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 March 31, 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 -- 10,338,295 shares outstanding on
March 31, 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)
March 31, December 31,
1996 1995
ASSETS
Cash and due from banks $ 82,462 $ 83,738
Short-term investments 44,636 13,886
Investment securities:
Available-for-sale, at market value 453,663 412,299
Held-to-maturity, at amortized cost (market values of
$44,123 and $46,156 for 1996 and 1995, respectively) 42,178 44,620
Total investment securities 495,841 456,919
Loans 1,220,533 1,242,377
Unearned discount (4,775) (5,579)
Loans, net of unearned discount 1,215,758 1,236,798
Reserve for possible loan losses (18,421) (18,047)
Loans, net 1,197,337 1,218,751
Premises and equipment, net 41,595 41,457
Accrued income receivable 19,493 19,119
Other assets 29,824 29,424
Total assets $1,911,188 $1,863,294
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 252,144 $ 260,910
Interest-bearing 1,404,212 1,357,359
Total deposits 1,656,356 1,618,269
Short-term borrowings 36,500 35,388
Other liabilities 23,346 18,548
Long-term borrowings 48 108
Total liabilities 1,716,250 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--10,348,026 shares
in 1996 and 1995 10,348 10,348
Capital surplus 42,681 42,826
Retained earnings 142,866 138,541
Unrealized losses on investment
securities, net (650) (343)
Less treasury stock at cost: 9,731 shares in 1996
and 12,551 shares in 1995 (307) (391)
Total shareholders' equity 194,938 190,981
Total liabilities and shareholders' equity $1,911,188 $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)
Three Months Ended
March 31,
1996 1995
INTEREST INCOME
Loans $27,355 $25,480
Investment securities:
Taxable 6,029 5,704
Exempt from Federal income tax 540 667
Short-term investments 536 315
Total interest income 34,460 32,166
INTEREST EXPENSE
Deposits 14,640 12,086
Short-term borrowings 455 932
Long-term borrowings 2 206
Total interest expense 15,097 13,224
Net interest income 19,363 18,942
Provision for possible loan losses 717 575
Net interest income after
provision for possible loan losses 18,646 18,367
NONINTEREST INCOME
Securities gains, net 9 8
Revenues from fiduciary activities 1,453 1,475
Service charges on deposit accounts 1,407 1,456
Mortgage lending activities 693 287
Investment services 530 390
Other 1,028 1,365
Total noninterest income 5,120 4,981
NONINTEREST EXPENSE
Salaries and employee benefits 7,512 7,596
Net occupancy 1,175 1,118
Equipment 1,126 1,196
Other 3,329 3,849
Total noninterest expense 13,142 13,759
Net income before income taxes 10,624 9,589
Income tax expense 3,815 3,400
Net income $ 6,809 $ 6,189
Earnings per common share $ 0.65 $ 0.59
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)
Three Months Ended
March 31,
1996 1995
OPERATING ACTIVITIES
Net income $ 6,809 $ 6,189
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 2,509 2,772
Provision for possible loan losses 717 575
Writedowns in value and losses incurred on other
real estate owned 2 10
(Increase) decrease in accrued income receivable (374) 843
Other, net 3,866 2,912
Originations of loans for sale (39,295) (15,495)
Proceeds from sale of loans 37,783 14,881
Net cash provided by operating activities 12,017 12,687
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (253,312) (5,940)
Held-to-maturity (3,343) (892)
Proceeds from sales of investment securities
Available-for-sale 14,171 30,471
Proceeds from maturities of and principal payments on
investment securities:
Available-for-sale 196,349 10,704
Held-to-maturity 5,761 2,870
Purchases of premises and equipment (1,376) (532)
Proceeds from sales of premises and equipment 11 34
Proceeds from sales of other real estate owned 244 718
Net loan principal collected (loans originated) 22,150 (3,704)
Net cash provided by (used in) investing activities (19,345) 33,729
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposit accounts (8,766) (18,142)
Net increase (decrease) in savings, NOW and money market
deposits 13,788 (30,084)
Net increase in certificates of deposit 33,065 93,553
Net increase (decrease) in short-term borrowings 1,112 (59,109)
Principal payments under capital lease obligations (60) (43)
Cash dividends paid (2,276) (1,974)
Proceeds from exercise of common stock options 129 111
Proceeds from dividend reinvestment plan 143 115
Purchase of shares for treasury (333) (7)
Net cash provided by (used in) financing activities 36,802 (15,580)
Increase in cash and cash equivalents 29,474 30,836
Cash and cash equivalents at beginning of year 97,624 93,120
Cash and cash equivalents at end of period $127,098 $123,956
Supplemental information:
Income taxes paid $ 140 $ -
Interest paid 13,795 11,865
Noncash transfers of loans to other real estate 59 559
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)
March 31, 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 $82,000,000 on the date of acquisition. The transaction, an exchange
of 500,000 shares of Company common stock for all of the issued and
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 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 June 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.
4. 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 $37,783,000 and $14,881,000 sold during the first three months of
1996 and 1995, respectively. At March 31, 1996 and December 31, 1995,
the Company serviced loans aggregating $316,282,000 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.
As discussed in note 3 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 March 31, 1996 were $1,911,188, up $47,894 from
$1,863,294 at December 31, 1995. During the first three months of 1996, the
Company repositioned its interest earning assets and liabilities to maximize
earnings and insure liquidity for future investment opportunities. Increases
in short-term investments of $30,750 and investment securities of $38,922
were funded by certificates of deposit growth and net loan paydowns.
Brokered certificates of deposit of $30,000 were largely responsible for the
$38,087 increase in total deposits. These time deposits were obtained during
a down-turn in interest rates during the first quarter to facilitate interest
rate risk management by securing low-rate long-term funding for term lending
opportunities. Net loan paydowns of $21,040 from December 31, 1995, also
provided available funding as competitive interest rate and seasonal
pressures in the marketplace precluded immediate reinvestment in loans.
Average earning assets, as a percentage of average total assets,
increased slightly in the first quarter of 1996 to 92.32% from 92.22% at
December 31, 1995. The current loan-to-deposit ratio of 73.40% decreased
from the year-end level of 76.43% primarily as interest-bearing deposits
increased $46,853 and loans, net of unearned discount, decreased $21,040.
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 March 31, 1996
and December 31, 1995:
March 31, % of December 31, % of
1996 total 1995 total
Commercial, financial
and agricultural $ 273,767 22.43% $ 280,347 22.57%
Real estate - construction 54,551 4.47 56,961 4.58
Real estate - mortgage 656,144 53.76 663,508 53.41
Installment 236,071 19.34 241,561 19.44
Total loans $1,220,533 100.00% $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 March 31, 1996, includes $90,836, or
7.4% 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.
Page 5
The Company is not aware of any loans classified for regulatory
purposes at March 31, 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 March 31, 1996.
Reserve For Possible Loan Losses
The reserve for possible loan losses at March 31, 1996 was 1.52% 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 159% of the Company's
nonperforming loans at March 31, 1996.
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:
Three Months Ended Twelve Months Ended
March 31, December 31,
1996 1995
Average loans outstanding $1,222,463 $1,197,959
Reserve at beginning of year $ 18,047 $ 18,360
Provision for possible loan losses 717 2,313
Charge-offs:
Commercial, financial and
agricultural loans 154 1,352
Real estate - mortgage loans 143 924
Real estate - construction loans - -
Installment loans 416 1,831
713 4,107
Recoveries:
Commercial, financial and
agricultural loans 94 439
Real estate - mortgage loans 104 507
Real estate - construction loans - -
Installment loans 172 535
370 1,481
Net charge-offs 343 2,626
Reserve at end of period $ 18,421 $ 18,047
Net charge-offs to average loans 0.03% 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 0.96% at
March 31, 1996, up slightly from 0.89% at December 31, 1995. The Company's
level of nonperforming loans increased slightly in the first quarter of 1996
to $11,621 from 10,999 at December 31, 1995.
Page 6
Nonperforming loans at March 31, 1996 and December 31, 1995, include the
following:
March 31, December 31,
1996 1995
Commercial, financial and
agricultural $ 3,333 $ 3,273
Real estate - construction 621 327
Real estate - mortgage 6,981 6,431
Installment 686 968
Total $11,621 $10,999
Nonaccrual loans (1) $ 9,317 $ 8,261
Loans past due 90 days or more (2) 2,012 2,392
Restructured loans (3)(4) 292 346
Total nonperforming loans $11,621 $10,999
Nonperforming loans to
total loans 0.96% .89%
(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 Company's 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 March 31, 1996, twelve loan relationships with a total principal
balance of approximately $1,290 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 March 31, 1996, individually and
cumulatively, through various time horizons.
At December 31, 1995 and March 31, 1996, 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.
Page 7
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 are 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 March 31,
1996 simulation analysis, using the assumptions described above, projected
net interest income to decrease by 2.6% and the net interest margin to
contract by 12 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 1.9% and the net interest margin projected to expand
9 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 91% of its investment portfolio
designated as available-for-sale. The unrealized losses, net of tax, on that
portfolio were $650 and $343 at March 31, 1996 and December 31, 1995,
respectively, and are reflected as a reduction in the equity section of the
balance sheet. The current unrealized loss as a percent of the total
available-for-sale market value represents .22%, 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 March 31, 1996 equity-to-asset and tangible equity-to-
asset ratios remained stable at 10.20% and 9.50% as compared to 10.25% and
9.52%, respectively, at the end of 1995. The March 31, 1996 equity-to-asset
ratio excluding investment security unrealized holding losses is 10.23%.
At March 31, 1996, the Company and its banking subsidiaries all
exceeded their minimum capital requirements for "well capitalized"
institutions. Tier 1, Total Capital and Tier 1 Leverage ratios were 14.53%,
15.58% and 9.67%, respectively at March 31, 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 $18.86 and $17.43, respectively, at March 31, 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 March 31, 1996 was $6,809 as
compared to net income for the corresponding period of 1995 of $6,189. 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 $.65 as compared
to the 1995 amount of $.59, an increase of 10.2%.
Page 8
Net Interest Income
Net interest income for the first three months of 1996 was $19,363, or
$421 above the first three months of 1995 as a result of increased loan and
investment volumes. However, 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 first quarter was 4.54%
versus 4.73% for the same period a year ago as the average cost of time
deposits increased from 4.86% to 5.53% 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 was increased to $717 for the
first three months of 1996 from $575 in the comparable 1995 period. The
increase represents an adjustment for the Company's increased loan volume.
Noninterest Income
Noninterest income for the first three months of 1996 was up 2.8% as
compared to the corresponding period in 1995. While securities gains, net,
revenues from fiduciary activities and services charges on deposit accounts
remained flat or declined slightly in comparison to the same period a year
ago, mortgage banking income increased $407 over 1995.
Noninterest Expense
Noninterest expense declined 4.5% for the first three months of 1996
compared to the same period of 1995. Current year expense reductions have
resulted from the reduction in deposit insurance premiums paid during 1996 as
compared to the same period a year ago. All other expense levels remained
relatively flat.
Income Taxes
Income taxes of $3,815 for the first three months of 1996 exceeded the
corresponding 1995 period amount by 12.2%. 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 first quarter of 1996 was 35.9% 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
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
March 31, 1996 March 31, 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 $1,222,463 $27,418 9.02% $1,174,082 $25,547 8.82%
Investment securities:
Taxable 441,943 6,029 5.49 411,164 5,704 5.63
Nontaxable 35,577 745 8.42 45,089 931 8.37
Short-term investments:
Federal funds sold 39,591 521 5.29 20,105 306 6.17
Other short-term investments 1,342 15 4.50 614 9 5.94
Total earning assets 1,740,916 34,728 8.02 1,651,054 32,497 7.98
Nonearning assets:
Cash and due from banks 74,262 66,973
Premises and equipment 41,627 43,590
Reserve for possible loan losses (18,300) (18,352)
Other assets 47,165 49,477
Total nonearning assets 144,754 141,688
Total assets $1,885,670 $1,792,742
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market accounts $ 615,630 $ 4,018 2.63% $ 609,917 $ 3,791 2.52%
Time deposits 772,677 10,622 5.53 692,138 8,295 4.86
Federal funds purchased and securities
sold under repurchase agreements 38,029 450 4.76 63,875 903 5.73
Other short-term borrowings 739 5 2.72 2,484 29 4.73
Long-term borrowings 85 2 9.46 10,620 206 7.87
Total interest-bearing liabilities 1,427,160 15,097 4.25 1,379,034 13,224 3.89
Noninterest-bearing deposits 244,912 232,191
Other liabilities 20,195 15,140
Total liabilities 1,692,267 1,626,365
SHAREHOLDERS' EQUITY 193,403 166,377
Total liabilities and
shareholders' equity $1,885,670 $1,792,742
Net interest income/net yield
on earning assets $19,631 4.54% $19,273 4.73%
</TABLE>
Page 11
Part I. Financial Information
<TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
(in thousands of dollars)
<CAPTION>
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 $ 417,442 $ 262,179 $ 506,748 $ 29,389 $1,215,758
Investment securities 112,943 108,083 254,863 19,952 495,841
Other interest-earning assets 44,636 - - - 44,636
Total interest-earning assets $ 575,021 $ 370,262 $ 761,611 $ 49,341 $1,756,235
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 621,055 $ - $ - $ - $ 621,055
C.D.'s over $100,000 52,708 56,043 7,869 0 116,620
All other time deposits 246,993 250,062 169,104 378 666,537
Nondeposit interest-bearing
liabilities 35,879 669 0 - 36,548
Total interest-bearing liabilities $ 956,635 306,774 $ 176,973 $ 378 $1,440,760
GAP by Period $(381,614) $ 63,488 $ 584,638 $ 48,963 $ 315,475
Cumulative GAP $(381,614) $(318,126) $ 266,512 $ 315,475 $ 315,475
</TABLE>
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 Zettek
Executive Vice President and
Chief Financial Officer
Date: May 10, 1996
Page 14
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
Computation of Net Earnings per Common Share
Three Months Ended
March 31,
1996 1995
Net Income $ 6,809,000 $ 6,189,000
Weighted average common
shares outstanding 10,336,875 10,331,823
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 174,313 139,878
Weighted average common shares
and common share equivalents
outstanding 10,511,188 10,471,701
Net earnings per common share $ 0.65 $ 0.59
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 82462
<INT-BEARING-DEPOSITS> 1404212
<FED-FUNDS-SOLD> 11675
<TRADING-ASSETS> 110
<INVESTMENTS-HELD-FOR-SALE> 453663
<INVESTMENTS-CARRYING> 42178
<INVESTMENTS-MARKET> 44123
<LOANS> 1215758
<ALLOWANCE> 18421
<TOTAL-ASSETS> 1911188
<DEPOSITS> 1656356
<SHORT-TERM> 36500
<LIABILITIES-OTHER> 23346
<LONG-TERM> 48
0
0
<COMMON> 10348
<OTHER-SE> 184590
<TOTAL-LIABILITIES-AND-EQUITY> 1911188
<INTEREST-LOAN> 27355
<INTEREST-INVEST> 6569
<INTEREST-OTHER> 536
<INTEREST-TOTAL> 34460
<INTEREST-DEPOSIT> 14640
<INTEREST-EXPENSE> 15097
<INTEREST-INCOME-NET> 19363
<LOAN-LOSSES> 717
<SECURITIES-GAINS> 9
<EXPENSE-OTHER> 13142
<INCOME-PRETAX> 10624
<INCOME-PRE-EXTRAORDINARY> 10624
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6809
<EPS-PRIMARY> .65
<EPS-DILUTED> .65
<YIELD-ACTUAL> 4.54
<LOANS-NON> 9317
<LOANS-PAST> 2012
<LOANS-TROUBLED> 292
<LOANS-PROBLEM> 1290
<ALLOWANCE-OPEN> 18047
<CHARGE-OFFS> 713
<RECOVERIES> 370
<ALLOWANCE-CLOSE> 18421
<ALLOWANCE-DOMESTIC> 18421
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 10728
</TABLE>
