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, 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 (Zip code)
offices)
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 -- 10,292,953 shares outstanding on
March 31, 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)
March 31, December 31,
1997 1996
ASSETS
Cash and due from banks $ 69,907 $ 110,686
Short-term investments 59,467 45,815
Investment securities:
Available-for-sale, at market value 525,745 442,749
Held-to-maturity, at amortized cost
(market value of $31,680 and $36,531
for 1997 and 1996, respectively) 30,722 35,435
Total investment securities 556,467 478,184
Loans 1,284,843 1,300,572
Unearned discount (2,794) (3,166)
Loans, net of unearned discount 1,282,049 1,297,406
Reserve for possible loan losses (18,942) (19,103)
Loans, net 1,263,107 1,278,303
Premises and equipment, net 44,243 43,463
Accrued income receivable 19,591 18,945
Other assets 35,148 29,808
Total assets $ 2,047,930 $2,005,204
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Noninterest-bearing $ 263,121 $ 307,208
Interest-bearing 1,499,170 1,431,055
Total deposits 1,762,291 1,738,263
Short-term borrowings 53,914 39,588
Other liabilities 21,719 19,717
Total liabilities 1,837,924 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 --
10,352,403 shares in 1997 and 1996 10,352 10,352
Capital surplus 41,463 42,114
Retained earnings 160,916 156,509
Unrealized losses on investment
securities, net (711) 527
Less treasury stock at cost: 59,450 shares
in 1997 and 60,048 shares in 1996 (2,014) (1,866)
Total shareholders' equity 210,006 207,636
Total liabilities and shareholders'
equity $2,047,930 $2,005,204
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,
1997 1996
INTEREST INCOME
Loans $28,119 $27,355
Investment securities:
Taxable 7,443 6,029
Exempt from Federal income tax 405 540
Short-term investments 644 536
Total interest income 36,611 34,460
INTEREST EXPENSE
Deposits 15,575 14,640
Short-term borrowings 742 457
Total interest expense 16,317 15,097
Net interest income 20,294 19,363
Provision for possible loan losses 717 717
Net interest income after
provision for possible loan losses 19,577 18,646
NONINTEREST INCOME
Securities gains (losses), net (4) 9
Service charges on deposit accounts 1,611 1,533
Trust services 1,156 1,103
Agricultural services 463 350
Mortgage lending activities 675 693
Investment services 548 530
Other 990 902
Total noninterest income 5,439 5,120
NONINTEREST EXPENSE
Salaries and employee benefits 7,973 7,512
Net occupancy 1,289 1,175
Equipment 1,150 1,126
Postage, printing and supplies 627 722
Professional 541 451
FDIC and other insurance 162 133
Other 2,148 2,023
Total noninterest expense 13,890 13,142
Net income before income taxes 11,126 10,624
Income tax expense 3,941 3,815
Net income $ 7,185 $ 6,809
Earnings per common share $ 0.69 $ 0.65
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,
1997 1996
OPERATING ACTIVITIES
Net income $ 7,185 $ 6,809
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation and amortization 1,693 2,509
Provision for possible loan losses 717 717
Writedowns in value and losses incurred
on other real estate owned - 2
Increase in accrued income receivable (646) (374)
Gain on sale of loans (321) (344)
Other, net 2,838 3,866
Originations of loans for sale (23,843) (39,295)
Proceeds from sale of loans 23,575 37,783
Net cash provided by operating activities 11,198 11,673
INVESTING ACTIVITIES
Purchases of investment securities:
Available-for-sale (261,854) (253,312)
Held-to-maturity (350) (3,343)
Proceeds from sales of investment securities
Available-for-sale 9,991 14,171
Proceeds from maturities of and principal
payments on investment securities:
Available-for-sale 166,907 196,349
Held-to-maturity 5,044 5,761
Purchases of premises and equipment (2,082) (1,376)
Proceeds from sales of premises and equipment 81 11
Proceeds from sales of other real estate owned 162 244
Net loan principal collected 14,390 22,494
Net cash used in investing activities (73,411) (19,001)
FINANCING ACTIVITIES
Net decrease in noninterest-bearing deposit
accounts (44,087) (8,766)
Net increase in savings, NOW and money market
deposits 41,064 13,788
Net increase in certificates of deposit 27,051 33,065
Net increase in short-term borrowings 14,327 1,112
Principal payments under capital lease obligations (1) (60)
Cash dividends paid (2,469) (2,276)
Proceeds from exercise of common stock options 687 129
Proceeds from dividend reinvestment plan 96 143
Purchase of shares for treasury (1,582) (333)
Net cash provided by financing activities 35,086 36,802
Increase (decrease) in cash and cash equivalents (27,127) 29,474
Cash and cash equivalents at beginning of year 156,501 97,624
Cash and cash equivalents at end of period $129,374 $127,098
Supplemental information:
Income taxes paid $ - $ 140
Interest paid 16,314 13,795
Noncash transfers of loans to other real estate 678 59
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, 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 December 20, 1996 the Company entered into a definitive
agreement to acquire all the outstanding common stock of
BankCentral Corporation ("BankCentral") and its wholly-owned
subsidiary, Central National Bank of Mattoon, Illinois.
BankCentral, with consolidated assets of approximately $114
million, operates four locations in Mattoon, Illinois. The
transaction, which involves an exchange of cash and Company
common stock totaling approximately $13.3 million, will be
accounted for using the purchase method of accounting and is
expected to close during the second quarter of 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 $23,575,000 and $37,783,000 sold
during the first three months of 1997 and 1996, respectively. At
March 31, 1997 and December 31, 1996, the Company serviced loans
aggregating $362,425,000 and $355,220,000, 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
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.
Consolidated Balance Sheet Analysis
Total assets at March 31, 1997 were $2,047,930, up $42,726 from
$2,005,204 at December 31, 1996. Increases in investment securities
of $78,283 and short-term investments of $13,652 were principally
funded by growth in interest-bearing transaction deposit and
certificate of deposit accounts. Net loans declined $15,357 from
December 31, 1996, 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 1997 to 92.47% from 92.19%
at December 31, 1996. The current loan-to-deposit ratio of 72.75%
decreased from the year-end level of 74.64% primarily as interest-
bearing deposits increased $68,115 and loans, net of unearned
discount, decreased $15,357.
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, 1997
and December 31, 1996:
March 31, % of December 31, % of
1997 total 1996 total
Commercial, financial
and agricultural $ 283,141 22.04% $ 291,706 22.43%
Real estate - construction 74,805 5.82 67,618 5.20
Real estate - mortgage 703,414 54.75 706,026 54.29
Installment 223,483 17.39 235,222 18.08
Total loans $1,284,843 100.00% $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 March 31, 1997, includes $89,096,
or 6.9% of the total loan portfolio, in loans related to agribusiness.
Such loans are generally secured by farmland, crops or equipment.
Lending officers of the various subsidiary banks work with their
agricultural borrowers in preparing and analyzing cash flow
information used in the lending decision.
Firstbank had no concentration of loans to any other industry on
these dates. Additionally, the Company has refrained from financing
highly leveraged corporate buy-outs, which management believes would
subject Firstbank to an unacceptable level of risk.
Page 5
The Company is not aware of any loans classified for regulatory
purposes at March 31, 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 March 31, 1997.
Reserve For Possible Loan Losses
The reserve for possible loan losses at March 31, 1997 was 1.48%
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 141% of the
Company's nonperforming loans at March 31, 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:
Three Months EndedTwelve Months Ended
March 31, December 31,
1997 1996
Average loans outstanding $1,281,372 $1,245,104
Reserve at beginning of year $ 19,103 $ 18,047
Provision for possible loan
losses 717 2,868
Charge-offs:
Commercial, financial and
agricultural loans 319 1,143
Real estate - mortgage loans 287 527
Real estate - construction loans 5 59
Installment loans 437 1,650
1,048 3,379
Recoveries:
Commercial, financial and
agricultural loans 74 591
Real estate - mortgage loans 20 370
Real estate - construction loans - 15
Installment loans 76 591
170 1,567
Net charge-offs 161 1,812
Reserve at end of period $ 18,942 $ 19,103
Net charge-offs to average loans 0.07% 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, Impaired and Past Due Loans
Nonperforming loans as a percentage of total loans was 1.05% at
March 31, 1997, up from 0.83% at December 31, 1996. The Company's
level of nonperforming loans increased in the first quarter of 1997 to
$13,475 from $10,804 at December 31, 1996. Impaired loans, which
include nonaccrual loans, were $9,464 at March 31, 1997, up from
$8,920 at December 31, 1996. As the following table indicates, the
increase in nonperforming loans is primarily in loans past due ninety
days or more.
Page 6
Nonperforming loans at March 31, 1997 and December 31, 1996,
include the following:
March 31, December 31,
1997 1996
Commercial, financial and
agricultural $ 7,493 $ 4,274
Real estate - construction 1,658 320
Real estate - mortgage 3,463 5,534
Installment 861 676
Total $13,475 $10,804
Nonaccrual loans (1) $ 9,464 $ 8,920
Loans past due 90 days or more (2) 3,884 1,731
Restructured loans (3)(4) 127 153
Total nonperforming loans $13,475 $10,804
Nonperforming loans to
total loans 1.05% .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 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, 1997, eleven loan relationships with a total
principal balance of approximately $860 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, 1997, individually and cumulatively, through various time
horizons.
At December 31, 1996 and March 31, 1997, 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, 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
March 31, 1997 simulation analysis, using the assumptions described
above, projected net interest income to decrease by 2.8% 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 5.4% and the
net interest margin projected to expand 36 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 94% of its investment portfolio
designated as available-for-sale. At March 31, 1997, unrealized
losses, net of tax, on that portfolio was $711 and is reflected as a
reduction in the equity section of the balance sheet. Unrealized
gains, net of tax, of $527 was reflected as an increase in the equity
section of the balance sheet as of December 31, 1996. The current
unrealized loss as a percent of the total available-for-sale market
value represents .21%, 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, 1997 equity-to-asset and tangible equity-
to-asset ratios remained stable at 10.25% and 9.41% as compared to
10.35% and 9.73%, respectively, at the end of 1996. The March 31,
1997 equity-to-asset ratio excluding investment security unrealized
holding losses is 10.28%.
At March 31, 1997, 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
15.74%, 16.99% and 9.65%, respectively at March 31, 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 $20.40 and $18.55, respectively, at March
31, 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 March 31, 1997 was $7,185
as compared to net income for the corresponding period of 1996 of
$6,809. The improvement in earnings is attributable to increased net
interest income as average earning assets for the first quarter of
1997 increased 6.5% over the comparable 1996 quarter. Earnings per
share for
Page 8
the three month period was $.69 as compared to the 1996
amount of $.65, an increase of 6.2%.
Net Interest Income
Net interest income for the first three months of 1997 was
$20,294, or $931 above the first three months of 1996 as a result of
increased loan and investment volumes. However, interest rates have
risen slightly 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 4.48% versus 4.54%
for the same period a year ago as the average yield on loans decreased
from 9.02% to 8.92% 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 recorded in both the first
three months of 1997 and the first quarter a year earlier was $717.
Noninterest Income
Noninterest income for the first three months of 1997 was up 6.2%
as compared to the corresponding period in 1996. Revenues from
agricultural services and services charges on deposit accounts
increased $113 and $78, respectively, in comparison to the same period
a year ago. Continued efforts to expand corporate business services
were largely responsible for the 9.5% increase in deposit service
charge revenues in the current quarter. Other noninterest income was
highlighted by an increase in revenues from agricultural services and
the successful introduction of the Company's unique investment
advisory service made possible through the acquisition of Zemenick &
Walker, Inc. on January 2, 1997.
Noninterest Expense
Noninterest expense increased 5.7% for the first three months of
1997 compared to the same period of 1996. Salaries and benefits
expense increased $461 or 6.1% for the first quarter of 1997 as
compared to the same quarter of 1996.
In 1997, the Company launched strategic initiatives designed to
provide comprehensive investment advisory services and discount brokerage
services to clients. Costs associated with this initiative recorded during
the first quarter of 1997 amounted to $465 of which $416 were in salaries
and related costs.
Income Taxes
Income taxes of $3,941 for the first three months of 1997
exceeded the corresponding 1996 period amount by 3.3%. 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 1997 was 35.4%
as compared to 35.9% 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 Company does not believe the adoption
of SFAS 128 will have a material effect on its financial condition or
results of operations.
Page 9
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, 1997 March 31, 1996
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
<S> <S> <C> <C> <C> <C> <C>
ASSETS
Earning assets:
Loans $1,281,372 $28,173 8.92% $1,222,463 $27,418 9.02%
Investment securities:
Taxable 495,543 7,443 6.09 411,943 6,029 5.49
Nontaxable 26,531 554 8.47 35,577 745 8.42
Short-term investments 50,175 644 5.21 40,933 536 5.27
Total earning assets 1,853,621 36,814 8.05 1,740,916 34,728 8.02
Nonearning assets:
Cash and due from banks 72,200 74,262
Premises and equipment 43,847 41,627
Reserve for possible loan
losses (19,118) (18,300)
Other assets 53,993 47,165
Total nonearning assets 150,922 144,754
Total assets $2,004,543 $1,885,670
LIABILITIES
Interest-bearing liabilities:
Interest-bearing deposits:
Savings, NOW and money market
accounts $ 657,049 $ 4,544 2.80% $ 615,630 $ 4,018 2.63%
Time deposits 807,086 11,031 5.54 772,677 10,622 5.53
Federal funds purchased and
securities sold under
repurchase agreements 59,658 737 5.01 38,029 450 4.76
Other short-term and long-term
borrowings 472 5 4.30 824 7 3.42
Total interest-bearing
liabilities 1,524,265 16,317 4.34 1,427,160 15,097 4.25
Noninterest-bearing deposits 251,573 244,912
Other liabilities 20,063 20,195
Total liabilities 1,795,901 1,692,267
SHAREHOLDERS' EQUITY 208,642 193,403
Total liabilities and
shareholders' equity $2,004,543 $1,885,670
Net interest income/net yield
on earning assets $20,497 4.48% $19,631 4.54%
</TABLE>
Page 11
Part I. Financial Information
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...continued
(in thousands of dollars)
<TABLE>
<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 $ 400,498 $ 269,699 $ 577,371 $ 34,481 $1,282,049
Investment securities 17,093 80,842 446,331 12,201 556,467
Other interest-earning assets 59,467 - - - 59,467
Total interest-earning assets $ 477,058 $ 350,541 $1,023,702 $ 46,682 $1,897,983
INTEREST-BEARING LIABILITIES
Savings, NOW, Money Markets $ 676,278 $ - $ - $ - $ 676,278
C.D.'s over $100,000 73,531 81,268 46,597 1,387 202,783
All other time deposits 159,859 285,897 174,225 128 620,109
Nondeposit interest-bearing
liabilities 46,544 6,201 1,169 - 53,914
Total interest-bearing
liabilities $ 956,212 $ 373,366 $ 221,991 $ 1,515 $1,553,084
GAP by Period $(479,154) $ (22,825) $ 801,711 $ 45,167 $ 344,899
Cumulative GAP $(479,154) $(501,979) $ 299,732 $ 344,899 $ 344,899
</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 13, 1997
Page 14
Exhibit 11
FIRSTBANK OF ILLINOIS CO.
Computation of Net Earnings per Common Share
Three Months Ended
March 31,
1997 1996
Net Income $ 7,185,000 $ 6,809,000
Weighted average common
shares outstanding 10,295,944 10,336,875
Plus weighted average
common share equivalents:
Assuming exercise of
employee stock options 176,197 174,313
Weighted average common shares
and common share equivalents
outstanding 10,472,141 10,511,188
Net earnings per common share $ 0.69 $ 0.65
Page 15
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1997
<CASH> 69907000
<INT-BEARING-DEPOSITS> 1499170000
<FED-FUNDS-SOLD> 59160000
<TRADING-ASSETS> 81000
<INVESTMENTS-HELD-FOR-SALE> 525745000
<INVESTMENTS-CARRYING> 30722000
<INVESTMENTS-MARKET> 31680000
<LOANS> 1282049000
<ALLOWANCE> 18942000
<TOTAL-ASSETS> 2047930000
<DEPOSITS> 1762291000
<SHORT-TERM> 53914000
<LIABILITIES-OTHER> 21719000
<LONG-TERM> 2000
0
0
<COMMON> 10352000
<OTHER-SE> 199654000
<TOTAL-LIABILITIES-AND-EQUITY> 210006000
<INTEREST-LOAN> 28119000
<INTEREST-INVEST> 8492000
<INTEREST-OTHER> 0
<INTEREST-TOTAL> 36611000
<INTEREST-DEPOSIT> 15575000
<INTEREST-EXPENSE> 16317000
<INTEREST-INCOME-NET> 20294000
<LOAN-LOSSES> 717000
<SECURITIES-GAINS> (4000)
<EXPENSE-OTHER> 13890000
<INCOME-PRETAX> 11126000
<INCOME-PRE-EXTRAORDINARY> 11126000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7185000
<EPS-PRIMARY> 0.69
<EPS-DILUTED> 0.69
<YIELD-ACTUAL> 4.48
<LOANS-NON> 9464000
<LOANS-PAST> 3884000
<LOANS-TROUBLED> 127000
<LOANS-PROBLEM> 860000
<ALLOWANCE-OPEN> 19103000
<CHARGE-OFFS> 1048000
<RECOVERIES> 170000
<ALLOWANCE-CLOSE> 18942000
<ALLOWANCE-DOMESTIC> 18942000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 12831000
</TABLE>
