SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For quarter ended September 30, 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 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 -- 15,715,477 shares outstanding on
September 30, 1997.
<PAGE>
Part I. Financial Information
Item 1. Financial Statements
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED BALANCE SHEETS (Unaudited)
(in thousands of dollars except per share data)
September 30, December 31,
1997 1996
ASSETS
Cash and due from banks $ 96,853 $ 110,686
Short-term investments 8,216 45,815
Investment securities:
Available-for-sale, at market value 537,614 442,749
Held-to-maturity, at amortized cost (market values of
$30,127 for 1997 and $36,531 for 1996) 29,242 35,435
Total investment securities 566,856 478,184
Loans 1,409,472 1,300,572
Unearned discount (2,355) (3,166)
Loans, net of unearned discount 1,407,117 1,297,406
Reserve for possible loan losses (20,359) (19,103)
Loans, net 1,386,758 1,278,303
Premises and equipment, net 47,973 43,463
Accrued income receivable 20,634 18,945
Other assets 42,757 29,808
Total assets $2,170,047 $2,005,204
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 276,529 $ 307,208
Interest-bearing 1,611,860 1,431,055
Total deposits 1,888,389 1,738,263
Short-term borrowings 35,717 39,585
Other liabilities 18,159 19,717
Long-term borrowings 2 3
Total liabilities 1,942,267 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 -- 15,794,097 shares
in 1997 and 15,528,605 shares in 1996 15,794 15,529
Capital surplus 42,264 36,937
Retained earnings 170,144 156,509
Unrealized gains on investment
securities, net 1,428 527
Less treasury stock at cost:
78,620 shares in 1997 and 90,072 shares in 1996 (1,850) (1,866)
Total shareholders' equity 227,780 207,636
Total liabilities and shareholders' equity $2,170,047 $2,005,204
See accompanying notes to interim consolidated condensed financial
statements.
<PAGE>
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF INCOME (Unaudited)
(in thousands of dollars except per share data)
Nine months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
INTEREST INCOME
Loans $88,488 $82,522 $31,309 $27,993
Investment securities:
Taxable 24,295 18,412 8,227 6,111
Exempt from Federal income tax 1,119 1,514 350 477
Short-term investments 1,652 1,900 572 913
Total interest income 115,554 104,348 40,458 35,494
INTEREST EXPENSE
Deposits 49,914 43,684 17,832 14,737
Short-term borrowings 2,202 1,582 595 598
Long-term borrowings - 6 - 3
Total interest expense 52,116 45,272 18,427 15,338
Net interest income 63,438 59,076 22,031 20,156
Provision for possible loan losses 2,196 2,151 762 717
Net interest income after
provision for possible loan losses 61,242 56,925 21,269 19,439
NONINTEREST INCOME
Securities gains, net 323 168 136 159
Service charges on deposit accounts 5,343 4,945 1,997 1,727
Trust services 3,656 3,214 1,319 1,017
Agricultural services 1,297 1,170 392 350
Investment services 1,606 1,732 540 463
Mortgage lending activities 2,319 2,098 864 684
Other 3,292 3,110 1,208 954
Total noninterest income 17,836 16,437 6,456 5,354
NONINTEREST EXPENSE
Salaries and employee benefits 25,371 23,572 9,082 8,154
Net occupancy 3,978 3,536 1,396 1,216
Equipment 3,489 3,461 1,178 1,166
FDIC and other insurance 528 419 180 126
Postage, printing and supplies 2,035 1,977 743 623
Professional 1,709 1,597 603 517
Other 7,330 6,393 2,632 2,076
Total noninterest expense 44,440 40,955 15,814 13,878
Net income before income taxes 34,638 32,407 11,911 10,915
Income tax expense 12,567 11,654 4,399 3,887
Net income $22,071 $20,753 $ 7,512 $ 7,028
Earnings per common share $ 1.39 $ 1.32 $ 0.47 $ 0.45
See accompanying notes to interim consolidated condensed financial
statements.
<PAGE>
Part I. Financial Information ... continued
Item 1. Financial Statements ... continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED CONDENSED STATEMENTS OF CASH FLOW (Unaudited)
(in thousands of dollars)
Nine Months Ended
September 30,
1997 1996
OPERATING ACTIVITIES
Net income $ 22,071 $ 20,753
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization 5,192 6,583
Provision for possible loan losses 2,196 2,151
Net gains incurred on other real estate owned - (66)
Increase (decrease) in accrued income receivable (832) 388
Gain on sale of loans (1,267) (980)
Other, net (3,365) (2,893)
Originations of loans for sale (101,928) (106,933)
Proceeds from sale of loans 93,289 105,742
Net cash provided by operating activities 15,356 24,745
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (625,480) (542,124)
Held-to-maturity (704) (3,343)
Proceeds from sales of investment securities
Available-for-sale 76,202 125,374
Proceeds from maturities of and principal payments on
investment securities:
Available-for-sale 487,449 404,214
Held-to-maturity 7,727 9,962
Purchases of premises and equipment (5,307) (4,362)
Proceeds from sales of premises and equipment 304 11
Proceeds from sales of other real estate owned 1,164 951
Net loans originated (41,233) (39,136)
Cash and cash equivalents acquired, net of cash
paid in acquisitions (2,354) -
Net cash used in investing activities (102,232) (48,453)
FINANCING ACTIVITIES
Net increase (decrease) in noninterest-bearing
deposit accounts (45,559) 11,612
Net increase in savings, NOW and money market deposits 37,649 4,813
Net increase in certificates of deposit 61,990 27,788
Net increase (decrease) in short-term borrowings (4,937) 5,721
Principal payments under capital lease obligations (1) (100)
Payments to retire long-term debt (4,600) -
Cash dividends paid (8,077) (7,234)
Proceeds from exercise of common stock options 1,023 802
Proceeds from dividend reinvestment plan 444 462
Purchase of shares for treasury (2,488) (3,319)
Net cash provided by financing activities 35,444 _40,545
Increase (decrease) in cash and cash equivalents (51,432) 16,837
Cash and cash equivalents at beginning of year 156,501 97,624
Cash and cash equivalents at end of period $105,069 $114,461
Supplemental information:
Income taxes paid $ 12,055 $ 10,839
Interest paid 51,022 45,324
Noncash transfers of loans to other real estate 1,369 484
See accompanying notes to interim consolidated condensed financial
statements.
<PAGE>
PART I. FINANCIAL INFORMATION ... Continued
Item 1. Financial Statements.. Continued
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
NOTES TO INTERIM CONSOLIDATED CONDENSED FINANCIAL STATEMENTS(unaudited)
September 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 $93,289,000 and $105,742,000 sold
during the first nine months of 1997 and 1996, respectively. At
September 30, 1997 and December 31, 1996, the Company serviced
loans aggregating $383,262,000 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 was distributed on
September 1, 1997. This resulted in the issuance of 5,264,419
additional shares of common stock. The par value of the new
shares issued was transferred from capital surplus to the common
stock account. In addition, all references to number of shares,
per share amounts, and common stock outstanding for all periods
presented prior to that time have been restated to reflect the
stock split.
<PAGE>
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, investment advisory 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 September 30, 1997 were $2,170,047, up $164,843
from $2,005,204 at December 31, 1996. The Company, which added
BankCentral's approximately $110 million in assets during the second
quarter, has also experienced good internal balance sheet growth.
During the first nine months of 1997, exclusive of balances acquired
from BankCentral, investment securities increased $56,274 with funding
from a $53,723 increase in deposits. In addition to investing new
funds, investment security maturities of $495,176 were also reinvested
during the first nine months of 1997.
Average earning assets, as a percentage of average total assets,
increased slightly in the first three quarters of 1997 to 92.23% from
92.19% at December 31, 1996. The current loan-to-deposit ratio of
74.51% decreased from the year-end level of 74.64% as deposits
increased at a slightly faster rate than the loan portfolio in the
first nine months 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 September 30,
1997 and December 31, 1996:
September 30, % of December 31, % of
1997 total 1996 total
Commercial, financial
and agricultural $ 323,950 22.98% $ 291,706 22.43%
Real estate - construction 95,006 6.74 67,618 5.20
Real estate - mortgage 755,556 53.61 706,026 54.29
Installment 234,960 16.67 235,222 18.08
Total loans $1,409,472 100.00% $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 September 30, 1997, includes
$102,157 or 7.2% 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.
<PAGE>
Firstbank had no concentration of loans to any other industry on
these dates. Additionally, the Company has refrained from financing
highly leveraged corporate buy-outs, which management believes would
subject Firstbank to an unacceptable level of risk.
The Company is not aware of any loans classified for regulatory
purposes at September 30, 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 September 30, 1997.
Reserve For Possible Loan Losses
The reserve for possible loan losses at September 30, 1997 was
1.45% of outstanding loans as compared to 1.47% at December 31, 1996.
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 171% of the Company's nonperforming loans at September 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;
additions to the allowance that have been charged to expense; and net
charge-offs to average loans for the nine month period have been
annualized for comparison purposes:
Nine Months Ended Twelve Months Ended
September 30, December 31,
1997 1996
Average loans outstanding $1,325,655 $1,245,104
Reserve at beginning of year $ 19,103 $ 18,047
Balance of purchased subsidiary bank 982 -
Provision for possible loan losses 2,196 2,868
Charge-offs:
Commercial, financial and
agricultural loans 1,183 1,143
Real estate - mortgage loans 459 527
Real estate - construction loans 5 59
Installment loans 1,087 1,650
2,734 3,379
Recoveries:
Commercial, financial and
agricultural loans 335 591
Real estate - mortgage loans 170 370
Real estate - construction loans - 15
Installment loans 307 591
812 1,567
Net charge-offs 1,922 1,812
Reserve at end of period $ 20,359 $ 19,103
Net charge-offs to average loans 0.19% 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.
<PAGE>
Nonaccrual, Restructured and Past Due Loans
Nonperforming loans as a percentage of total loans was 0.85% at
September 30, 1997, down from 0.96% at June 30, 1997 and up slightly
from 0.83% at December 31, 1996.
Nonperforming loans at September 30, 1997 and December 31, 1996
include the following:
September 30 , December 31,
1997 1996
Commercial, financial and
agricultural $ 4,924 $ 4,274
Real estate - construction - 320
Real estate - mortgage 6,160 5,534
Installment 906 676
Total $ 11,990 $ 10,804
Nonaccrual loans (1) $ 10,454 $ 8,920
Loans past due 90 days or more (2) 1,464 1,731
Restructured loans (3) (4) 72 153
Total nonperforming loans $ 11,990 $ 10,804
Nonperforming loans to
total loans 0.85% 0.83%
(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 September 30, 1997, fourteen loan relationships with a
total principal balance of approximately $1,406 were identified by
management as having possible credit problems that raise doubts as to
the ability of the borrowers to comply with the current repayment
terms. While these commercial or commercial real estate borrowers are
currently meeting all the terms of the applicable loan agreements,
their financial condition has caused management to believe that their
loans may result in disclosure at some future time as nonaccrual, past
due or restructured.
Foreign Outstandings
The Company had no loans to any foreign countries on any of the
dates specified in the tables.
Liquidity and Interest Rate Sensitivity
Interest rate sensitivity is closely monitored through the
Company's asset-liability management procedures. At the end of this
discussion is a table reflecting Firstbank's interest rate gap (rate
sensitive assets minus rate sensitive liabilities) analysis at
September 30, 1997, individually and cumulatively, through various
time horizons.
<PAGE>
At September 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
September 30, 1997 simulation analysis, using the assumptions
described above, projected net interest income to decrease 2.5% and
the net interest margin to contract by 4 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
5.1% and the net interest margin projected to expand 25 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 $1,428 and $527 at September 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 0.4% 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 September 30, 1997 equity-to-asset and tangible
equity-to-asset ratios were 10.50% and 9.44% 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
nine months of 1997. Tangible equity declined slightly upon
completion of two purchase transactions, Zemenick & Walker and
BankCentral, during the first nine months of 1997. The September 30,
1997 equity-to-asset ratio excluding investment security unrealized
holding gains is 10.44%.
At September 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 9.41%, respectively at September 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 $14.49 and $12.89 respectively, at September
30, 1997, as compared to $13.45 and $12.55, respectively, at December
31, 1996.
<PAGE>
Consolidated Income Statement Analysis
Net income for the three months ended September 30, 1997 was
$7,512 as compared to net income for the corresponding period of 1996
of $7,028. The improvement in earnings is attributable to increased
net interest income as average earning assets for the third quarter of
1997 increased 9.3% over the comparable 1996 quarter. Earnings per
share for the three month period was $0.47 as compared to the 1996
amount of $0.45, an increase of 4.4%.
Net income for the nine months ended September 30, 1997 was
$22,071 as compared to net income for the corresponding period of 1996
of $20,753. The improvement in the Company's nine month earnings can
also be attributable to the increased net interest income as average
earning assets for the nine months ended September 30, 1997 increased
12.5% over the comparable 1996 period. Earnings per share for the
nine month period was $1.39 as compared to the 1996 amount of $1.32,
an increase of 5.3%.
Net Interest Income
Net interest income for the first nine months of 1997 was
$63,438, or $4,362 above the first nine months of 1996. Net interest
income for the third quarter of 1997 was $22,031, or $1,875 above the
1996 quarter. Yields have remained relatively stable on the Company's
earning asset base while interest rates on the Company's core deposit
funding have increased slightly. Net interest income (on a tax-
equivalent basis) as a percentage of average earning assets for the
third quarter was 4.42% as compared to 4.58% for the same period a
year ago. Average earning assets have increased $221 million, or
12.5%, compared to the third quarter last year. Because the Company's
funding costs have increased at a greater rate than yields on earning
assets, primarily due to competitive deposit pricing, the net interest
margin has narrowed slightly as a percentage 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 $2,196 and $762 for the
first nine months and third quarter of 1997 increased slightly as a
result of BankCentral's regular provision of $45 recorded since its
acquisition in June 1997. 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 nine months of 1997 increased
8.5% compared to the corresponding period in 1996. Service charges on
deposit accounts increased by 8.0% for the first nine months of 1997
and 15.6% for the current quarter as compared to the same 1996
periods. Growth in these fees is the result of an increased number of
deposit accounts, some resulting from recently acquired BankCentral,
and implementation of ATM foreign transaction service fees.
Trust fee income increased by 13.8% for the first nine months of
1997 and 29.7% for the current quarter as compared to the same 1996
periods. Successful new business development efforts largely
accounted for the growth in trust fees.
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 10.5% in the first
nine months of 1997 compared to the prior year period.
Noninterest Expense
Noninterest expense increased 8.5% for the first nine months of
1997 compared to the same period of 1996. Noninterest expense
increased 14.0% for the current quarter of 1997 as compared with the
third quarter of 1996. Incremental noninterest expense resulting from
the Company's two purchase acquisitions were $2,055 and $1,102 for the
first nine months and current quarter of 1997, respectively. If those
expenses are excluded, noninterest expense for the first nine months
and current quarter of 1997 was 3.5% and 6.0%, respectively, higher
than last year. Other 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.
<PAGE>
Income Taxes
Income taxes of $12,567 and $4,399 for the first nine months and
current quarter of 1997 exceeded the corresponding 1996 period amounts
by 7.8% and 13.2%, respectively. The primary differences between the
two years were higher pre-tax earnings and lower levels of tax-exempt
interest income in the current year. The Company's effective tax rate
for the third quarter of 1997 was 36.9% as compared to 35.6% in the
same period of 1996.
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.
<PAGE>
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>
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
September 30, 1997 September 30 , 1996
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
ASSETS
Earning assets:
Loans $1,390,569 $31,163 8.95% $1,252,875 $28,049 8.91%
Investment securities:
Taxable 538,528 8,227 6.06 420,319 6,111 5.78
Nontaxable 23,786 474 7.91 31,137 653 8.35
Short-term investments 39,975 572 5.68 67,883 913 5.35
Total earning assets 1,992,858 40,636 8.09 1,772,214 35,726 8.02
Nonearning assets:
Cash and due from banks 77,352 78,655
Premises and equipment 48,204 41,743
Reserve for possible
loan losses (20,252) (18,684)
Other assets 62,579 48,839
Total nonearning assets 167,883 150,553
Total assets $2,160,741 $1,922,767
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market
accounts $ 673,073 $ 4,771 2.81% $ 629,677 $ 4,253 2.69%
Time deposits 917,325 13,061 5.65 767,904 10,484 5.43
Federal funds purchased and
securities sold under repurchase
agreements 43,675 580 5.27 47,366 593 4.98
Other short-term and long-term
borrowings 853 15 6.98 564 8 5.64
Total interest-bearing
liabilities 1,634,926 18,427 4.47 1,445,511 15,338 4.22
Noninterest-bearing deposits 282,287 259,698
Other liabilities 18,320 18,165
Total liabilities 1,935,533 1,723,374
SHAREHOLDERS' EQUITY 225,208 199,393
Total liabilities and
shareholders' equity $2,160,741 $1,922,767
Net interest income/net yield
on earning assets $22,209 4.42% $20,388 4.58%
<PAGE>
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
<TABLE>
FIRSTBANK OF ILLINOIS CO. AND SUBSIDIARIES
INTERIM CONSOLIDATED INTEREST RATE GAP ANALYSIS (Unaudited)
(in thousands of dollars)
<CAPTION>
September 30, 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
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Loans $ 433,654 $ 293,084 $ 632,584 $ 47,795 $1,407,117
Investment securities 87,899 74,134 356,504 48,319 566,856
Other interest-earning assets 8,216 - - - 8,216
Total interest-earning assets $ 529,769 $ 367,218 $ 989,088 $ 96,114 $1,982,189
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 701,276 $ - $ - $ - $ 701,276
Time deposits over $100,000 103,695 88,886 49,286 1,387 243,254
All other time deposits 163,572 325,327 178,270 161 667,330
Nondeposit interest-bearing
liabilities 28,045 6,875 799 - 35,719
Total interest-bearing liabilities $ 996,588 $ 421,088 $ 228,355 $ 1,548 $1,647,579
GAP by Period $( 466,819) $ (53,870) $ 760,733 $ 94,566 $ 334,610
Cumulative GAP $( 466,819) $(520,689) $ 240,044 $ 334,610 $ 334,610
NOTE: Loans scheduled to reprice are reported in the earliest
possible repricing interval for this analysis.
<PAGE>
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:
A Form 8-K was filed as of July 28, 1997, announcing the Board of
Directors authorization of a three-for-two common stock split.
The split, which was effected in the form of a 50% stock
dividend, was paid September 1, 1997 to shareholders of record
August 15, 1997.
A. Exhibit 11
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned duly authorized.
Firstbank of Illinois Co.
By: /s/ Chris R. Zettek
Executive Vice President and
Chief Financial Officer
Date: November 14, 1997
<PAGE>
</TABLE>
<TABLE>
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
Computation of Net Earnings per Common Share
<CAPTION>
Nine Months Ended Three Months Ended
September 30, September 30,
1997 1996 1997 1996
<S> <C> <C> <C> <C>
Net Income $22,071,000 $20,753,000 $ 7,512,000 $ 7,028,000
Weighted average common
shares outstanding 15,556,351 15,476,162 15,714,117 15,507,818
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 286,058 264,635 335,933 273,281
Weighted average common shares
and common share equivalents
outstanding 15,842,409 15,740,796 16,050,050 15,781,098
Net earnings per common share $ 1.39 $ 1.32 $ 0.47 $ 0.45
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> SEP-30-1997
<CASH> 96853000
<INT-BEARING-DEPOSITS> 545000
<FED-FUNDS-SOLD> 7615000
<TRADING-ASSETS> 56000
<INVESTMENTS-HELD-FOR-SALE> 537614000
<INVESTMENTS-CARRYING> 29242000
<INVESTMENTS-MARKET> 30127000
<LOANS> 1407117000
<ALLOWANCE> 20359000
<TOTAL-ASSETS> 2170047000
<DEPOSITS> 1888389000
<SHORT-TERM> 35717000
<LIABILITIES-OTHER> 18159000
<LONG-TERM> 2000
0
0
<COMMON> 15794000
<OTHER-SE> 211986000
<TOTAL-LIABILITIES-AND-EQUITY> 2170047000
<INTEREST-LOAN> 88488000
<INTEREST-INVEST> 25414000
<INTEREST-OTHER> 1652000
<INTEREST-TOTAL> 115554000
<INTEREST-DEPOSIT> 49914000
<INTEREST-EXPENSE> 52116000
<INTEREST-INCOME-NET> 634378000
<LOAN-LOSSES> 2196000
<SECURITIES-GAINS> 323000
<EXPENSE-OTHER> 444400000
<INCOME-PRETAX> 34638000
<INCOME-PRE-EXTRAORDINARY> 22071000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 22071000
<EPS-PRIMARY> 1.39
<EPS-DILUTED> 1.39
<YIELD-ACTUAL> 4.45
<LOANS-NON> 10454000
<LOANS-PAST> 1464000
<LOANS-TROUBLED> 72000
<LOANS-PROBLEM> 1406000
<ALLOWANCE-OPEN> 19103000
<CHARGE-OFFS> 2734000
<RECOVERIES> 812000
<ALLOWANCE-CLOSE> 20359000
<ALLOWANCE-DOMESTIC> 20359000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12831000
</TABLE>
