NOW and 4,813 (30,113)
money market deposits
Net increase in certificates of deposit 27,788 96,745
Net increase (decrease) in short-term borrowings 5,721 (45,080)
Principal payments under capital lease obligations (100) (133)
Payments to retire long-term debt - (10,350)
Cash dividends paid (7,234) (6,307)
Proceeds from exercise of common stock options 802 266
Proceeds from dividend reinvestment plan 462 377
Purchase of shares for treasury (3,319) (692)
Net cash provided by (used in) financing activities 40,545 (9,254)
Increase in cash and cash equivalents 16,837 16,230
Cash and cash equivalents at beginning of year 97,624 93,120
Cash and cash equivalents at end of period $114,461 $109,350
Supplemental information:
Income taxes paid $ 10,839 $ 9,344
Interest paid 45,324 41,110
Noncash transfers of loans to other real estate 484 1,303
See accompanying notes to interim consolidated condensed financial statements.
Page 3
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, 1996
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, 1995.
2. On November 30, 1995, the Company acquired Confluence Bancshares
Corporation (Confluence) and its wholly owned subsidiary,
Duchesne Bank (Duchesne). Duchesne, headquartered in St. Peters,
Missouri, operates two banking offices in St. Charles County.
Duchesne had total assets of approximately $82 million on the
date of acquisition. The transaction, an exchange of 500,000
shares of Firstbank common stock for all the outstanding common
stock of Confluence, 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 Confluence's operating results.
3. 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 $105,742,000 and $66,146,000 sold
during the first nine months of 1996 and 1995, respectively. At
September 30, 1996 and December 31, 1995, the Company serviced
loans aggregating $345,132,000 and $299,041,000, respectively,
which were owned by others.
Page 4
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 Confluence Bancshares Corporation was
consummated during November of 1995. The transaction was accounted
for as a pooling-of-interests and, accordingly, all previously
reported financial information included herein has been restated to
reflect its addition.
Consolidated Balance Sheet Analysis
Total assets at September 30, 1996 were $1,923,296, up $60,002
from $1,863,294 at December 31, 1995. During the first nine months of
1996, the Company increased loans, net of unearned discount, $39,549
with funding from a $44,213 increase in deposits.
Average earning assets, as a percentage of average total assets,
decreased slightly in the third quarter of 1996 to 92.17% from 92.22%
at December 31, 1995. The current loan-to-deposit ratio of 76.77%
increased from the year-end level of 76.43% as the loan portfolio
increased at a faster rate than deposits in the first nine months of
1996.
Loan Portfolio
The Company's banking group operates within 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, 1996 and December 31, 1995:
September 30, % of December 31, % of
1996 total 1995 total
Commercial, financial
and agricultural $286,316 22.37% $ 280,347 22.57%
Real estate - construction 56,075 4.38 56,961 4.58
Real estate - mortgage 687,586 53.72 663,508 53.41
Installment 250,056 19.53 241,561 19.44
Total loans $1,280,033 100.00% $1,242,377 100.00%
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, 1996, includes
$100,925, or 7.9% 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, 1996, 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, 1996.
Reserve For Possible Loan Losses
The reserve for possible loan losses at September 30, 1996 was
1.48% of outstanding loans as compared to 1.46% at December 31, 1995.
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 172% of the Company's nonperforming loans at September 30, 1996.
Page 5
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,
1996 1995
Average loans outstanding $1,252,875 $1,197,959
Reserve at beginning of year $ 18,047 $ 18,360
Provision for possible loan losses 2,151 2,313
Charge-offs:
Commercial, financial and
agricultural loans 831 1,352
Real estate - mortgage loans 316 924
Real estate - construction loans 59 -
Installment loans 1,147 1,831
2,353 4,107
Recoveries:
Commercial, financial and
agricultural loans 410 439
Real estate - mortgage loans 165 507
Real estate - construction loans 15 -
Installment loans 489 535
1,079 1,481
Net charge-offs 1,274 2,626
Reserve at end of period $ 18,924 $ 18,047
Net charge-offs to average loans 0.14% 0.22%
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 0.88% at
September 30, 1996, down slightly from 0.92% at June 30, 1996 and up
from 0.89% at December 31, 1995 .
Nonperforming loans at September 30, 1996 and December 31, 1995
include the following:
September 30, December 31,
1996 1995
Commercial, financial and
agricultural $3,437 $ 3,273
Real estate - construction 420 327
Real estate - mortgage 6,408 6,431
Installment 960 968
Total $11,225 $10,999
Nonaccrual loans (1) $ 8,993 $ 8,261
Loans past due 90 days or more (2) 2,009 2,392
Restructured loans (3) (4) 223 346
Total nonperforming loans $11,225 $10,999
Nonperforming loans to
total loans .88% .89%
Page 6
(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, 1996, thirteen loan relationships with a
total principal balance of approximately $1,233 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, 1996, individually and cumulatively, through various
time horizons.
At September 30, 1996 and December 31, 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, 1995, the analysis
projected net interest income to decrease 2.5% and the net interest margin
to contract 11 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 2.0%
and the net interest margin to expand by 9 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, 1996 simulation analysis,
Page 7
using the assumptions described above, projected net interest income to
decrease 3.7% and the net interest margin to contract by 17 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
3.7% and the net interest margin projected to expand 17 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 over 92% of its investment portfolio designated
as available-for-sale. The unrealized losses, net of tax, on that
portfolio were $1,090 and $343 at September 30, 1996 and December 31,
1995, respectively, and are reflected as a reduction in the equity
section of the balance sheet. The current unrealized loss, which has
increased to approximately .3% of the total available-for-sale market
value, is an indication that the aggregate yield remains 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, 1996 equity-to-asset and tangible
equity-to-asset ratios were 10.48% and 9.82% and consistent with
10.25% and 9.52% ratios, respectively, at the end of 1995. The
stability in the equity ratios is attributable to the consistent
growth in retained earnings and the overall balance sheet in the first
half of 1996. The September 30, 1996 equity-to-asset ratio excluding
investment security unrealized holding losses is 10.52%.
At September 30, 1996, the Company and its banking subsidiaries
each exceed their minimum capital requirements for "well capitalized"
institutions. Tier 1, Total Capital and Tier 1 Leverage ratios were
15.68%, 16.94% and 9.87%, respectively at September 30, 1996. 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 $19.58 and $18.21, respectively, at
September 30, 1996, as compared to $18.47 and $17.02, respectively, at
December 31, 1995.
Consolidated Income Statement Analysis
Net income for the three months ended September 30, 1996 was
$7,028 as compared to net income for the corresponding period of 1995
of $6,493. The improvement in earnings is attributable to increased
net interest income from earning asset growth. Earnings per share for
the three month period was $.67 as compared to the 1995 amount of
$.62, an increase of 8.1%.
Net income for the nine months ended September 30, 1996 was
$20,753 as compared to net income for the corresponding period of 1995
of $19,032. The improvement in the Company's nine month earnings can
also be attributable to the same interest and noninterest factors.
Earnings per share for the nine month period was $1.98 as compared to
the 1995 amount of $1.82, an increase of 8.8%.
Net Interest Income
Net interest income for the first nine months of 1996 was
$59,076, or $2,119 above the first nine months of 1995. Net interest
income for the third quarter of 1996 was $20,156, or $1,137 above the
1995 quarter. The increase in interest income was due primarily to
earning asset growth. Average loans grew $49,018 for the three months
ended September 30, 1996, compared to the same period in 1995.
Average investment securities increased $18,717 for the three months
ended September 30, 1996, compared to the same period in 1995.
Interest rates have remained relatively stable on the Company's
funding costs and its earning asset base. Net interest income (on a tax-
equivalent basis) as a percentage of average earning assets for the third
quarter was 4.58% as compared to 4.52% for the same period a year ago as
the average interest paid on time deposits declined from 5.61% to 5.43%
for the same periods and yields earned in the investment portfolio have
Page 8
steadily increased. 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 $2,151 and $717 for the
first nine months and third quarter of 1996, respectively, represents
an increase from $1,740 and $587 reported in the comparable 1995
periods. Low nonperforming loan levels, low net charge-offs and
strong reserve coverage levels have allowed the Company to maintain a
relatively low provision for possible loan losses in 1996.
Noninterest Income
Noninterest income for the first nine months of 1996 was up 8.5%
as compared to the corresponding period in 1995. Noninterest income
in the third quarter of 1996 increased 7.9% from last year largely due
to growth in mortgage lending activities revenue and investment
securities gains. Income from mortgage lending activities increased
38% in the first nine months of 1996 compared to the prior year
period. Mortgage lending activities revenue is comprised of loan
servicing fees and gains on long-term variable and fixed rate
financing on residential real estate loans sold in the secondary
market without recourse. Net security gains resulted from the sale
and subsequent reinvestment of selected available-for-sale investments
to enhance the overall portfolio yield.
Noninterest Expense
Noninterest expense remained stable for the first nine months of
1996 compared to the same period of 1995. Noninterest expense
increased 4.5% for the current quarter of 1996 as compared with the
third quarter of 1995. The current quarter expense increase has
largely resulted from mortgage servicing asset amortization during
1996 as compared to the same period a year ago when accounting rules
did not yet require such an expense to be recorded. Continued cost
containment efforts have resulted in other expense accounts remaining
relatively flat.
Income Taxes
Income taxes of $11,654 and $3,887 for the first nine months and
current quarter of 1996 exceeded the corresponding 1995 period amounts
by 10.8% and 7.3%, 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 1996 was 35.6% as compared to 35.8% in the
same period of 1995.
EFFECT OF NEW ACCOUNTING STANDARDS
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 121, "Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to be Disposed of"
("SFAS 121").
SFAS 121 provides guidance for recognition and measurement of
impairment of long-lived assets, certain identifiable intangibles, and
goodwill related both to assets to be held and used and assets to be
disposed of. The statement requires entities to perform separate
calculations for assets to be held and used to determine whether
recognition of an impairment loss is required and, if so, to measure
impairment. If the sum of the expected future cash flows,
undiscounted and without interest charges, is less than the asset's
carrying amount, an impairment loss can be recognized. If the sum of
the expected future cash flows is more than the asset's carrying
amount, an impairment loss cannot be recognized. Measurement of an
impairment loss is based on the fair value of the asset. SFAS 121
also requires long-lived assets and certain identifiable intangibles
to be disposed of to be reported at the lower of carrying amount or
fair value less cost to sell.
As of the adoption date of January 1, 1996, the Company had no
long-lived assets considered impaired, certain identifiable
intangibles, and goodwill related to assets to be held and used and
for long-lived assets and certain identifiable intangibles to be
disposed of.
Effective January 1, 1996, the Company adopted Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123").
SFAS 123 provides guidance for accounting and reporting standards for
stock-based employee compensation plans. SFAS 123 defines a fair value
based method of accounting for an employee stock option or similar equity
instrument and encourages all entities to adopt that method of accounting
for all of their employee stock compensation plans. However, it also allows
an entity to continue to measure compensation cost for those plans using the
Page 9
intrinsic value based method of accounting prescribed by APB Opinion No. 25,
Accounting for Stock Issued to Employees. Entities electing to remain with
the accounting in Opinion 25 must make pro forma disclosures of net income
and, if presented, earnings per share, as if the fair value based
method of accounting defined in SFAS 123 and been applied. Under the
fair value based method, compensation cost is measured at the grant
date on the value of the award and is recognized over the service
period, which is usually the vesting period. Under the intrinsic
value based method, compensation cost is the excess, if any, of the
quoted market price of the stock at grant date or other measurement
date over the amount an employee must pay to acquire the stock. Most
fixed stock option plans, including the Company's stock option plan,
have no intrinsic value at grant date, and under Opinion 25 no
compensation cost is recognized.
The Company has elected to continue to use the intrinsic value
based method of accounting.
In June 1995, the FASB issued SFAS 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishment of Liabilities"
("SFAS 125"). SFAS 125 established accounting and reporting standards
for transfers and servicing of financial assets and extinguishment of
liabilities.
The standards established by SFAS 125 are based on consistent
applications of a financial-components approach that focuses on
control. Under that approach, after a transfer of financial assets,
an entity recognizes the financial and servicing assets it controls
and the liabilities that it has incurred, derecognizes financial
assets when control has been surrendered, and derecognizes liabilities
when extinguished. This statement provides consistent standards for
distinguishing transfers of financial assets that are sales from
transfers that are secured borrowings.
SFAS 125 is effective for transfers and servicing of financial
assets and extinguishments of liabilities occurring after December 31,
1996, and is to be applied prospectively. Earlier or retroactive
application is not permitted.
Management does not believe the implementation of SFAS 125 will
have a material effect on its consolidated financial position or
results of operation.
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.
Page 10
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, 1996 September 30, 1995
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 $1,252,875 $28,048 8.91% $1,203,857 $27,242 8.98%
Investment securities:
Taxable 420,319 6,111 5.78 390,582 5,371 5.46
Nontaxable 31,137 653 8.35 42,157 852 8.02
Short-term investments 67,883 913 5.35 56,307 829 5.84
Total earning assets 1,772,214 35,726 8.02 1,692,903 34,294 8.04
Nonearning assets:
Cash and due from banks 78,655 72,862
Premises and equipment 41,743 42,432
Reserve for possible loan losses (18,684) (18,476)
Other assets 48,839 47,590
Total nonearning assets 150,553 144,408
Total assets $1,922,767 $1,837,311
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market
accounts $ 629,677 $ 4,253 2.69% $ 606,480 $ 3,939 2.58%
Time deposits 767,904 10,484 5.43 747,925 10,584 5.61
Federal funds purchased and
securities sold under repurchase
agreements 47,366 593 4.98 34,568 453 5.20
Other short-term and long-term
borrowings 564 8 5.64 1,520 19 4.96
Total interest-bearing liabilities 1,445,511 15,338 4.22 1,390,493 14,995 4.28
Noninterest-bearing deposits 259,698 246,735
Other liabilities 18,165 18,261
Total liabilities 1,723,374 1,655,489
SHAREHOLDERS' EQUITY 199,393 181,822
Total liabilities and
shareholders' equity $1,922,767 $1,837,311
Net interest income/net yield
on earning assets $20,388 4.58% $19,299 4.52%
</TABLE>
Page 11
Part I. Financial Information
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED INTEREST RATE GAP ANALYSIS (Unaudited)
(in thousands of dollars)
<CAPTION>
September 30, 1996
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 $ 409,929 $ 294,833 $ 536,125 $ 35,460 $1,276,347
Investment securities 11,178 82,738 351,236 14,525 459,677
Other interest-earning assets 25,991 - - - 25,991
Total interest-earning assets $ 447,098 $ 377,571 $ 887,361 $ 49,985 $1,762,015
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 612,080 $ - $ - $ - $ 612,080
Time deposits over $ 100,000 76,550 64,871 56,190 1,497 199,108
All other time deposits 145,444 296,595 136,722 11 578,772
Nondeposit interest-bearing
liabilities 35,028 6,089 - - 41,117
Total interest-bearing liabilities $ 869,102 $ 367,555 $ 192,912 $ 1,508 $1,431,077
GAP by Period $(422,004) $ 10,016 $ 694,449 $ 48,477 $ 330,938
Cumulative GAP $(422,004) $(411,988) $ 282,461 $ 330,938 $ 330,938
</TABLE>
NOTE: Loans scheduled to reprice are reported in the earliest possible
repriceing interval for this analysis.
Page 12
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
Page 13
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 13, 1996
Page 14
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
<TABLE>
Computation of Net Earnings per Common Share
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Income $20,753,000 $19,032,000 $ 7,028,000 $ 6,493,000
Weighted average common
shares outstanding 10,329,849 10,333,103 10,315,469 10,333,548
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 153,004 143,420 147,391 152,409
Weighted average common shares
and common share equivalents
outstanding 10,482,853 10,476,523 10,462,860 10,485,957
Net earnings per common share $ 1.98 $ 1.82 $ 0.67 $ 0.62
</TABLE>
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 88470
<INT-BEARING-DEPOSITS> 1389960
<FED-FUNDS-SOLD> 25590
<TRADING-ASSETS> 85
<INVESTMENTS-HELD-FOR-SALE> 421738
<INVESTMENTS-CARRYING> 37939
<INVESTMENTS-MARKET> 38949
<LOANS> 1276347
<ALLOWANCE> 18924
<TOTAL-ASSETS> 1923296
<DEPOSITS> 1662482
<SHORT-TERM> 41109
<LIABILITIES-OTHER> 18109
<LONG-TERM> 8
0
0
<COMMON> 10352
<OTHER-SE> 191146
<TOTAL-LIABILITIES-AND-EQUITY> 1923296
<INTEREST-LOAN> 82522
<INTEREST-INVEST> 21826
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 104348
<INTEREST-DEPOSIT> 43684
<INTEREST-EXPENSE> 45272
<INTEREST-INCOME-NET> 59076
<LOAN-LOSSES> 2151
<SECURITIES-GAINS> 168
<EXPENSE-OTHER> 40955
<INCOME-PRETAX> 32407
<INCOME-PRE-EXTRAORDINARY> 32407
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20753
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
<YIELD-ACTUAL> 4.58
<LOANS-NON> 8993
<LOANS-PAST> 2009
<LOANS-TROUBLED> 223
<LOANS-PROBLEM> 1233
<ALLOWANCE-OPEN> 18047
<CHARGE-OFFS> 2353
<RECOVERIES> 1079
<ALLOWANCE-CLOSE> 18924
<ALLOWANCE-DOMESTIC> 18924
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10728
</TABLE>
