<PAGE> 1
FORM 10-Q. -QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
(As last amended in Rel. No.312905, eff. 4/26/93)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [Fee required]
For the Quarterly Period Ended June 30, 1995
Commission File Number 0-6136
RIVER FOREST BANCORP, INC.
(Exact name of registrant as specified in its charter)
MINNESOTA 41-0823592
--------- ----------
(State of incorporation of organization) (I.R.S. Employer Identification No.)
Lincoln National Bank Building, 3959 N. Lincoln Avenue, Chicago, Illinois 60613
(Address of principal executive offices) (Zip Code)
(312) 549-7100
(Registrant's telephone number, including area code)
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 (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
----- -----
Indicate the number of shares outstanding of issuer's class of common stock, as
of the last practicable date.
Common Stock - $0.10 par value, 7,582,171 shares, as of July 24, 1995.
<PAGE> 2
TABLE OF CONTENTS
PART I. -FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
<S> <C> <C>
ITEM 1. Financial Statements and Notes (Unaudited)_____________________ 1-5
ITEM 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations____________________________________ 6-14
PART II. -OTHER INFORMATION
ITEMS 1-3. These items have been omitted from this Form since they are
inapplicable or would contain a negative response._____________ 14
ITEM 4. Matters submitted to a Vote of Security Holders 14
ITEM 5. Other information_________________________________________ 14
ITEM 6. Exhibits and Reports on Form 8-K____________________________ 14
Signatures______________________________________________ 15
Exhibit No. 11 - Computation of Net Income Per Common Share 15
Exhibit No. 28 - Quarterly Report to Shareholders_______________ Attached
</TABLE>
<PAGE> 3
<TABLE>
<CAPTION>
Consolidated Statements of Condition (Unaudited)
(in thousands)
---------------------------------------------------------------------------------------------------
June 30 December 31 June 30
1995 1994 1994
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
ASSETS
Cash and due from banks - noninterest bearing $ 73,088 $ 109,880 $ 80,523
Federal funds sold 1,170 96,785 400
Interest-bearing deposits with banks 25,000 25,000 -
Securities:
Trading account securities, at market value - 74,432 -
Available-for-Sale securities, at market value 476,656 405,679 430,000
Held-to-Maturity securities, at amortized cost 16,302 19,253 23,158
---------------------------------------------------------------------------------------------------
Total Securities 492,958 499,364 453,158
Loans, net of unearned discount 1,330,141 1,100,509 1,014,149
Less: Allowance for possible loan losses 21,513 20,157 19,845
---------------------------------------------------------------------------------------------------
Net Loans 1,308,628 1,080,352 994,304
Premises and equipment, net 26,890 27,268 27,873
Accrued interest receivable 21,447 19,307 13,862
Other real estate 1,021 916 1,782
Other assets 14,109 19,077 11,178
Goodwill, net of accumulated amortization
of $17,773, $16,703 and $15,678, respectively 13,478 11,506 11,925
---------------------------------------------------------------------------------------------------
TOTAL ASSETS $1,977,789 $1,889,455 $1,595,005
===================================================================================================
LIABILITIES & SHAREHOLDERS' EQUITY
Deposits:
Noninterest bearing $ 179,793 $ 211,955 $ 180,423
Interest bearing 1,549,421 1,486,543 1,227,916
---------------------------------------------------------------------------------------------------
Total Deposits 1,729,214 1,698,498 1,408,339
Federal funds purchased 30,700 6,675 5,000
Treasury tax and loan note option account 7,135 3,490 7,069
Accrued interest payable 3,164 3,277 2,789
Other liabilities 25,796 18,914 17,613
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 1,796,009 1,730,854 1,440,810
MINORITY INTEREST 1,998 1,742 1,580
SHAREHOLDERS' EQUITY
Common stock, Surplus & Retained Earnings 176,299 162,812 152,449
Unrealized gains (losses) on Available-for-Sale
securities, net of tax 3,483 (5,953) 166
---------------------------------------------------------------------------------------------------
TOTAL SHAREHOLDERS' EQUITY 179,782 156,859 152,615
---------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,977,789 $1,889,455 $1,595,005
===================================================================================================
</TABLE>
See accompanying notes to unaudited consolidated financial statements
1
<PAGE> 4
<TABLE>
<CAPTION>
Consolidated Statements of Income (Unaudited)
(in thousands except per share data)
-------------------------------------------------------------------------------------------------------------
Six Months Ended June 30 Three Months Ended June 30
------------------------ --------------------------
1995 1994 1995 1994
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest Income $ 81,048 $ 51,621 $ 43,017 $ 26,575
Interest Expense 37,601 18,425 20,365 9,967
-------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 43,447 33,196 22,652 16,608
-------------------------------------------------------------------------------------------------------------
Provision for possible loan losses 1,479 - 1,479 -
-------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 41,968 33,196 21,173 16,608
-------------------------------------------------------------------------------------------------------------
NONINTEREST INCOME:
Service charges on deposit accounts 4,798 4,912 2,448 2,479
Trust services 213 181 109 94
Other income 4,019 1,628 2,285 632
Trading account gains (losses), net 297 - (78) -
Securities and other financial
instruments gains (losses), net (1,088) (215) 326 (45)
-------------------------------------------------------------------------------------------------------------
Total noninterest income 8,239 6,506 5,090 3,160
-------------------------------------------------------------------------------------------------------------
NONINTEREST EXPENSE:
Salaries and employee benefits 11,808 11,349 6,008 5,021
Net occupancy 1,970 1,894 964 945
Data processing 1,064 1,432 547 690
FDIC deposit insurance 1,797 1,437 898 719
Goodwill amortization 1,070 1,006 571 456
Other expenses 7,506 5,140 3,917 2,551
-------------------------------------------------------------------------------------------------------------
Total noninterest expenses 25,215 22,258 12,905 10,382
-------------------------------------------------------------------------------------------------------------
Income before income taxes 24,992 17,444 13,358 9,386
Income tax expense 8,829 6,078 4,760 3,269
-------------------------------------------------------------------------------------------------------------
NET INCOME $ 16,163 $ 11,366 $ 8,598 $ 6,117
-------------------------------------------------------------------------------------------------------------
NET INCOME PER COMMON SHARE $ 2.11 $ 1.49 $ 1.12 $ 0.80
-------------------------------------------------------------------------------------------------------------
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING 7,646 7,649 7,648 7,646
-------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
2
<PAGE> 5
Consolidated Statements Of Changes In Shareholders' Equity (Unaudited)
Six Months Ended June 30, 1995 and 1994
(In thousands except per share data)
<TABLE>
<CAPTION>
Unrealized Holding
Gains (Losses)
on Available-
Preference Common Retained for-Sale
Stock Stock Surplus Earnings Securities, net of tax Total
-----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993 $0 $758 $2,997 $138,641 $ 992 $143,388
Net income --- --- --- 11,366 --- 11,366
Shares issued under the stock option plan,
75,000 common shares --- 7 1,976 --- --- 1,983
Repurchase of 30,000 common shares --- (3) (709) (376) --- (1,088)
Unrealized losses on Available-for-Sale
securities, net of tax benefit of $445 --- --- --- --- (826) (826)
Cash dividends declared on common stock,
$0.29 per common share --- --- --- (2,208) --- (2,208)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1994 $0 $762 $4,264 $147,423 $ 166 $152,615
-----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1994 $0 $762 $4,264 $157,786 ($5,953) $156,859
Net income --- --- --- 16,163 --- 16,163
Unrealized gains on Available-for-Sale
securities, net of tax expense of $5,081 --- --- --- --- (9,436) 9,436
Cash dividends declared on common stock,
$0.325 per common share --- --- --- (2,476) --- (2,476)
Retirement of 5,000 shares --- --- (200) --- --- (200)
-----------------------------------------------------------------------------------------------------------------------------------
Balance at June 30, 1995 $0 $762 $4,064 $171,473 $3,483 $179,782
-----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to unaudited consolidated financial statements
3
<PAGE> 6
<TABLE>
<CAPTION>
Consolidated Statements Of Cash Flows (Unaudited)
(in thousands)
---------------------------------------------------------------------------------------------------------------------
Six Months ended June 30
------------------------
1995 1994
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 16,163 $ 11,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible loan losses 1,479 --
Depreciation and amortization 926 895
Amortization of goodwill 1,070 1,006
Deferred income tax (benefit) expense (2,035) 1,232
Decrease in trading account securities 74,729 --
Securities losses, net of gains 1,088 215
Gains on trading account securities (297) --
Gains on disposition of loans (1,935) (799)
(Increase) decrease in other assets, net (372) 277
Increase in other liabilities and minority interest, net 3,834 6,049
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 94,650 20,241
---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additional investment in Aetna Bancorp (42) --
Proceeds from maturities of Held-to-Maturity securities 2,952 10,236
Proceeds from maturities of Available-for-Sale securities 13,041 117,308
Proceeds from sales of Available-for-Sale securities 797,070 1,819,715
Purchases of securities (867,610) (2,097,831)
Net increase in loans (227,820) (34,226)
Purchases of premises and equipment, net (548) (2,848)
---------------------------------------------------------------------------------------------------------------------
NET CASH USED FOR INVESTING ACTIVITIES (282,957) (187,646)
---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Increase in deposit accounts 30,716 140,558
Increase (Decrease) in short-term borrowings, net 27,670 (1,488)
Issuance of common shares under the stock option
plan, net of repurchase -- 895
Repayment of subordinated debentures -- (1,185)
Retirement of common shares (200) --
Cash dividends paid on common shares (2,286) (2,126)
---------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 55,900 136,654
---------------------------------------------------------------------------------------------------------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (132,407) (30,751)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 206,665 111,674
---------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 74,258 $ 80,923
---------------------------------------------------------------------------------------------------------------------
See accompanying notes to unaudited consolidated financial statements
Supplemental schedule of noncash investing and financing activities:
Additional investment in Belmont National Bank $ 3,000 --
</TABLE>
4
<PAGE> 7
RIVER FOREST BANCORP, INC.
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1) Basis of Presentation
The consolidated financial statements of River Forest Bancorp, Inc. ("Bancorp")
and Subsidiaries presented herein are unaudited, but in the opinion of
management reflect all necessary adjustments for a fair presentation of results
as of the dates and for the periods covered by the consolidated financial
statements.
The accompanying interim consolidated financial statements are unaudited and do
not include information or footnotes necessary for a complete presentation of
financial condition, results of operations or cash flows in accordance with
generally accepted accounting principles. Operating results for the six-month
periods presented are not necessarily indicative of the results which may be
expected for the entire year. It is suggested that the unaudited consolidated
financial statements contained herein be used in conjunction with the
consolidated financial statements and related notes and disclosures included in
Bancorp's Annual Report and Form 10-K for the year ended December 31, 1994.
2) Per Common Share Data
Net income per common share is computed by dividing net income available to
common shareholders by the weighted average number of common shares and common
share equivalents outstanding during the respective periods.
3) Statement of Financial Accounting Standard No. 115:
In May of 1993, the FASB issued Statement of Financial Accounting Standard No.
115, "Accounting for Certain Investments in Debt and Equity Securities" (SFAS
No. 115). The statement addresses the accounting and reporting for certain
investments in debt securities and equity securities. It expands the use of
fair value accounting for those securities but retains the use of the amortized
cost method for investments in debt securities that the reporting enterprise
has the positive intent and ability to hold to maturity.
SFAS No. 115 requires an enterprise to classify securities into one of three
categories: Held-to-Maturity, Available-for-Sale, or Trading. Investments in
debt securities shall be classified as Held-to-Maturity and measured at
amortized cost in the statement of condition only if the reporting enterprise
has the positive intent and ability to hold those securities to maturity.
Investments in debt securities that are not classified as Held-to-Maturity
shall be classified as Trading securities or Available-for-Sale securities and
measured at fair value in the statement of condition. Unrealized holding gains
and losses for Trading securities shall be included in earnings. Unrealized
holding gains and losses for Available-for-Sale securities shall be excluded
from earnings and reported as a net amount in a separate component of
shareholders' equity until realized. Bancorp implemented SFAS No. 115 on
December 31, 1993.
4) Acquisition
On July 6, 1993, Bancorp acquired a 99% interest in Belmont National Bank
("Belmont"). At the time of acquisition Belmont had assets of approximately
$112 million. The acquisition was a cash purchase accounted for under the
purchase method of accounting. Therefore, the assets and liabilities and the
results of operations of Belmont are included in Bancorp's Consolidated
Statements of Condition and Income since the date of acquisition.
5
<PAGE> 8
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
River Forest Bancorp, Inc. ("Bancorp"), incorporated on October 15, 1958 under
the laws of the State of Minnesota, is a multi-bank holding company in the
business of providing financial services primarily through its banking
subsidiaries to customers in the Chicago metropolitan area. As of June 30,
1995 Bancorp owned eight bank subsidiaries ("Banks") including River Forest
State Bank & Trust Company ("River Forest"), Lincoln National Bank ("Lincoln"),
Commercial National Bank ("Commercial"), First State Bank of Calumet City
("Calumet City"), Madison Bank N.A. ("Madison"), First National Bank of
Wheeling ("Wheeling"), Aetna Bank ("Aetna") and Belmont National Bank
("Belmont"). Bancorp's ownership interest in River Forest, Lincoln and Belmont
is 98.9%, 93.0% and 99.5%, respectively. All other Banks are wholly-owned.
Acquisitions within the last three calendar years prior to the date of this
report include $112-million-asset Belmont National Bank on July 6, 1993. As
discussed in the accompanying notes to the consolidated financial statements,
Belmont's assets and liabilities and the results of operations are reflected in
Bancorp's financial statements since July 6, 1993, the date of acquisition. On
June 21, 1995 Madison Bank and Trust Company and Madison National Bank of Niles
were merged to form Madison Bank N.A. for the purpose of enhancing operating
efficiencies and improve customer service.
The management of Bancorp presents the following discussion and analysis of its
financial condition as of June 30, 1995 compared with December 31, 1994 and
June 30, 1994 and the results of operations for the periods ending June 30,
1995 and 1994. This discussion should be read in conjunction with Bancorp's
unaudited consolidated financial statements contained in this report.
NET INCOME
Bancorp reported net income for the quarter ended June 30, 1995 was $8.6
million, or $1.12 per share. This was a 41% increase over 1994's second
quarter earnings of $6.1 million, or $0.80 per share. The Company's second
quarter earnings represented returns of 19.7% on shareholders' equity and 1.8%
on assets. For the first six months of 1995 net income reached $16.2 million
or $2.11 per share, a 42% increase over 1994's second half earnings of $11.4
million or $1.49 per share. First half earnings represented returns of 19.2%
on shareholder's equity and 1.70% on assets.
The following sections provide a detailed discussion of various factors
impacting Bancorp's net income.
NET INTEREST INCOME
The major source of earnings for Bancorp continues to be net interest income.
Net interest income is defined as the difference between interest income and
fees on earning assets and interest expense on deposits and borrowings. The
related net interest margin represents the net interest income on a fully tax
equivalent basis as a percentage of average earning assets during the period.
The table on the following page presents a summary of Bancorp's net interest
income and related net interest margin, calculated on a fully taxable
equivalent basis.
6
<PAGE> 9
<TABLE>
<CAPTION>
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NET INTEREST INCOME ANALYSIS
(Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30 JUNE 30
-----------------------------------------------------------------------------------------------------------------
1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net interest income $ 43,447 $ 33,196 $ 22,652 $ 16,608
Taxable equivalent adjustment 724 820 361 415
-----------------------------------------------------------------------------------------------------------------
Taxable equivalent net
interest income $ 44,171 $ 34,016 $ 23,013 $ 17,023
-----------------------------------------------------------------------------------------------------------------
Average earning assets $1,788,689 $1,374,653 $1,808,419 $1,418,134
-----------------------------------------------------------------------------------------------------------------
Net interest margin 4.94% 4.95% 5.09% 4.80%
-----------------------------------------------------------------------------------------------------------------
</TABLE>
During the second quarter of 1995, Bancorp had $2.2 million of interest income
from the accretion of acquisition discount related to several groups of
non-performing student loan pools compared with $0.6 million in the second
quarter of 1994. There was no interest rate floor or cap income in the second
quarter of 1995 compared with $0.7 million in 1994.
For the first half of 1995, Bancorp had $4.4 million of interest income from
the accretion of acquisition discount related to several groups of
non-performing student loan pools compared with $1.0 million in the same period
in 1994. However, the first half of 1995 had no interest rate floor or cap
income compared with $2.2 million for the same period in 1994.
<TABLE>
<CAPTION>
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RECONCILIATION OF FULLY TAX EQUIVALENT NET INTEREST INCOME
(Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------
<S> <C>
Fully tax equivalent net interest income for the six months ended June 30, 1994 $ 34,016
Change due to average earning assets fluctuations 10,247
Change due to interest rate fluctuations (69)
Change due to rate/volume fluctuations (23)
-----------------------------------------------------------------------------------------------------------------
Fully tax equivalent net interest income for the six months ended June 30, 1995 $ 44,171
-----------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE> 10
ASSET QUALITY
Allowance for Possible Loan Losses
A reconciliation of the activity in Bancorp's allowance for possible loan
losses for the six and three month periods under review is shown as follows:
<TABLE>
<CAPTION>
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ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 20,157 $ 19,552 $ 19,970 $ 19,680
Provision for possible loan losses 1,479 0 1,479 0
Charge-offs (390) (130) (124) (37)
Recoveries 267 423 188 202
-----------------------------------------------------------------------------------------------------------------------------
Balance at June 30 $ 21,513 $ 19,845 $ 21,513 $ 19,845
-----------------------------------------------------------------------------------------------------------------------------
Loans at June 30 $1,330,141 $1,014,149 $1,330,141 $1,014,149
-----------------------------------------------------------------------------------------------------------------------------
Allowance as a percentage of loans 1.62% 1.96% 1.62% 1.96%
-----------------------------------------------------------------------------------------------------------------------------
Annualized net (charge-offs) recoveries
as a percentage of :
Total loans (0.02%) 0.06% 0.02% 0.07%
-----------------------------------------------------------------------------------------------------------------------------
Annualized provision for possible
loan losses (8.32%) N/A 4.33% N/A
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
In light of the increased loans outstanding, the greater risk embodied within
some of the loans, and the student loan servicing problem cited on the
following page, management decided that a $1.5 million provision was prudent.
.
Non-performing Assets
The table on the following page presents a summary of non-performing assets as
of June 30, 1995, March 31, 1995, December 31, 1994 and June 30, 1994. The
non-performing loan balances included in the table are all: i) nonaccrual
loans, ii) restructured loans, and iii) all loans which are 90 days or more
past due and are still accruing interest. Excluded from the totals are student
loans that Bancorp has no reason to believe have lost their guarantee.
Guaranteed student loans more than 90 days past due and not included in the
table totaled $8,389,000 at June 30, 1995, $12,806,000 at March 31, 1995,
$11,879,000 at December 31, 1994, and $8,194,000 at June 30, 1994.
8
<PAGE> 11
Included under the June 30, 1995 column are $6.5 million of non-accrual student
loans which may have lost their guarantees. This potential loss of guarantees
was the result of certain, since terminated, personnel in the student loan
servicing area who falsified some records of telephone calls to students whose
loans were delinquent. While the rules of student loan servicing are complex,
one of the cornerstones of the business is contacting students regarding the
status of their delinquent loans. These contacts, and a detailed record of such
telephone calls, are crucial actions required to maintain the enforceability of
the guarantee.
In order to assure that a problem of this nature never occurs again, Bancorp
has implemented a sophisticated computer system which, among things, checks all
calls logged by servicing representatives against calls actually made. The
system then automatically generates an "exception list" detailing all
differences between logged calls and actual calls. All exceptions are resolved
immediately.
As to whether the aforementioned student loans have actually lost their
guarantee is a complicated and, presently, unclear issue. Bancorp informed the
Department of Education ("ED") immediately upon the discovery of the problem.
Moreover, the ED is aware that Bancorp management was in no way involved in the
falsification of the telephone records. Bancorp is fully cooperating with the
ED in their investigation of the problem. Based on the preceding aspects of the
issue, as well as various related elements, Bancorp feels that the ED should
agree that the affected student loans never lost their guarantee and/or allow
the affected student loans to be "cured" (i.e. the guarantee to be reinstated).
While Bancorp feels quite strongly about its position, the ED has neither given
an indication of their current thinking nor when the Bancorp might expect an
"answer."
<TABLE>
<CAPTION>
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NON-PERFORMING ASSETS
(Dollars in thousands)
------------------------------------------------------------------------------------------------------------------------
JUNE 30 March 31 December 31 June 30
1995 1995 1994 1994
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Non-performing loans:
Residential real estate $ 2,900 $2,766 $1,962 $ 2,140
Commercial real estate 4,188 3,659 3,225 3,057
Commercial 86 92 834 703
Home equity 894 320 451 188
Student 6,632 125 131 4,646
Consumer 1,049 1,056 765 535
------------------------------------------------------------------------------------------------------------------------
Total non-performing loans 15,749 8,018 7,368 11,269
Other real estate owned (OREO) 1,021 901 916 1,782
------------------------------------------------------------------------------------------------------------------------
Total non-performing assets $16,770 $8,919 $8,284 $13,051
------------------------------------------------------------------------------------------------------------------------
Non-accrual loans included in non-
performing loans $ 9,106 $3,330 $2,389 $ 6,925
------------------------------------------------------------------------------------------------------------------------
Non-performing loans/Total loans 1.18% 0.66% 0.67% 1.11%
Non-performing assets/Total assets 0.85% 0.47% 0.44% 0.82%
Allowance for loan losses/
non-performing loans 136.60% 249.06% 273.57% 176.10%
------------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE> 12
Once again we would like to report on the progress we have made with a group of
non-performing student loans purchased in January, 1994. These loans were
purchased for $13.5 million, a substantial discount from their face value of
approximately $150 million. At June 30, 1995, the Bancorp had converted
approximately $34.7 million of these loans to performing status, a substantial
increase in net cured loans of $13.7 million from the December 31, 1994 year
end level. Management is diligently working to convert additional loans to
performing status and has through November 30, 1995 to complete the conversion
of such loans to performing status. This deadline has been established by the
Department of Education. The amount of performing loans in excess of the cost
is being accreted into income over the estimated lives of the loans.
The OREO balance remains at a low and very manageable level. Management will
continue to work diligently to keep the level of OREO minimal. Bancorp has
analyzed the market value of all OREO and has determined that no significant
losses are anticipated as a result of liquidating these properties.
NONINTEREST INCOME
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NONINTEREST INCOME
(Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
------------------------ --------------------------
1995 1994 1995 1994
-----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Service charges on deposit accounts $4,798 $ 4,912 $2,448 $2,479
Trust fees 213 181 109 94
Other income 4,019 1,628 2,285 632
Trading account gains (losses), net 297 -- (78) --
Securities and other financial
instruments gains (losses), net (1,088) (215) 326 (45)
-----------------------------------------------------------------------------------------------------------------------------
Total noninterest income $8,239 $6,506 $5,090 $3,160
-----------------------------------------------------------------------------------------------------------------------------
</TABLE>
Noninterest income increased in the first half of 1995 to $8.2 million, a 26%
increase over the 1994 first half result of $6.5 million. This $1.7 million
increase was almost wholly attributable to the amount of cures in the
non-performing student loan pools, with the majority of the income related to
the pool purchased in January, 1994 as discussed above.
The securities losses in the first quarter of 1995 were the result of selling
lower yielding fixed rate securities.
10
<PAGE> 13
NONINTEREST EXPENSE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
ANALYSIS OF NONINTEREST EXPENSE
(Dollars in thousands)
----------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30 THREE MONTHS ENDED JUNE 30
------------------------ --------------------------
1995 1994 1995 1994
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Salaries and employee benefits $11,808 $11,349 $ 6,008 $ 5,021
Net occupancy expense 1,970 1,894 964 945
Data processing 1,064 1,432 547 690
FDIC insurance 1,797 1,437 898 719
Goodwill amortization 1,070 1,006 571 456
Other 7,506 5,140 3,917 2,551
----------------------------------------------------------------------------------------------------------------------
Total noninterest expense $25,215 $22,258 $12,905 $10,382
======================================================================================================================
</TABLE>
Noninterest expense increased to $25.2 million in the first half of 1995, a 13%
increase over the $22.3 million figure from the same period in 1994. This $2.9
million increase is attributable to variety of factors, among those: i) loan
expense increased by $1.0 million, primarily a function of the costs that
Bancorp absorbed (e.g. appraisals, title insurance) related to the
substantially increased home equity loan production, ii) salaries and employee
benefits rose $0.46 million, the result of increased staffing required to
originate and service our growing portfolios in the commercial real estate,
home equity, and student lending areas, iii) FDIC insurance climbed by $0.36
million related to the Bancorp's significantly larger deposit base, and iv)
increased advertising of $0.25 million for various marketing programs.
INCOME TAXES
Income tax expense increased 45% in the first half of 1995 to $8,829,000 from
$6,078,000 one year ago due primarily to the higher level of pre-tax income.
Tax-exempt income continued to decline due to maturities of tax-advantaged
assets.
FINANCIAL CONDITION
INTEREST-EARNING ASSETS
Bancorp's consolidated total assets at June 30, 1995 were $1.98 billion, a 5%
increase from the year-end level of $1.89 billion; however, the asset level has
increased over $380 million, or 24%, from the June 30, 1994 level as a result
of strong deposit growth. Total loans at June 30, 1995 were $1.3 billion, an
increase of $230 million or 21%, from year-end, and an increase of $316 million
or 31% from their level one year ago. The loan growth is primarily
attributable to the success of the Company's commercial real estate and home
equity loan programs.
At June 30, 1995 total securities (Available-for-Sale securities,
Held-to-Maturity securities and Trading account securities) were $493 million,
down 1% from $499 million at December 31, 1994, but 9% higher than their
year-ago level. Approximately 55% of total securities consist of U.S. Treasury
and government agency securities, 2% are comprised of municipal and
tax-advantaged securities and 43% are comprised of other debt and equity
securities. Included in the Available-for-Sale securities are approximately
$23.9 million of
11
<PAGE> 14
investments in equity securities of publicly traded banks. As of June 30, 1995,
Bancorp had minority investments in 24 different banks with unrealized holding
gains of approximately $4.7 million. Gains of approximately $170,000 have been
recognized in earnings on sales of these equity securities during the first
half of 1995.
Bancorp held no Trading account securities at June 30, 1995, compared to $74.4
million of Trading account securities at December 31, 1994. Net gains realized
on trading activity during the first half of 1995 were approximately $297,000.
The following table details the composition of Bancorp's earning assets.
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
ENDING PORTFOLIOS AS A PERCENT OF EARNING ASSETS
------------------------------------------------------------------------------------------------------------------------
JUNE 30 March 31 December 31 June 30
1995 1995 1994 1994
------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Loans:
Student 20% 21% 21% 22%
Commercial real estate 24 22 19 19
Residential real estate 15 13 13 16
Commercial 5 4 4 5
Consumer and home equity 8 6 5 5
Industrial revenue bonds 1 2 2 2
------------------------------------------------------------------------------------------------------------------------
Total Loans 73 68 64 69
------------------------------------------------------------------------------------------------------------------------
Federal funds sold, money
market deposits and securities 27 32 36 31
------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100%
========================================================================================================================
</TABLE>
DEPOSITS AND INTEREST BEARING LIABILITIES
Total deposits at June 30, 1995 were $1.73 billion or 23% higher than the
year-ago level of $1.41 billion and slightly higher than compared to the prior
year-end level. Due to rising interest rates and a successful marketing
campaign which offers a money market account indexed to short-term market
rates, money market deposits have risen approximately $105 million from
year-end and $415 million from one year ago. The table on the following page
indicates that the rise in money market deposits has decreased the relative
composition of other deposit products by type.
Federal funds purchased increased to $30.7 million as compared with $6.7
million at December 31, 1994 and $5.0 million at June 30, 1994. The increase
in federal funds purchased since year-end is attributable to a greater rate of
growth in loans relative to deposits. The increase over the prior year level
is due to loan growth as well as seasonal fluctuations in liquidity. Treasury
tax and loan note ("TT&L") option accounts were $7.1 million, $3.5 million and
$7.1 million at June 30, 1995, December 31, 1994 and June 30, 1994,
respectively. The balances of TT&L accounts fluctuate with the number and
magnitude of the Federal Reserve Bank's call payments.
12
<PAGE> 15
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------------------------
DEPOSIT COMPOSITION ANALYSIS
---------------------------------------------------------------------------------------------------------------------------
JUNE 30 March 31 December 31 June 30
1995 1995 1994 1994
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Demand 10% 10% 12% 13%
NOW 6 6 7 9
Money Market 52 52 48 36
Savings 14 14 15 19
Certificates of Deposit 18 18 18 23
---------------------------------------------------------------------------------------------------------------------------
Total 100% 100% 100% 100%
===========================================================================================================================
</TABLE>
SHAREHOLDERS' EQUITY
Shareholders' equity grew 18% to $179.8 million at June 30, 1995, from $152.6
million one year ago. Since December 31, 1994 shareholders' equity has grown
$22.9 million. Cash dividends declared on common stock in the first half of
1995 were $2.5 million, a 12% increase over dividends declared in the prior
year period of $2.2 million. There were $3.5 million of unrealized holding
gains at June 30, 1995, compared with $6.0 million of unrealized holding losses
on Available-for-Sale securities at December 31, 1994. Bancorp's consolidated
leverage ratio (Tier 1 capital/total average quarterly assets) was 8.81% at
June 30, 1995, well above the minimum regulatory levels. Consolidated Tier 1
and total risk-based capital were 11.29% and 12.54%, respectively, exceeding
the well-capitalized Tier 1 and total risk-based capital ratios of 6.00% and
10.00%, respectively.
LIQUIDITY AND INTEREST RATE SENSITIVITY
Bancorp manages the liquidity position of its banking operations to ensure that
sufficient funds are available to meet customers' needs for loans and deposit
withdrawals. The liquidity to meet the demand is provided by maturing assets,
net liquid assets that can be converted to cash, and the ability to attract
funds from external sources. "Net liquid assets" refers to federal funds sold
and to marketable, unpledged securities which can be quickly sold without
material loss of principal.
Interest rate sensitivity is the fluctuation in earnings resulting from changes
in market interest rates. Bancorp continuously monitors not only the
organization's current net interest margin, but also the historical trends of
these margins. In addition, Bancorp also attempts to identify potential adverse
swings in net interest income in future years, as a result of interest rate
movements, by performing computerized simulation analysis of potential interest
rate environments. If a potential adverse swing in net interest margin and/or
net income are identified, Bancorp then would take appropriate actions within
its asset/liability structure to counter these potential adverse situations.
Please refer to the section entitled "Net Interest Income" for further
discussion.
13
<PAGE> 16
INFLATION
A banking organization's assets and liabilities are primarily monetary.
Changes in the rate of inflation do not have as great an impact on the
financial condition of a bank as do changes in interest rates. Moreover,
interest rates do not necessarily change at the same percentage as does
inflation. An analysis of a banking organization's asset and liability
structure provides the best indication of how a banking organization is
positioned to respond to changing interest rates and maintain profitability.
EFFECTS OF NEW ACCOUNTING PRONOUNCEMENTS
Statement of Financial Accounting Standard No. 114:
In May of 1993, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standard No. 114, "Accounting by Creditors
for Impairment of a Loan" (SFAS No. 114). The statement generally addresses
the accounting by creditors for impairment of a loan by specifying how
allowances for credit losses related to certain loans should be determined and
the accounting by creditors for all loans that are restructured in a troubled
debt restructuring involving a modification of terms of a receivable, except
for certain debt restructurings identified in SFAS No. 114. For Bancorp, the
statement will be effective for fiscal year 1995. The application of SFAS No.
114 is not anticipated to have a significant impact on Bancorp's financial
performance.
PART II
<TABLE>
ITEMS 1-3:
<S> <C>
These items have been omitted from this Form 10-Q since they are inapplicable
or would contain a negative response.
ITEM 4: MATTERS SUBMITTED TO A VOTE OF SECURITY HOLDERS
None.
ITEM 5: OTHER INFORMATION
None.
ITEM 6: EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
Computation of Net Income Per Common Share - Exhibit 11 Page 15
Quarterly Report to Shareholders - Exhibit 28 Attached
(b) Reports on Form 8-K.
None.
</TABLE>
14
<PAGE> 17
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 thereunto duly authorized.
RIVER FOREST BANCORP, INC.
(Registrant)
Date: July 31, 1995 /s/ Tim H. Taylor
Senior Vice President, Finance
Date: July 31, 1995 /s/ Jay B. Kaun
Vice President & Chief
Accounting Officer
15
<PAGE> 1
EXHIBIT 11
RIVER FOREST BANCORP, INC.
COMPUTATION OF NET INCOME PER COMMON SHARE
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30
------------------------------
1995 1994
----------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Net Income (A) $16,163,000 $ 11,366,000
----------------------------------------------------------------------------------------------------------------------------
Common Shares Outstanding 7,620,338 7,621,171
Common Share Equivalents (1) 25,998 27,658
----------------------------------------------------------------------------------------------------------------------------
Weighted Average Common Shares and
Common Stock Equivalents (B) 7,646,336 7,648,829
----------------------------------------------------------------------------------------------------------------------------
Net Income per Common Share (A/B) $2.11 $1.49
----------------------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Common share equivalents result from stock options being treated as if they
had been exercised and are computed by application of the treasury stock
method.
<PAGE> 1
EXHIBIT 28
Lincoln National Bank Building
3959 N. Lincoln Ave.
Chicago, IL 60613 (312) 549-7100
July 21, 1995
Dear Shareholders:
It is our pleasant duty to report that earnings for the second quarter of 1995
were the highest of any quarter in Bancorp's history. Net income for the
quarter ended June 30, 1995 was $8.6 million or $1.12 per share. This is a 41%
increase over 1994's second quarter earnings of $6.1 million or $0.80 per
share. For the first half of 1995 net income reached $16.2 million or $2.11 per
share, a 42% increase over 1994's first half earnings of $11.4 million or $1.49
per share.
Common shareholders' equity grew 18% to $180 million at June 30, 1995, from
$153 million one year ago. Common shareholder's equity per share also grew 18%,
from $19.96 per share to $23.51 per share at June 30, 1995.
We experienced healthy growth in both deposits and loans. Total deposits rose
23% to $1.7 billion compared to $1.4 billion at June 30, 1994. Total loans
increased 31% to $1.3 billion at June 30, 1995 from $1.0 billion a year ago.
The employment of our increased deposits into loans rather than temporarily
invested in securities results in much improved yields and contributes to
improved earnings.
Another major factor in any business earnings result is expense control. Our
company has consistently achieved an outstanding efficiency ratio, and for the
six months ended June 30, 1995, it was 45.2%. By way of comparison, as of March
31, 1995 (the latest available information) our Midwest-based peer group
efficiency ratio was 63.2%. In that March 31, 1995 study, our company not only
garnered the #1 ranking in this regard, but did so with more than a 5% margin
over the next closest peer. This difference underscores our knowing when to
minimize costs and when to spend money.
As we have for the past two years, we attach detailed reports we furnish to
securities and financial analysts to keep you fully informed.
Joseph C. Glickman Robert J. Glickman
Joseph C. Glickman Robert J. Glickman
Chairman of the Board President and Chief
Executive Officer
<PAGE> 2
Summary Financial Data (Unaudited)
(in thousands except per share data)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
1995 1994 1993
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
FOR THE SIX MONTHS ENDED JUNE 30:
Cash dividends declared per common share $ 0.325 $ 0.290 $ 0.265
Net interest income (fully tax equivalent) 44,171 34,016 33,999
Average earning assets 1,788,689 1,374,653 1,233,929
Net interest margin (fully tax equivalent) 4.94% 4.95% 5.51%
Annualized net income / average common equity (ROE) 19.17% 15.40% 19.69%
Annualized net income / average assets (ROA) 1.70% 1.54% 1.88%
Efficiency Ratio 45.20% 52.30% 44.30%
FOR THE THREE MONTHS ENDED JUNE 30:
Cash dividends declared per common share $ 0.175 $ 0.150 $ 0.140
Net interest income (fully tax equivalent) 23,013 17,023 16,950
Average earning assets 1,808,419 1,418,134 1,245,905
Net interest margin (fully tax equivalent) 5.09% 4.80% 5.44%
Annualized net income / average common equity (ROE) 19.70% 16.34% 19.71%
Annualized net income / average assets (ROA) 1.79% 1.61% 1.91%
Efficiency Ratio 45.40% 48.50% 43.40%
ASSET QUALITY AT JUNE 30:
Non-performing loans (NPLs) $ 15,749 $ 11,269 $ 6,771
Other real estate owned 1,021 1,782 4,977
Total non-performing assets 16,770 13,051 11,748
NPLs / Total loans 1.18% 1.11% 0.74%
Allowance for possible loan losses / NPLs 136.60% 176.10% 269.41%
Allowance for possible loan losses / Total loans 1.62% 1.96% 1.99%
CAPITAL RATIOS AT JUNE 30:
Leverage 8.81% 9.43% 9.10%
Tier 1 capital 11.29% 14.28% 14.93%
Total risk-based capital 12.54% 15.53% 16.18%
Common equity 9.09% 9.57% 9.87%
COMMON STOCK DATA AT JUNE 30:
Market price per common share $ 40.50 $ 35.06 $ 37.25
Common shareholder's equity per share 23.51 19.96 17.23
</TABLE>
1
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<CURRENCY> U.S.DOLLARS
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> JUN-30-1995
<EXCHANGE-RATE> 1
<CASH> 73,088
<INT-BEARING-DEPOSITS> 25,000
<FED-FUNDS-SOLD> 1,170
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 476,656
<INVESTMENTS-CARRYING> 16,302
<INVESTMENTS-MARKET> 16,329
<LOANS> 1,330,141
<ALLOWANCE> 21,513
<TOTAL-ASSETS> 1,977,789
<DEPOSITS> 1,729,214
<SHORT-TERM> 37,835
<LIABILITIES-OTHER> 28,960
<LONG-TERM> 0
<COMMON> 762
0
0
<OTHER-SE> 179,020
<TOTAL-LIABILITIES-AND-EQUITY> 1,977,789
<INTEREST-LOAN> 60,802
<INTEREST-INVEST> 17,479
<INTEREST-OTHER> 2,767
<INTEREST-TOTAL> 81,048
<INTEREST-DEPOSIT> 34,784
<INTEREST-EXPENSE> 37,601
<INTEREST-INCOME-NET> 43,447
<LOAN-LOSSES> 1,479
<SECURITIES-GAINS> (791)
<EXPENSE-OTHER> 25,215
<INCOME-PRETAX> 24,992
<INCOME-PRE-EXTRAORDINARY> 24,992
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 16,163
<EPS-PRIMARY> 2.11
<EPS-DILUTED> 2.11
<YIELD-ACTUAL> 4.95
<LOANS-NON> 9,106
<LOANS-PAST> 6,643
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 20,157
<CHARGE-OFFS> (390)
<RECOVERIES> 267
<ALLOWANCE-CLOSE> 21,513
<ALLOWANCE-DOMESTIC> 100
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
