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, 1997 Commission file number 0-8426
FIRSTBANK OF ILLINOIS CO.
(exact name of registrant as specified in its charter)
DELAWARE 37-6141253
(State of other jurisdiction (I.R.S. Employer
of
incorporation of Identification No.)
organization)
205 S. Fifth Street
Springfield, Illinois 62701
(address of principal executive 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 -- 10,473,314 shares outstanding on
June 30, 1997.
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,
1997 1996
ASSETS
Cash and due from banks $ 79,746 $ 110,686
Short-term investments 13,864 48,815
Investment securities:
Available-for-sale, at market value 572,591 442,749
Held-to-maturity, at amortized cost
(market values of $30,345 for 1997
and $36,531 for 1996) 29,340 35,435
Total investment securities 601,931 478,184
Loans 1,377,524 1,300,572
Unearned discount (2,639) (3,166)
Loans, net of unearned discount 1,374,885 1,297,406
Reserve for possible loan losses (20,208) (19,103)
Loans, net 1,354,677 1,278,303
Premises and equipment, net 47,764 43,463
Accrued income receivable 20,189 18,945
Other assets 41,855 29,808
Total assets $2,160,026 $2,005,204
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 288,188 $ 307,208
Interest-bearing 1,562,570 1,431,055
Total deposits 1,850,758 1,738,263
Short-term borrowings 68,133 39,585
Other liabilities 18,655 19,717
Long-term borrowings 2 3
Total liabilities 1,937,548 1,797,568
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 --
10,529,678 shares in 1997 and 10,352,403
shares in 1996 10,530 10,352
Capital surplus 47,766 42,114
Retained earnings 165,510 156,509
Unrealized gains on investment
securities, net 631 527
Less treasury stock at cost:
56,364 shares in 1997 and 60,048 shares in 1996 (1,959) (1,866)
Total shareholders' equity 222,478 207,636
Total liabilities and shareholders'
equity $2,160,026 $2,005,204
See accompanying notes to interim consolidated condensed financial
statements.
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(in thousands of dollars except per share data)
Six Months EndedThree Months Ended
June 30, June 30,
1997 1996 1997 1996
INTEREST INCOME
Loans $57,179 $54,529 $29,060 $27,174
Investment securities:
Taxable 16,068 12,301 8,625 6,272
Exempt from Federal income tax 769 1,037 364 497
Short-term investments 1,080 987 436 451
Total interest income 75,096 68,854 38,485 34,394
INTEREST EXPENSE
Deposits 32,082 28,947 16,507 14,307
Short-term borrowings 1,607 984 865 529
Long-term borrowings - 3 - 1
Total interest expense 33,689 29,934 17,372 14,837
Net interest income 41,407 38,920 21,113 19,557
Provision for possible loan losses 1,434 1,434 717 717
Net interest income after
provision for possible loan
losses 39,973 37,486 20,396 18,840
NONINTEREST INCOME
Securities gains, net 187 9 191 -
Service charges on deposit accounts 3,346 3,218 1,735 1,685
Trust services 2,337 2,197 1,181 1,094
Agricultural services 905 820 442 470
Investment services 1,066 1,269 518 739
Mortgage lending activities 1,455 1,414 780 721
Other 2,084 2,156 1,094 1,254
Total noninterest income 11,380 11,083 5,941 5,963
NONINTEREST EXPENSE
Salaries and employee benefits 16,289 15,418 8,316 7,906
Net occupancy 2,582 2,320 1,293 1,145
Equipment 2,311 2,295 1,161 1,169
FDIC and other insurance 348 293 186 160
Postage, printing and supplies 1,292 1,354 665 632
Professional 1,106 1,080 565 629
Other 4,698 4,317 2,550 2,294
Total noninterest expense 28,626 27,077 14,736 13,935
Net income before income taxes 22,727 21,492 11,601 10,868
Income tax expense 8,168 7,767 4,227 3,952
Net income $14,559 $13,725 $ 7,374 $ 6,916
Earnings per common share $ 1.39 $ 1.31 $ 0.70 $ 0.66
See accompanying notes to interim consolidated condensed financial
statements.
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited)
(in thousands of dollars)
Six Months Ended
June 30,
1997 1996
OPERATING ACTIVITIES
Net income $ 14,559 $ 13,725
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 3,387 4,873
Provision for possible loan losses 1,434 1,434
Gains incurred on other real estate owned - (52)
Increase in accrued income receivable (387) (903)
Gain on sale of loans (713) (674)
Other, net (797) (4,614)
Originations of loans for sale (54,047) (77,191)
Proceeds from sale of loans 53,760 74,411
Net cash provided by operating activities 17,196 11,009
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (363,042) (411,865)
Held-to-maturity (450) (3,343)
Proceeds from sales of investment securities
Available-for-sale 75,750 14,171
Proceeds from maturities of and principal payments
on investment securities:
Available-for-sale 189,260 340,742
Held-to-maturity 7,389 8,881
Purchases of premises and equipment (3,722) (2,758)
Proceeds from sales of premises and equipment 206 11
Proceeds from sales of other real estate owned 631 722
Net loans originated (16,943) (124)
Cash and cash equivalents acquired, net of cash
paid in acquisitions (2,355) -
Net cash used in investing activities (113,276) (53,563)
FINANCING ACTIVITIES
Net increase in noninterest-bearing deposit
accounts 33,900 10,820
Net increase in savings, NOW and money market
deposits 12,249 10,827
Net increase in certificates of deposit 38,100 8,015
Net increase in short-term borrowings 27,479 28,618
Principal payments under capital lease obligations (1) (108)
Payments to retire long-term debt (4,600) -
Cash dividends paid (5,247) (4,756)
Proceeds from exercise of common stock options 882 546
Proceeds from dividend reinvestment plan 261 303
Purchase of shares for treasury (2,034) (1,659)
Net cash provided by financing activities 33,189 52,606
Increase (decrease) in cash and cash equivalents (62,891) 10,052
Cash and cash equivalents at beginning of year 156,501 97,624
Cash and cash equivalents at end of period $ 93,610 $107,676
Supplemental information:
Income taxes paid $ 7,940 $ 8,198
Interest paid 32,503 29,275
Noncash transfers of loans to other real estate 1,016 213
See accompanying notes to interim consolidated condensed financial
statements.
PART I. FINANCIAL INFORMATION ... Continued
Item 1. Financial Statement ... Continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)
June 30, 1997
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, 1996.
2. On January 2, 1997, the Company purchased certain assets of
Zemenick & Walker, Inc. ("Z&W"), a registered investment advisory
firm headquartered in St. Louis, Missouri. This acquisition was
accounted for using the purchase method of accounting, therefore,
the operating results of Z&W are included in the consolidated
condensed financial results beginning January 2, 1997.
3. On June 10, 1997 the Company acquired BankCentral Corporation
("BankCentral") and its wholly-owned subsidiary, Central National
Bank of Mattoon, Illinois. BankCentral, with consolidated assets
of approximately $110 million, operates four locations in
Mattoon, Illinois. The transaction, which involved an exchange
of cash and Company common stock totaling approximately $13.0
million, was recorded using the purchase method of accounting.
The Company recorded a cost in excess of net assets acquired of
approximately $7,136,000, which will be amortized over fifteen
years. The operations of BankCentral are included in the
consolidated condensed financial results beginning June 10, 1997.
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 $53,760,000 and $74,411,000 sold
during the first six months of 1997 and 1996, respectively. At
June 30, 1997 and December 31, 1996, the Company serviced loans
aggregating $374,142,000 and $355,220,000, respectively, which
were owned by others.
5. On July 18, 1997, the Company's Board of Directors authorized a
three-for-two stock split effected in the form of a 50 percent
stock dividend. One share for each two shares held by
shareholders of record August 15, 1997 will be distributed on
September 1, 1997. This will result in the issuance of
approximately 5,176,000 additional shares of common stock. The
par value of the new shares to be issued will be transferred from
capital surplus to the common stock account.
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
Firstbank provides banking, trust and other financial services
through its operating subsidiaries in Illinois and Missouri. The
following discussion and related financial information is presented to
aid in the understanding of Firstbank's current financial position and
recent results of operations. This analysis provides a more
comprehensive review than the interim consolidated condensed financial
statements and tables alone, but should be read in conjunction with
those statements and tables, which are presented elsewhere in this
report.
On January 2, 1997, the Company purchased certain assets of
Zemenick & Walker, Inc. ("Z&W"), a registered investment advisory firm
headquartered in St. Louis, Missouri. This acquisition was accounted
for using the purchase method of accounting, therefore, the operating
results of Z&W are included in the consolidated condensed financial
results beginning January 2, 1997.
On June 10, 1997 the Company acquired BankCentral Corporation
("BankCentral") and its wholly-owned subsidiary, Central National Bank
of Mattoon, Illinois. BankCentral, with consolidated assets of
approximately $110 million, operates four locations in Mattoon,
Illinois. The transaction, which involved an exchange of cash and
Company common stock totaling approximately $13.0 million, was
recorded using the purchase method of accounting. The operations of
BankCentral are included in the consolidated condensed financial
results beginning June 10, 1997.
Consolidated Balance Sheet Analysis
Total assets at June 30, 1997 were $2,160,026, up $154,822 from
$2,005,204 at December 31, 1996. The Company, which added
BankCentral's $110 million in assets during the second quarter, has
also experienced good internal balance sheet growth. During the first
six months of 1997, investment securities increased $123,747 with
funding from a $112,495 increase in deposits and a $28,548 increase in
short-term borrowings. In addition to investing new funds, investment
security maturities of $196,649 were also reinvested during the first
six months of 1997.
Average earning assets, as a percentage of average total assets,
increased slightly in the first two quarters of 1997 to 92.58% from
92.19% at December 31, 1996. The current loan-to-deposit ratio of
74.29% decreased from the year-end level of 74.64% as deposits
increased at a slightly faster rate than the loan portfolio in the
first half of 1997.
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, 1997 and
December 31, 1996:
June 30, % of December 31, % of
1997 total 1996 total
Commercial, financial
and agricultural $ 329,015 23.88% $ 291,706 22.43%
Real estate - construction 81,477 5.91 67,618 5.20
Real estate - mortgage 733,625 53.26 706,026 54.29
Installment 233,407 16.95 235,222 18.08
Total loans $1,377,524 100.00% $1,300,572 100.00%
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, 1997, includes $99,903,
or 7.3% 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, 1997, 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, 1997.
Reserve For Possible Loan Losses
The reserve for possible loan losses at June 30, 1997 and
December 31, 1996, was 1.47% of outstanding loans. 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 153% of the
Company's nonperforming loans at June 30, 1997.
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 Ended Twelve Months Ended
June 30, December 31,
1997 1996
Average loans outstanding $1,303,824 $1,245,104
Reserve at beginning of year $ 19,103 $ 18,047
Balance of purchased subsidiary
bank 982 -
Provision for possible loan
losses 1,434 2,868
Charge-offs:
Commercial, financial and
agricultural loans 736 1,143
Real estate - mortgage loans 429 527
Real estate - construction loans 5 59
Installment loans 719 1,650
1,889 3,379
Recoveries:
Commercial, financial and
agricultural loans 232 591
Real estate - mortgage loans 136 370
Real estate - construction loans - 15
Installment loans 210 591
578 1,567
Net charge-offs 1,311 1,812
Reserve at end of period $ 20,208 $ 19,103
Net charge-offs to average loans 0.20% 0.15%
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
June 30, 1997, down from 1.05% at March 31, 1997 and up from 0.83% at
December 31, 1996.
Nonperforming loans at June 30, 1997 and December 31, 1996 include
the following:
June 30, December 31,
1997 1996
Commercial, financial and
agricultural $ 5,413 $ 4,274
Real estate - construction 1,260 320
Real estate - mortgage 5,508 5,534
Installment 1,035 676
Total $13,216 $10,804
Nonaccrual loans (1) $11,320 $ 8,920
Loans past due 90 days or more(2) 1,784 1,731
Restructured loans (3) (4) 112 153
Total nonperforming loans $13,216 $10,804
Nonperforming loans to
total loans .96% .83%
(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, 1997, sixteen loan relationships with a total
principal balance of approximately $2,622 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, 1997, individually and cumulatively, through various time
horizons.
At June 30, 1997 and December 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. 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, 1996,
the analysis projected net interest income to decrease 2.2% and the
net interest margin to contract 9 basis points if the general level of
interest rates increased by 2 percentage points over the next 12
months (.50% each quarter). Conversely, the analysis projected net
interest income to increase 4.9% and the net interest margin to expand
by 20 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, 1997 simulation analysis, using the assumptions described
above, projected net interest income to decrease 3.5% and the net
interest margin to contract by 15 basis points if rates increase 2
percentage points in the next 12 months. If rates fall 2 percentage
points, the net interest income was projected to increase 1.7% and the
net interest margin projected to expand 8 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 95% of its investment portfolio designated
as available-for-sale. The unrealized gains, net of tax, on that
portfolio were $631 and $527 at June 30, 1997 and December 31, 1996,
respectively, and are reflected as an increase in the equity section
of the balance sheet. The current unrealized gain, which has
increased to approximately 0.1% 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, 1997 equity-to-asset and tangible equity-
to-asset ratios were 10.30% and 9.22% and consistent with 10.35% and
9.73% ratios, respectively, at the end of 1996. 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 1997.
Tangible equity declined slightly upon completion of two purchase
transactions, Zemenick & Walker and BankCentral, during the first six
months of 1997. The June 30, 1997 equity-to-asset ratio excluding
investment security unrealized holding gains is 10.28%.
At June 30, 1997, 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
15.02%, 16.27% and 9.58%, respectively at June 30, 1997. 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 $21.24 and $18.78, respectively, at June 30,
1997, as compared to $20.17 and $18.83, respectively, at December 31,
1996.
Consolidated Income Statement Analysis
Net income for the three months ended June 30, 1997 was $7,374 as
compared to net income for the corresponding period of 1996 of $6,916.
The improvement in earnings is attributable to increased net interest
income as average earning assets for the second quarter of 1997
increased 9.9% over the comparable 1996 quarter. Earnings per share
for the three month period was $0.70 as compared to the 1996 amount of
$0.66, an increase of 6.1%.
Net income for the six months ended June 30, 1997 was $14,559 as
compared to net income for the corresponding period of 1996 of
$13,725. The improvement in the Company's six month earnings can also
be attributable to the increased net interest income as average
earning assets for the six months ended June 30, 1997 increased 8.2%
over the comparable 1996 period. Earnings per share for the six month
period was $1.39 as compared to the 1996 amount of $1.31, an increase
of 6.1%.
Net Interest Income
Net interest income for the first six months of 1997 was $41,407,
or $2,487 above the first six months of 1996. Net interest income for
the second quarter of 1997 was $21,113, or $1,556 above the 1996
quarter. Interest rates have remained relatively stable on the
Company's funding while earning asset yields have increased slightly.
Net interest income (on a tax-equivalent basis) as a percentage of
average earning assets for the second quarter was 4.46% as compared to
4.57% for the same period a year ago. Average earning assets have
increased $173 million, or nearly 10%, compared to the second quarter
last year. Because more than half of the growth in earning assets
were in categories other than loans, the net interest margin has
narrowed slightly as a percent of average earning assets. Average
balance sheets and yields are included for each of those quarters at
the end of this discussion.
Provision For Possible Loans Losses
The provision for possible loan losses of $1,434 and $717 for the
first six months and second quarter of 1997 remained constant with
1996. 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 1997.
Noninterest Income
Noninterest income for the first six months of 1997 increased
2.7% compared to the corresponding period in 1996. The Company
sustained a consistent level of noninterest income in the second
quarter of 1997 as compared to the same 1996 period.
The Company 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. Income
from mortgage lending activities also increased 3% in the first half
of 1997 compared to the prior year period.
Noninterest Expense
Noninterest expense increased 5.7% for the first six months of
1997 compared to the same period of 1996. Noninterest expense
increased 5.8% for the current quarter of 1997 as compared with the
second quarter of 1996. Current year expense increases have resulted
primarily from costs associated with strategic initiatives designed to
provide comprehensive investment advisory services, discount brokerage
services, and five new supermarket branch locations.
Income Taxes
Income taxes of $8,168 and $4,227 for the first six months and
current quarter of 1997 exceeded the corresponding 1996 period amounts
by 5.2% and 7.0%, 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 1997 and 1996 was 36.4%.
EFFECT OF NEW ACCOUNTING STANDARDS
In February 1997, the FASB issued Statement of Financial
Accounting Standards No. 128, "Earnings per Share" ("SFAS 128"). SFAS
128 establishes standards for computing and presenting earnings per
share (EPS). SFAS 128 simplifies existing standards for computing EPS
and makes them comparable to international standards. It replaces the
presentation of primary EPS with a presentation of basic EPS. It also
requires dual presentation of basic and diluted EPS on the face of the
income statement for all entities with complex capital structures and
requires a reconciliation of the components of basic and diluted EPS.
Basic EPS excludes dilution and is computed by dividing income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. Diluted EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the
earnings of the Company. SFAS 128 is effective for financial
statements issued for periods ending after December 15, 1997,
including interim periods, and requires restatement of all prior-
period EPS data presented. The adoption of SFAS 128 will not have a
material effect on the Company's financial condition or results of
operations.
In June 1997, the FASB issued SFAS No. 130, "Reporting
Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting and display of comprehensive income and its components
(revenues, expenses, gains, and losses) in a full set of general-
purpose financial statements. SFAS 130 requires that all items that
are required to be recognized under accounting standards as components
of comprehensive income be reported in a financial statement that is
displayed with the same prominence as other financial statements, and
requires an enterprise to (a) classify items of other comprehensive
income by their nature in a financial statement and (b) display the
accumulated balance of other comprehensive income separately from
retained earnings and additional paid-in capital in the equity section
of a statement of financial position. SFAS 130 is effective for
fiscal years beginning after December 15, 1997. Reclassification of
financial statements for earlier periods provided for comparative
purposes is required. Management is currently considering the impact
of SFAS 130, but does not believe it will have a material effect on
the financial statements.
In June 1997, the FASB issued SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information" ("SFAS 131"), which
establishes standards for the way that public business enterprises
report information about operating segments in annual financial
statements and requires that those enterprises report selected
information about operating segments in interim financial reports to
shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Generally, financial
information is required to be reported on the basis that it is used
internally for evaluating segment performance. This Statement is
effective for financial statements for periods beginning after
December 15, 1997. In the initial year of application, comparative
information for earlier yeas is to be restated. This Statement need
not be applied to interim financial statements in the initial year of
its application, but comparative information for interim periods in
the initial year of application is to be reported in financial
statements for interim periods in the second year of application.
Management is currently considering the impact of SFAS 131, but does
not believe it will have a material effect on the financial
statements.
EFFECTS OF INFLATION
Persistent high rates of inflation can have a significant effect
on the reported financial condition and results of operations of all
industries. However, the asset and liability structure of a bank
holding company is substantially different from that of an industrial
company, in that virtually all assets and liabilities of a bank
holding company are monetary in nature. Accordingly, changes in
interest rates also have a significant impact on a bank holding
company's performance. Interest rates do not necessarily move in the
same direction, or in the same magnitude, as the prices of other goods
and services.
Inflation does have an impact on the growth of total assets in
the banking industry, often resulting in a need to increase equity
capital at higher than normal rates to maintain an appropriate equity
to assets ratio.
Although it is obvious that inflation affects the growth of total
assets, it is difficult to measure the impact precisely. Only new
assets acquired in each year are directly affected, so a simple
adjustment of asset totals by use of an inflation index is not
meaningful. The results of operations also have been affected by
inflation, but again there is no simple way to measure the effect on
the various categories of income and expense.
Interest rates in particular are significantly affected by
inflation, but neither the timing nor the magnitude of the changes
coincides with changes in standard measurements of inflation such as
the consumer price index. Additionally, changes in interest rates on
some types of consumer deposits may be delayed. These factors in turn
affect the composition of sources of funds by reducing the growth of
deposits that are less interest sensitive and increasing the need for
funds that are more interest sensitive.
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED AVERAGE BALANCE SHEETS (Unaudited)
(in thousands of dollars)
Three Months Ended Three Months Ended
June 30, 1997 June 30, 1996
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans $1,303,824 $29,114 8.96% $1,224,883 $27,232 8.94%
Investment securities:
Taxable 558,943 8,625 6.19 452,291 6,272 5.58
Nontaxable 23,744 497 8.40 32,903 686 8.38
Short-term investments 30,402 436 5.75 33,499 451 5.41
Total earning assets 1,916,913 38,673 8.09 1,743,576 34,641 7.09
Nonearning assets:
Cash and due from banks 73,145 80,892
Premises and equipment 45,313 41,633
Reserve for possible loan
losses (19,279) (18,484)
Other assets 54,514 45,927
Total nonearning assets 153,693 150,968
Total assets $2,070,606 $1,894,544
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market
accounts $ 665,323 $ 4,793 2.89% $ 618,066 $ 4,091 2.66%
Time deposits 842,210 11,714 5.58 760,537 10,216 5.40
Federal funds purchased and
securities sold under repurchase
agreements 67,407 860 5.12 43,397 521 4.83
Other short-term and long-term
borrowings 621 5 3.23 448 9 8.08
Total interest-bearing
liabilities 1,575,561 17,372 4.42 1,422,448 14,837 4.20
Noninterest-bearing deposits 263,859 257,472
Other liabilities 18,568 19,111
Total liabilities 1,857,988 1,699,031
SHAREHOLDERS' EQUITY 212,618 195,513
Total liabilities and
shareholders' equity $2,070,606 $1,894,544
Net interest income/net yield
on earning assets $21,301 4.46% $19,804 4.57%
Part I. Financial Information
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)
June 30, 1997
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
INTEREST-EARNING ASSETS
Loans $ 428,340 $ 273,961 $ 628,625 $ 43,959 $1,374,885
Investment securities 50,449 91,987 448,547 10,948 601,931
Other interest-earning
assets 13,864 - - - 13,864
Total interest-earning
assets $ 492,653 $ 365,948 $1,077,172 $ 54,907 $1,990,680
INTEREST-BEARING LIABILITIES
Savings, NOW, Money
Markets $ 675,876 $ - $ - $ - $ 675,876
Time deposits over $100,000 95,607 69,457 56,498 1,387 222,949
All other time deposits 141,463 327,265 194,263 754 663,745
Nondeposit interest-bearing
liabilities 62,523 4,624 988 - 68,135
Total interest-bearing
liabilities $ 975,469 $ 401,346 $ 251,749 $ 2,141 $1,630,705
GAP by Period $(482,816)$ 35,398 $ 825,423 $ 52,766 $ 359,975
Cumulative GAP $(482,816)$(518,214)$ 307,209 $ 359,975 $ 359,975
NOTE: Loans scheduled to reprice are reported in the earliest
possible repricing interval for this analysis.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
None
Item 6. Exhibits and Reports on Form 8-K:
None
A. Exhibit 11
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Firstbank of Illinois Co.
By: /s/ Chris R.
Zettek
Executive Vice President and
Chief Financial Officer
Date: August 12, 1997
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
Computation of Net Earnings per Common Share
Six Months Ended Three Months Ended
June 30, June 30,
1997 1996 1997 1996
Net Income $14,559,000 $13,725,000 $ 7,374,000 $ 6,916,000
Weighted average common
shares outstanding 10,317,441 10,337,118 10,338,545 10,337,361
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 176,423 162,327 182,187 159,849
Weighted average common shares
and common share equivalents
outstanding 10,493,864 10,520,732 10,520,732 10,497,210
Net earnings per common share $ 1.39 $ 1.31 $ 0.70 $ 0.66
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