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 June 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 -- 10,324,225 shares outstanding on
June 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)
June 30, December 31,
1996 1995
ASSETS
Cash and due from banks $ 99,195 $ 83,738
Short-term investments 8,481 13,886
Investment securities:
Available-for-sale, at market value 465,115 412,299
Held-to-maturity, at amortized cost (market values
of $40,743 for 1996 and $46,156 for 1995) 39,037 44,620
Total investment securities 504,152 456,919
Loans 1,243,360 1,242,377
Unearned discount (4,200) (5,579)
Loans, net of unearned discount 1,239,160 1,236,798
Reserve for possible loan losses (18,478) (18,047)
Loans, net 1,220,682 1,218,751
Premises and equipment, net 41,679 41,457
Accrued income receivable 20,022 19,119
Other assets 30,769 29,424
Total assets $1,924,980 $1,863,294
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 271,730 $ 260,910
Interest-bearing 1,376,201 1,357,359
Total deposits 1,647,931 1,618,269
Short-term borrowings 64,006 35,388
Other liabilities 15,742 18,548
Long-term borrowings - 108
Total liabilities 1,727,679 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 42,499 42,826
Retained earnings 147,300 138,541
Unrealized losses on investment
securities, net (1,972) (343)
Less treasury stock at cost:
28,178 shares in 1996 and 12,551 shares in 1995 (878) (391)
Total shareholders' equity 197,301 190,981
Total liabilities and shareholders' equity $1,924,980 $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)
Six Months EndedThree Months Ended
June 30, June 30,
1996 1995 1996 1995
INTEREST INCOME
Loans $54,529 $52,228 $27,174 $26,748
Investment securities:
Taxable 12,301 10,976 6,272 5,272
Exempt from Federal income tax 1,037 1,308 497 641
Short-term investments 987 978 451 663
Total interest income 68,854 65,490 34,394 33,324
INTEREST EXPENSE
Deposits 28,947 25,779 14,307 13,693
Short-term borrowings 984 1,365 529 433
Long-term borrowings 3 408 1 202
Total interest expense 29,934 27,552 14,837 14,328
Net interest income 38,920 37,938 19,557 18,996
Provision for possible loan losses 1,434 1,153 717 578
Net interest income after
provision for possible loan losses 37,486 36,785 18,840 18,418
NONINTEREST INCOME
Securities gains, net 9 20 - 12
Service charges on deposit accounts 2,964 2,902 1,557 1,446
Trust services 2,197 2,196 1,094 1,106
Agricultural services 820 872 470 487
Investment services 1,269 824 739 434
Mortgage lending activities 1,414 1,077 721 703
Other 2,410 2,300 1,382 1,022
Total noninterest income 11,083 10,191 5,963 5,210
NONINTEREST EXPENSE
Salaries and employee benefits 15,418 15,053 7,906 7,457
Net occupancy 2,320 2,246 1,145 1,128
Equipment 2,295 2,372 1,169 1,176
FDIC and other insurance 293 1,985 160 990
Postage, printing and supplies 1,354 1,228 632 629
Professional 1,080 974 629 506
Other 4,317 3,684 2,294 1,897
Total noninterest expense 27,077 27,542 13,935 13,783
Net income before income taxes 21,492 19,434 10,868 9,845
Income tax expense 7,767 6,895 3,952 3,495
Net income $13,725 $12,539 $ 6,916 $ 6,350
Earnings per common share $ 1.31 $ 1.20 $ 0.66 $ 0.61
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)
Six Months Ended
June 30,
1996 1995
OPERATING ACTIVITIES
Net income $ 13,725 $ 12,539
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 4,873 5,317
Provision for possible loan losses 1,434 1,153
Gains incurred on other real estate owned (52) (3)
Increase in accrued income receivable (903) (395)
Gain on sale of loans (129) -
Other, net (4,614) 1,960
Originations of loans for sale (77,191) (38,308)
Proceeds from sale of loans 74,411 37,960
Net cash provided by operating activities 11,554 20,223
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (411,865) (24,960)
Held-to-maturity (3,343) (2,294)
Proceeds from sales of investment securities
Available-for-sale 14,171 50,720
Proceeds from maturities of and principal payments on
investment securities:
Available-for-sale 340,742 21,746
Held-to-maturity 8,881 6,386
Purchases of premises and equipment (2,758) (1,496)
Proceeds from sales of premises and equipment 11 39
Proceeds from sales of other real estate owned 722 840
Net loans originated (669) (19,932)
Net cash provided by (used in) investing activities (54,108) 31,049
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing
deposit accounts 10,820 (19,117)
Net increase (decrease) in savings, NOW and
money market deposits 10,827 (26,974)
Net increase in certificates of deposit 8,015 93,523
Net increase (decrease) in short-term borrowings 28,618 (56,370)
Principal payments under capital lease obligations (108) (88)
Payments to retire long-term debt - (10,350)
Cash dividends paid (4,756) (4,148)
Proceeds from exercise of common stock options 546 140
Proceeds from dividend reinvestment plan 303 246
Purchase of shares for treasury (1,659) (456)
Net cash provided by (used in) financing activities 52,606 (23,594)
Increase in cash and cash equivalents 10,052 27,678
Cash and cash equivalents at beginning of year 97,624 93,120
Cash and cash equivalents at end of period $107,676 $120,798
Supplemental information:
Income taxes paid $ 8,198 $ 6,694
Interest paid 29,275 24,727
Noncash transfers of loans to other real estate 213 969
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)
June 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 $74,411,000 and $37,960,000 sold during the first six months of
1996 and 1995, respectively. At June 30, 1996 and December 31, 1995,
the Company serviced loans aggregating $333,496,000 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 has been restated to reflect its addition.
Consolidated Balance Sheet Analysis
Total assets at June 30, 1996 were $1,924,980, up $61,686 from
$1,863,294 at December 31, 1995. During the first six months of 1996, the
Company increased investment securities $47,233 with funding from a $29,662
increase in deposits and a $28,618 increase in short-term borrowings. In
addition to investing new funds, investment security maturities of $340,742
were also reinvested during the first six months of 1996.
Average earning assets, as a percentage of average total assets,
decreased slightly in the second quarter of 1996 to 92.03% from 92.22% at
December 31, 1995. The current loan-to-deposit ratio of 75.19% decreased
from the year-end level of 76.43% as deposits increased at a faster rate
than the loan portfolio in the first half of 1996.
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 June 30, 1996 and
December 31, 1995:
June 30, % of December 31, % of
1996 total 1995 total
Commercial, financial
and agricultural $284,336 22.87% $ 280,347 22.57%
Real estate - construction 54,551 4.39 56,961 4.58
Real estate - mortgage 662,147 53.25 663,508 53.41
Installment 242,326 19.49 241,561 19.44
Total loans $1,243,360 100.00% $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 June 30, 1996, includes $95,387, or
7.7% 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 June 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 June 30, 1996.
Reserve For Possible Loan Losses
The reserve for possible loan losses at June 30, 1996 was 1.49% 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 161% of the Company's
nonperforming loans at June 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:
Six Months EndedTwelve Months Ended
June 30, December 31,
1996 1995
Average loans outstanding $1,223,673 $1,197,959
Reserve at beginning of year $ 18,047 $ 18,360
Provision for possible loan losses 1,434 2,313
Charge-offs:
Commercial, financial and
agricultural loans 622 1,352
Real estate - mortgage loans 236 924
Real estate - construction loans 59 -
Installment loans 681 1,831
1,598 4,107
Recoveries:
Commercial, financial and
agricultural loans 161 439
Real estate - mortgage loans 118 507
Real estate - construction loans 15 -
Installment loans 301 535
595 1,481
Net charge-offs 1,003 2,626
Reserve at end of period $ 18,478 $ 18,047
Net charge-offs to average loans 0.08% 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 0.92% at
June 30, 1996, down slightly from 0.96% at March 31, 1996 and up from
0.89% at December 31, 1995 .
Nonperforming loans at June 30, 1996 and December 31, 1995 include
the following:
June 30, December 31,
1996 1995
Commercial, financial and
agricultural $3,670 $ 3,273
Real estate - construction 208 327
Real estate - mortgage 6,680 6,431
Installment 900 968
Total $11,458 $10,999
Nonaccrual loans (1) $ 8,935 $ 8,261
Loans past due 90 days or more (2) 2,244 2,392
Restructured loans (3) (4) 279 346
Total nonperforming loans $11,458 $10,999
Nonperforming loans to
total loans .92% .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 June 30, 1996, sixteen loan relationships with a total principal
balance of approximately $1,670 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 June 30, 1996, individually and
cumulatively, through various time horizons.
At June 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 June 30, 1996 simulation analysis, using
Page 7
the assumptions described above, projected net interest income to decrease
2.8% and the net interest margin to contract by 13 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 4.6%
and the net interest margin projected to expand 21 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 $1,972 and $343 at June 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 .4% 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 June 30, 1996 equity-to-asset and tangible equity-to-
asset ratios were 10.25% and 9.57% 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 June 30, 1996
equity-to-asset ratio excluding investment security unrealized holding
losses is 10.34%.
At June 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 14.91%,
15.96% and 9.86%, respectively at June 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 $19.11 and $17.72, respectively, at June 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 June 30, 1996 was $6,916 as
compared to net income for the corresponding period of 1995 of $6,350.
The improvement in earnings is attributable to increased net interest
income and 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
$.66 as compared to the 1995 amount of $.61, an increase of 8.2%.
Net income for the six months ended June 30, 1996 was $13,725 as
compared to net income for the corresponding period of 1995 of
$12,539. The improvement in the Company's six month earnings can also
be attributable to the same interest and noninterest factors.
Earnings per share for the six month period was $1.31 as compared to
the 1995 amount of $1.20, an increase of 9.2%.
Net Interest Income
Net interest income for the first six months of 1996 was $38,920, or
$982 above the first six months of 1995. Net interest income for the
second quarter of 1996 was $19,557, or $561 above the 1995 quarter.
Interest rates have remained relatively stable on the Company's funding
while earning asset yields have declined slightly. Net interest income
(on a tax-equivalent basis) as a percentage of average earning assets for
the second quarter was 4.57% as compared to 4.67% for the same period a
year ago as the average yield on loans declined from 9.04% to 8.94% for the
same periods. Average balance sheets and yields are included for each of
those quarters at the end of this discussion.
Page 8
Provision For Possible Loans Losses
The provision for possible loan losses of $1,434 and $717 for the first
six months and second quarter of 1996, respectively, represents an increase
from $1,153 and $578 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 six months of 1996 was up 8.8% as
compared to the corresponding period in 1995. Noninterest income in the
second quarter of 1996 increased 14.5% from last year largely due to growth
in investment services revenues, primarily in the recently expanded public
finance area, and increased SBA fee income. Revenues from investment
services reported an increase of $305, or 70% in the second quarter and $445,
or 54% in the first six months of 1996 compared to the same 1995 periods.
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. Income from mortgage lending
activities also increased 31% in the first half of 1996 compared to the
prior year period.
Noninterest Expense
Noninterest expense declined 1.7% for the first six months of 1996
compared to the same period of 1995. Noninterest expense increased 1.1%
for the current quarter of 1996 as compared with the second quarter of 1995.
Current year expense reductions have resulted from a further reduction in
deposit insurance premiums paid during 1996 as compared to the same period a
year ago. Continuing cost containment efforts have resulted in other
expense accounts remaining relatively flat.
Income Taxes
Income taxes of $7,767 and $3,952 for the first six months and current
quarter of 1996 exceeded the corresponding 1995 period amounts by 12.6% and
13.1%, 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 second quarter
of 1996 was 36.4% as compared to 35.5% 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 intrinsic value based
method of accounting prescribed by APB Opinion No. 25, Accounting for
Page 9
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.
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
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED AVERAGE BALANCE SHEETS (Unaudited)
(in thousands of dollars)
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1996 June 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 $1,224,883 $27,232 8.94% $1,190,179 $26,818 9.04%
Investment securities:
Taxable 452,291 6,272 5.58 385,968 5,272 5.48
Nontaxable 32,903 686 8.38 43,106 905 8.42
Short-term investments 33,499 451 5.41 41,252 663 6.45
Total earning assets 1,743,576 34,641 7.99 1,660,505 33,658 8.13
Nonearning assets:
Cash and due from banks 80,892 67,845
Premises and equipment 41,633 43,039
Reserve for possible loan losses (18,484) (18,494)
Other assets 46,927 45,670
Total nonearning assets 150,968 138,060
Total assets $1,894,544 $1,798,565
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market
accounts $ 618,066 $ 4,091 2.66% $ 609,888 $ 3,938 2.59%
Time deposits 760,537 10,216 5.40 719,274 9,755 5.44
Federal funds purchased and
securities sold under repurchase
agreements 43,397 521 4.83 30,903 419 5.44
Other short-term and long-term
borrowings 448 9 8.08 10,856 216 7.98
Total interest-bearing liabilities 1,422,448 14,837 4.20 1,370,921 14,328 4.19
Noninterest-bearing deposits 257,472 235,693
Other liabilities 19,111 16,196
Total liabilities 1,699,031 1,622,810
SHAREHOLDERS' EQUITY 195,513 175,755
Total liabilities and
shareholders' equity $1,894,544 $1,798,565
Net interest income/net yield
on earning assets $19,804 4.57% $19,330 4.67%
</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>
June 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 $ 405,436 $ 270,099 $ 522,400 $ 41,225 $1,239,160
Investment securities 28,649 118,864 341,846 14,793 504,152
Other interest-earning assets 8,481 - - - 8,481
Total interest-earning assets $ 422,566 $ 388,963 $ 864,246 $ 56,018 $1,751,793
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 618,094 $ - $ - $ - $ 618,094
Time deposits over $ 100,000 75,034 33,515 38,555 - 147,104
All other time deposits 137,890 324,741 148,265 107 611,003
Nondeposit interest-bearing
liabilities 62,153 1,853 - - 64,006
Total interest-bearing liabilities $ 893,171 $ 360,109 $ 186,820 $ 107 $1,440,207
GAP by Period $(450,605) $ 28,854 $ 677,426 $ 55,911 $ 311,586
Cumulative GAP $(450,605) $(421,751) $ 255,675 $ 311,586 $ 311,586
</TABLE>
NOTE: Loans scheduled to reprice are reported in the earliest possible
repricing 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: August 14, 1996
Page 14
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
<TABLE>
Computation of Net Earnings per Common Share
<CAPTION>
Six Months Ended Three Months Ended
June 30, June 30,
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Net Income $13,725,000 $12,539,000 $ 6,916,000 $ 6,350,000
Weighted average common
shares outstanding 10,337,118 10,332,876 10,337,361 10,335,068
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 162,327 144,624 159,849 149,868
Weighted average common shares
and common share equivalents
outstanding 10,499,445 10,477,500 10,497,210 10,484,936
Net earnings per common share $ 1.31 $ 1.20 $ 0.66 $ 0.61
</TABLE>
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 99195
<INT-BEARING-DEPOSITS> 1196
<FED-FUNDS-SOLD> 7206
<TRADING-ASSETS> 79
<INVESTMENTS-HELD-FOR-SALE> 465115
<INVESTMENTS-CARRYING> 39037
<INVESTMENTS-MARKET> 40743
<LOANS> 1239160
<ALLOWANCE> 18478
<TOTAL-ASSETS> 1924980
<DEPOSITS> 1647931
<SHORT-TERM> 64006
<LIABILITIES-OTHER> 15742
<LONG-TERM> 0
0
0
<COMMON> 10352
<OTHER-SE> 186949
<TOTAL-LIABILITIES-AND-EQUITY> 1924980
<INTEREST-LOAN> 54529
<INTEREST-INVEST> 13338
<INTEREST-OTHER> 987
<INTEREST-TOTAL> 68854
<INTEREST-DEPOSIT> 28947
<INTEREST-EXPENSE> 29934
<INTEREST-INCOME-NET> 38920
<LOAN-LOSSES> 1434
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 27077
<INCOME-PRETAX> 21492
<INCOME-PRE-EXTRAORDINARY> 21492
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 13725
<EPS-PRIMARY> 1.31
<EPS-DILUTED> 1.31
<YIELD-ACTUAL> 4.57
<LOANS-NON> 8935
<LOANS-PAST> 2244
<LOANS-TROUBLED> 279
<LOANS-PROBLEM> 1670
<ALLOWANCE-OPEN> 18047
<CHARGE-OFFS> 1598
<RECOVERIES> 595
<ALLOWANCE-CLOSE> 18478
<ALLOWANCE-DOMESTIC> 18478
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10728
</TABLE>
