<PAGE>
UNITED STATES
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 the Quarter Ended Commission File
MARCH 31, 1996 NO. 0-23854
COLE TAYLOR
FINANCIAL GROUP, INC.
Exact Name of Registrant as Specified in Charter
DELAWARE 36-3235321
- ------------------------------- ---------------------
State or Other Jurisdiction of I.R.S. Employer
Incorporation or Organization Identification Number
350 EAST DUNDEE ROAD, SUITE 300
WHEELING, ILLINOIS 60090-3199
Address of Principal Executive Offices
(847) 459-1111
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 for 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_____
The number of shares outstanding of each of the Registrant's classes of common
stock, as of the latest practicable date:
Class Outstanding at May 6, 1996
- ------------------------------- --------------------------
Common Stock, $.01 Par Value 14,628,334
Exhibit Index is located on page 22
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
---------------------------------
INDEX
-----
<TABLE>
<CAPTION>
<S> <C> <C>
PART I. FINANCIAL INFORMATION.............................................. Page
- ----------------------------- ----
Item 1. Financial Statements
Consolidated Balance Sheets -
March 31, 1996 and December 31, 1995........................... 3
Consolidated Statements of Income -
Three Months Ended March 31, 1996 and 1995..................... 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995..................... 5
Notes to Consolidated Financial Statements......................... 6
Item 2. Management's Discussion and Analysis of the Results
of Operations and Financial Condition.......................... 9
PART II. OTHER INFORMATION
- -----------------------------
Item 1. Legal Proceedings.................................................. 20
Item 2. Changes in Securities.............................................. 20
Item 3. Defaults Upon Senior Securities.................................... 20
Item 4. Submission of Matters to a Vote of Security Holders................ 20
Item 5. Other Information.................................................. 20
Item 6. Exhibits and Reports on Form 8-K................................... 20
</TABLE>
2
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands)
------------
<TABLE>
<CAPTION>
(Unaudited)
March 31, December 31,
1996 1995
----------- -----------
<S> <C> <C> <C>
ASSETS
Cash and due from banks $58,973 $68,413
Interest-bearing due from banks 46,280 19,134
Federal funds sold 300 5,000
Investment securities:
Available-for-sale at fair value 338,512 361,735
Held-to-maturity, at amortized cost
(fair value of $78,036 at
March 31, 1996 and $80,239 at 75,085 76,613
December 31, 1995)
Loans, less allowance for loan losses
and dealer discounts of $39,117 at
March 31, 1996, and $36,524 at 1,504,012 1,406,824
December 31, 1995
Premises, leasehold improvements and 19,012 18,679
equipment, net
Other assets 60,046 52,785
---------- ----------
Total assets $2,102,220 $2,009,183
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Deposits:
Noninterest-bearing $283,621 $317,878
Interest-bearing 1,176,857 1,041,258
---------- ----------
Total deposits 1,460,478 1,359,136
Commercial paper borrowings 150,000 128,340
Other short-term borrowings 149,469 201,579
Accrued interest, taxes and other
liabilities 24,607 21,929
Long-term debt 160,093 143,660
---------- ----------
Total liabilities 1,944,647 1,854,644
---------- ----------
Commitments and contingencies
Stockholders' equity
Preferred stock, $.01 par value; --- ---
20,000,000 shares authorized
Common stock, $.01 par value;
40,000,000 shares authorized;
14,581,797
and 14,571,429 shares issued and
outstanding at March 31, 1996,
and December 31, 1995, respectively 146 146
Class A common stock, $.01 par value; --- ---
2,000,000 shares authorized
Surplus 75,325 75,212
Retained earnings 85,067 79,516
Unrealized holding loss on securities
available-for-sale, net of income
taxes (2,708) (78)
Employee Stock Ownership Plan loan (257) (257)
---------- ----------
Total stockholders' equity 157,573 154,539
---------- ----------
Total liabilities and $2,102,220 $2,009,183
stockholders' equity ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
3
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(in thousands, except per share data)
------------------------------------
For the three months
ended March 31,
--------------------
1996 1995
------- -------
Interest income:
Interest and fees on loans $42,243 $31,139
Interest on investment securities:
Taxable 5,711 6,372
Tax-exempt 982 992
Interest on federal funds sold 173 198
------- -------
Total interest income 49,109 38,701
------- -------
Interest expense:
Deposits 12,655 10,740
Short-term borrowings 4,600 3,265
Long-term debt 2,998 3,021
------- -------
Total interest expense 20,253 17,026
------- -------
Net interest income 28,856 21,675
Provision for loan losses 999 1,277
------- -------
Net interest income after
provision for loan losses 27,857 20,398
Service charges 2,103 1,671
Trust fees 856 793
Mortgage banking income 338 157
Other noninterest income 769 870
------- -------
Total noninterest income 4,066 3,491
------- -------
Noninterest expense:
Salaries and employee benefits 11,591 9,625
Occupancy of premises, net 1,535 1,323
Furniture and equipment 852 724
Computer processing 596 489
Advertising and public relations 493 582
FDIC deposit insurance 1 705
Other noninterest expense 6,483 3,641
------- -------
Total noninterest expense 21,551 17,089
------- -------
Income before income taxes 10,372 6,800
Income tax provision 3,509 1,943
------- -------
Net income $6,863 $4,857
======= =======
Primary earnings per share $0.45 $0.32
======= =======
Cash dividends declared per share $0.09 $0.07
======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
4
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(in thousands)
--------------------
<TABLE>
<CAPTION>
For the three months ended
March 31,
--------------------------
1996 1995
--------- --------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 6,863 $ 4,857
Gain on sales of loans (210) (1)
Provision for loan losses 999 1,277
Loans originated and held for sale (65,490) (4,573)
Proceeds from sales of loans originated for sale 28,543 4,317
Other adjustments to net income, net (797) 1,169
Net changes in other assets and liabilities (6,106) 1,162
-------- --------
Net cash (used) provided by operating activities (36,198) 8,208
-------- --------
Cash flows from investing activities:
Purchases of available-for-sale securities (6,862)
Purchases of held-to-maturity securities (2,691)
Proceeds from principal payments and maturities
of available-for-sale securities 18,562 1,120
Proceeds from principal payments and maturities
of held-to-maturity securities 1,517 4,831
Net increase in loans (59,111) (21,825)
Other, net 1,818 311
-------- --------
Net cash used in investing activities (37,214) (25,116)
-------- --------
Cash flows from financing activities:
Net increase (decrease) in deposits 101,342 (10,161)
Net (decrease) increase in short-term borrowings (30,450) (8,460)
Repayments of long-term debt (37,167) (37,111)
Proceeds from long-term debt 53,600 70,000
Net proceeds from issuance of common stock 113 188
Payments to acquire common stock (219)
Dividends paid (1,020) (725)
-------- --------
Net cash provided by financing activities 86,418 13,512
-------- --------
Net decrease in cash and cash equivalents 13,006 (3,396)
Cash and cash equivalents, beginning of period 92,547 93,315
-------- --------
Cash and cash equivalents, end of period $105,553 $ 89,919
======== ========
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
5
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation:
----------------------
The consolidated financial statements include the accounts of Cole Taylor
Financial Group, Inc. (the "Company") and its subsidiaries, Cole Taylor Bank
(the "Bank"), Cole Taylor Finance Co. (the "Finance Company") and CT Mortgage
Company, Inc. (the "Mortgage Company"). All intercompany balances and
transactions have been eliminated in consolidation.
The accompanying unaudited interim consolidated financial statements have been
prepared pursuant to the rules and regulations for reporting on Form 10-Q.
Accordingly, certain disclosures required by generally accepted accounting
principles are not included herein. These interim statements should be read in
conjunction with the consolidated financial statements and notes thereto
included in the Company's 1995 Annual Report on Form 10-K filed with the
Securities and Exchange Commission. The December 31, 1995 balance sheet has
been derived from the audited financial statements included in the Company's
1995 Annual Report on Form 10-K filed with the Securities and Exchange
Commission, but does not include all disclosures required by generally
accepted accounting principles.
Interim statements are subject to possible adjustment in connection with the
annual audit of the Company for the year ended December 31, 1996. In the
opinion of management of the Company, the accompanying unaudited interim
consolidated financial statements reflect all adjustments (consisting of
normal recurring adjustments) necessary for a fair presentation of the
consolidated financial position and consolidated results of operations for the
periods presented.
The results of operations for the three month period ended March 31, 1996 are
not necessarily indicative of the results to be expected for the full year.
Certain reclassifications were made to the 1995 financial statements to
conform to the current presentation.
6
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Investment Securities:
----------------------
The amortized cost and estimated fair values of investment securities at
March 31, 1996 and December 31, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
March 31, 1996
--------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Available-For-Sale:
U.S. Treasury securities $107,799 $ 161 $ --- $107,960
U.S. government agency securities 46,793 304 (74) 47,023
Mortgage-backed securities 188,469 595 (5,535) 183,529
-------- ------ ------- --------
Total Available-for-sale 343,061 1,060 (5,609) 338,512
-------- ------ ------- --------
Held-to-Maturity:
State and municipal obligations 65,750 2,995 (49) 68,696
Other securities 9,335 4 0 9,339
-------- ------ ------- --------
Total Held-to-Maturity 75,085 2,999 (49) 78,035
-------- ------ ------- --------
Total $418,146 $4,059 $(5,658) $416,547
======== ====== ======= ========
December 31, 1995
--------------------------------------------------------
Gross Gross
Unrealized Unrealized Estimated
Amortized Cost Gains Losses Fair Value
-------------- ---------- ---------- ----------
Available-For-Sale:
U.S. Treasury securities $110,897 $ 964 $ (173) $111,688
U.S. Government agency securities 55,131 698 (91) 55,738
Mortgage-backed securities 195,827 1,014 (2,532) 194,309
-------- ------ ------- --------
Total Available-for-sale 361,855 2,676 (2,796) 361,735
-------- ------ ------- --------
Held-to-Maturity:
State and municipal obligations 67,110 3,646 (23) 70,733
Other securities 9,503 3 --- 9,506
-------- ------ ------- --------
Total Held-to-Maturity 76,613 3,649 (23) 80,239
-------- ------ ------- --------
Total $438,468 $6,325 $(2,819) $441,974
======== ====== ======= ========
</TABLE>
7
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Loans:
------
Loans classified by type at March 31, 1996 and December 31, 1995 were as
follows (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Commercial and industrial $ 640,700 $ 638,497
Real estate - construction 151,400 121,547
Real estate - mortgage 246,087 223,125
Consumer - Bank 229,565 231,717
Consumer - Finance Company 376,886 315,567
Other loans 1,263 2,061
---------- ----------
Gross loans 1,645,901 1,532,514
Less: Unearned discount (102,772) (89,166)
Dealer discounts (14,684) (12,655)
Allowance for loan losses (24,433) (23,869)
---------- ----------
Loans, net $1,504,012 $1,406,824
========== ==========
</TABLE>
Real estate mortgage loans in the table above include loans held-for-sale
totaling $52.7 million and $15.7 million at March 31, 1996 and December 31,
1995, respectively.
4. Financial Instruments with Off-Balance Sheet Risk:
--------------------------------------------------
The Company is a party to financial instruments with off-balance sheet risk
in the normal course of business. These financial instruments include
commitments to extend credit, standby letters of credit, forward mortgage
loan sales commitments and interest rate swaps. When viewed in terms of the
maximum exposure, those instruments may involve, to varying degrees, elements
of credit and interest rate risk in excess of the amount recognized in the
consolidated balance sheets. The contract or notional amounts of those
instruments reflect the extent of involvement the Company has in particular
classes of financial instruments.
At March 31, 1996, the contractual or notional amounts were as follows:
<TABLE>
<CAPTION>
Amount
(in thousands)
--------------
<S> <C>
Commitments to extend credit $387,847
Standby letters of credit 55,465
Forward mortgage loan sales commitments 46,424
Interest rate swaps 75,000
</TABLE>
8
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITIONS
The following presents management's discussion and analysis of the results of
operations and financial condition of the Company for the quarter ended March
31, 1996 as compared to the same period in 1995. This discussion should be read
in conjunction with the consolidated financial statements and accompanying notes
presented elsewhere in this Form 10-Q. Dollar amounts in tables are presented in
thousands, except for per share data.
SAFE HARBOR PROVISION OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
The statements contained in this management discussion and analysis of the
results of the operations and financial condition that are not historical facts
are forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995. The Company cautions readers of this
Quarterly Report on Form 10-Q that a number of important factors could cause the
Company's actual results in 1996 and beyond to differ materially from those
expressed in any such forward-looking statements. These factors include, without
limitation, the general economic and business conditions affecting the Company's
customers; the ability of the Bank and the Finance Company to succeed in their
expansion efforts and to obtain sufficient financing to fund asset growth;
changes in interest rates; the adequacy of the Bank's allowance for loan losses;
competition from, among others, commercial banks, savings and loan associations,
mutual funds, money market funds, finance companies, credit unions, mortgage
companies, the United States Government, private issuers of debt obligations and
suppliers of other investment alternatives; impact of any strategic transactions
undertaken by the Company; federal and state legislation, regulation and
supervision of the Bank and the Finance Company; the risk of defaults on loans
and sales finance contracts; contractual, statutory and regulatory restrictions
of the Finance Company's and the Bank's ability to pay dividends to the Company;
and the impact of the Company's guarantees of Finance Company's indebtedness.
These and other factors are more fully described in the Company's previous
filings with the Securities and Exchange Commission including, without
limitation the Company's Prospectus dated May 25, 1994.
OVERVIEW
The Company operates in the financial services industry and is primarily engaged
in the banking and consumer loan acceptance businesses through its three
subsidiaries, Cole Taylor Bank (the "Bank"), Cole Taylor Finance Co. (the
"Finance Company") and CT Mortgage Company, Inc. (the "Mortgage Company"). The
Bank, which is headquartered in Chicago, provides a full range of commercial,
consumer and mortgage banking services to small and mid-size businesses and to
individuals in Chicago neighborhoods and suburban Cook and DuPage Counties
through ten branch offices. The Finance Company, which is headquartered in San
Antonio, Texas, is engaged in the acquisition of sales finance contracts
collateralized by used automobiles. As of March 31, 1996, the Finance Company
had 36 offices in fourteen states. The Mortgage Company, which is headquartered
near Orlando, Florida, purchases and resells first and second mortgage loans,
primarily of sub-prime quality, in seven southeastern states. The previously
announced engagement of two investment banking firms to explore strategic
alternatives for the Company is still proceeding.
During the first quarter of 1996, the Company's net income rose 41% to $6.9
million, or $0.45 per share, compared with $4.9 million, or $0.32 per share, for
the same period last year. Annualized return on average assets increased to
9
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
1.36% from 1.09% in the comparable period last year. Annualized return on
average equity increased to 17.63% from 14.88% in the first quarter of 1995.
Total assets grew $93.0 million, or 4.6%, to $2.10 billion as of March 31, 1996
compared to $2.01 billion at December 31, 1995. During the first three months of
1996, loans grew $99.8 million, or 6.9%, to $1.543 billion from $1.443 billion
at December 31, 1995. Deposits increased $101.3 million, or 7.5%, during the
first three months of 1996, to $1.460 billion from $1.359 billion at December
31, 1995. Stockholders' equity increased $3.0 million, or 2.0%, to $157.5
million during the first quarter of 1996.
The following table sets forth the total assets of the Company as of the dates
indicated, before intercompany eliminations:
March 31, December 31,
1996 1995
---------- -----------
Bank $1,818,811 $1,774,032
Finance Company 274,792 230,259
Mortgage Company 2,402
Parent Company (principally investment 199,369 182,264
in subsidiaries)
Consolidated 2,102,220 2,009,183
The following table highlights the net income (loss) contribution of the
Company, before intercompany eliminations (including direct charges of corporate
overhead) and without allocation of parent company expenses (in thousands):
Three months ended
March 31,
-------------------
1996 1995
------ ------
Bank $4,330 $4,091
Finance Company 3,625 1,660
Mortgage Company (153)
Parent Company (excludes dividends from
subsidiaries) (939) (894)
------ ------
Consolidated $6,863 $4,857
====== ======
The Bank reported first quarter 1996 earnings of $4.3 million, a 5.8% increase
over the first quarter 1995 earnings of $4.1 million. Annualized return on
average assets was flat at .98% and return on average equity was 13.03% as
compared to 13.62% in the same period in the previous year. Net interest income
increased to $17.6 million from $17.3 million as a result of strong average
earning asset growth of $67 million from the first quarter of 1995. The taxable
equivalent net interest margin declined to 4.38% in the first quarter of 1996
from 4.52% in the comparable period last year. The provision for loan losses was
$1 million, down from $1.3 million a year earlier. Noninterest income was
positively impacted by the sale of $23 million in mortgage servicing rights
resulting in a $451,000 gain and growth in service charge income of $432,000.
These gains were partially offset by market losses of $241,000 on mortgages
originated for sale in the secondary market. Noninterest expense increased
$437,000, or 3.2%, from the same period last year. Nonperforming asset expense
increased $619,000 from the same quarter last year primarily due to the
operating expenses and disposition loss of a large nonperforming asset. Expenses
also increased with the opening of a new branch in the Chicago suburb of
Broadview in late December, 1995 and
10
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
additional growth in the mortgage banking business. Offsetting these expense
increases was a decrease in FDIC insurance premiums of $704,000.
The Finance Company reported first quarter 1996 earnings of $3.6 million, a 118%
increase over the first quarter 1995 earnings of $1.7 million. Annualized return
on average assets decreased to 5.82% from 6.75% in the year earlier period.
Annualized return on average equity, excluding subordinated debt, increased to
57.65% from 45.67% in the prior year's period. Net interest income increased to
$11.4 million in the first quarter of 1996 from $4.7 million in the comparable
period last year. The net interest margin was essentially unchanged at 19.15%
compared to 19.35% in the first quarter of 1995. During the first quarter of
1996, gross finance receivables grew to $377 million from $155 million reported
a year earlier. Noninterest expense increased to $6.0 million from $2.2 million
reported a year earlier, reflecting the increased operating expenses of a
growing organization. In addition, in 1996, the Finance Company began charging
certain repossession expenses directly to operating expense rather than
reflecting these costs as part of the charges to the dealer discount. As of
March 31, 1996, the Finance Company had 36 offices operating in fourteen states
as compared to 28 offices in twelve states at March 31, 1995.
The Mortgage Company commenced operations in the first quarter of 1996 and
incurred a net loss of $153,000 in the quarter. Mortgage originations totaled
$1.8 million in the quarter, but no loans were sold as of quarter end.
The Parent Company, on a stand alone basis excluding dividends received from the
Bank, reported a first quarter 1996 net loss of $939,000 compared with the first
quarter 1995 net loss of $894,000. The expenses at the Parent Company consist
principally of interest, salaries and benefits, legal, public relations and
professional fees.
The Company operates in two primary business segments (as defined in SFAS
No. 14 - "Financial Reporting for Segments of a Business Enterprise"), banking
(including mortgage banking) and consumer finance. Organizational earnings by
business segment are impacted by allocations of parent company revenues and
expenses such as interest on borrowings, corporate overhead allocation and
allocation of income taxes. The allocations are based on various estimates and a
predefined formula based upon assets, revenues and employees. Results by
business segment would change if different methods were applied. The banking
segment earned $3.620 million for the three months ended March 31, 1996, as
compared to $3.446 million in the same period the prior year. The consumer
finance segment earned $3.243 million in the first quarter of 1996 as compared
to $1.411 million the prior year.
11
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
CONSOLIDATED RESULTS OF OPERATIONS
Net Interest Income
Net interest income (with an adjustment for tax-exempt income) for the first
quarter of 1996 was $29.5 million, an increase of 32.2% from the same period in
1995. Growth in net interest income during the first quarter of 1996 over the
same period in 1995 was primarily due to the $210 million (12%) increase in
average earning assets and the 88 basis point rise in tax-equivalent net
interest margin. The increase in average earning assets is primarily due to
increases in commercial loans at the Bank and purchased sales finance contracts
at the Finance Company.
Net interest margin, which is determined by dividing taxable-equivalent net
interest income by average earning assets, increased during the first quarter of
1996 to 6.19%, as compared to 5.31% in the same period in 1995. The increase in
net interest margin during the first quarter of 1996 is due to the growth of
average earning assets at the Finance Company where significantly higher net
interest margins are earned. The Finance Company's contribution to net interest
income enabled the Company to report an overall increase in net interest margin
during the first quarter of 1996, even though the Bank's net interest margin
decreased to 4.38% from 4.52% in the same period in 1995. The Bank's net
interest margin decrease is generally reflective of an increased cost of
funding. The Finance Company's net interest margin in the first quarter of 1996
was 19.15%, approximating the 19.35% reported for 1995's first quarter.
The following table sets forth certain information relating to the Company's
average consolidated balance sheets and reflects the yield on average earning
assets and cost of average interest-bearing liabilities for the periods
indicated. Such yields and costs are derived by dividing income or expense by
the average balance of assets or liabilities. Interest income is measured on a
tax-equivalent basis using a 35% rate in each period presented.
12
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
<TABLE>
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31,
--------------------------------------------------------------------------------
1996 1995
--------------------------------------------------------------------------------
YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%)
---------- -------- ---- ---------- -------- ----
(Dollars in thousands)
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS:
Investment securities (1):
Taxable $ 362,374 $ 5,711 6.34 $ 403,901 $ 6,372 6.40
Non-taxable (tax equivalent) 65,954 1,511 9.21 66,506 1,526 9.31
---------- ------- ---------- -------
Total investment securities 428,328 7,222 6.78 470,407 7,898 6.81
---------- ------- ---------- -------
Interest-bearing cash
equivalents 12,896 173 5.40 13,688 198 5.87
---------- ------- ---------- -------
Loans (2):
Commercial and industrial 777,462 17,676 9.14 693,202 16,261 9.51
Real estate mortgages 228,591 4,188 7.37 207,426 3,837 7.50
Installment and other 467,311 20,036 17.24 319,964 10,860 13.77
Fees on loans 428 271
Less: Allowance for
loan losses (24,248) (22,913)
---------- ------- ---------- -------
Net loans (tax equivalent) 1,449,116 42,328 11.75 1,197,679 31,229 10.57
---------- ------- ---------- -------
Total earning assets 1,890,340 49,723 10.58 1,681,774 39,325 9.48
---------- ------- ---------- -------
NONEARNING ASSETS:
Cash and due from banks 66,932 68,057
Premises and equipment, net 18,931 15,293
Accrued interest and
other assets 50,698 38,469
---------- ----------
Total nonearning assets 136,561 121,819
---------- ------- ---------- -------
TOTAL ASSETS $2,026,901 49,723 9.87 $1,803,593 39,325 8.84
========== ------- ========== -------
INTEREST-BEARING LIABILITIES:
Interest-bearing deposits:
Interest-bearing
demand deposits $ 334,039 2,956 3.56 $ 341,133 2,990 3.55
Savings deposits 123,027 781 2.55 132,419 853 2.61
Time deposits 633,218 8,918 5.66 530,134 6,897 5.28
---------- ------- ---------- -------
Total deposits 1,090,284 12,655 4.67 1,003,686 10,740 4.34
---------- ------- ---------- -------
Short-term borrowings 322,740 4,600 5.73 225,479 3,265 5.87
Long-term debt 155,213 2,998 7.77 146,004 3,021 8.39
---------- ------- ---------- -------
Total interest-
bearing liabilities 1,568,237 20,253 5.19 1,375,169 17,026 5.02
---------- ------- ---------- -------
NONINTEREST-BEARING LIABILITIES:
Noninterest-bearing
deposits 283,226 271,485
Accrued interest and
other liabilities 18,890 24,528
---------- ----------
Total noninterest-bearing
liabilities 302,116 296,013
---------- ----------
STOCKHOLDERS' EQUITY 156,548 132,411
---------- ------- ---------- -------
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $2,026,901 20,253 4.02 $1,803,593 17,026 3.83
========== ------- ========== -------
Net interest income (tax
equivalent) $29,470 $22,299
======= =======
Net interest margin 6.19 5.31
Interest-bearing liabilities to
earning assets 82.96% 81.77%
</TABLE>
(1) Investment securities average balances are based on amortized cost.
(2) Nonaccrual loans are included in the above stated average balances.
13
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
The following table presents an additional analysis of net interest income on a
taxable-equivalent basis (in thousands):
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Net interest income $ 28,856 $ 21,675
Taxable-equivalent adjustments 614 624
---------- ----------
Tax-equivalent net interest income $ 29,470 $ 22,299
========== ==========
Contribution by Company:
Bank $ 18,241 $ 17,920
Finance Company 11,442 4,653
Mortgage Company 20 0
Parent Company (233) (274)
---------- ----------
$ 29,470 $ 22,299
========== ==========
Average earning assets:
Bank $1,673,867 $1,607,256
Finance Company 240,372 97,518
Mortgage Company 723 0
Consolidated 1,914,588 1,704,687
Net interest margin (tax-equivalent):
Bank 4.38% 4.52%
Finance Company 19.15 19.35
Mortgage Company 11.25 0.00
Consolidated 6.19 5.31
</TABLE>
Noninterest Income
Total noninterest income was $4.1 million in the first quarter of 1996, an
increase of $575,000, or 16.5%, over first quarter 1995's noninterest income of
$3.5 million. Noninterest income was positively impacted by the sale of $23
million in mortgage servicing rights resulting in a $451,000 gain and growth in
service charge income of $432,000. These gains were offset by market losses of
$241,000 in the pipeline and warehouse of mortgage loans originated for sale in
the secondary market.
Noninterest Expense
Noninterest expense increased $4.5 million, or 26.1%, to $21.6 million in the
first quarter of 1996, as compared to $17.1 million in the same period in 1995.
Salaries and employee benefits increased $2.0 million, or 20.4%, to $11.6
million in the first quarter of 1996, as compared to $9.6 million for the same
period in 1995. During this same time period, the average full-time equivalent
number of employees at the Company increased 24.9% to 998 from 799.
Approximately $1.7 million of the $2.0 million increase in salaries and benefits
related to the Finance Company. Repossession and collection expenses at the
Finance Company were $1.4 million for the first quarter of 1996 as compared to
$134,000 in the same period in 1995. Beginning in 1996, the Finance Company
began charging certain repossession expenses directly to operating expenses
rather than reflecting these costs as part of the charges to the dealer
discount.
14
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Nonperforming asset expenses at the Bank increased $619,000 from the same
quarter last year primarily due to the operating expense and disposition loss of
a large nonperforming asset. Premises expenses increased with the opening of
additional facilities, one at the Bank and eight at the Finance Company between
March 31, 1995 and March 31,1996. Offsetting these expense increases was a
decrease in FDIC insurance premiums of $704,000.
Income Tax Expense
The income tax provision for the first quarter of 1996 and 1995 was $3.5 million
and $1.9 million, respectively. As a percentage of pretax income, the income
tax provision for the first quarter of 1996 was 33.8%, versus 28.6% for the
first quarter of 1995 and 30.4% for the full year 1995. In 1995, the Company
benefited from state tax credits which lowered last year's first quarter rate by
4.7%.
CONSOLIDATED FINANCIAL CONDITION
Earning Assets and Interest-bearing Liabilities
Average earning assets for the first quarter of 1996 were $1.9 billion, an
increase of $210 million from the same period in 1995. The increase is
primarily due to increases in the average loan portfolio. The largest
contributors to this growth were net finance receivables at the Finance Company
and commercial loans at the Bank. A portion of the growth in the Bank's loan
portfolio was funded by investment security maturities and the remainder
through deposit growth. Mortgages held for sale grew to $52.7 million at March
31, 1996 from $15.7 million at December 31, 1995, primarily due to growth in
origination volume and a delay in shipping mortgages for final sale into the
secondary market. Average total deposits for the first quarter of 1996
increased to $1.4 billion from $1.3 billion the prior year. Average brokered
certificates of deposit increased 9.7% to $107 million from $97 million in the
same period in 1995. Average certificates of deposit obtained through the
National CD Network increased to $45 million from $25 million in March 1995.
The Finance Company began funding a portion of its operations through the
issuance of commercial paper in the second quarter of 1995. In the first
quarter of 1996, the Finance Company's revolving credit agreement was revised to
increase the facility to $220 million from $200 million. A subsequent revision
to this credit agreement, after March 31, 1996, increased this facility to $250
million. At March 31, 1996, the Finance Company had $61.2 million outstanding
under the facility and $150 million in commercial paper outstanding, which is
backed by the facility.
In the first quarter of 1996, the Parent Company's revolving loan agreement was
revised to increase the facility to $25 million from $15 million. At March 31,
1996, the Parent Company had $13 million outstanding under the agreement. At
December 31, 1995, there were no outstandings under the agreement.
15
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Allowance for Loan Losses and Nonrefundable Dealer Discounts
The consolidated provision for loan losses in the quarter was $1 million, down
from $1.3 million a year earlier. Annualized net loan charge-offs for the
quarter were .74% of average loans compared with .78% for the fourth quarter of
1995. Nonperforming assets as a percentage of loans plus repossessed property
was 1.41% compared to 1.49% at December 31, 1995. The allowance and dealer
discounts to total loans was 2.53% at March 31, 1996 and December 31, 1995.
The allowance for loan losses was established to provide for those loans which
may not be repaid in their entirety. The allowance is increased by provisions
charged to expense and decreased by charge-offs, net of recoveries. The Finance
Company has nonrefundable discounts available against which losses are charged.
In conjunction with the purchasing of sales contracts, agreements are entered
into with dealers whereby amounts are withheld from nonrefundable discounts.
These discounts are maintained to provide protection from potential losses
associated with such contracts.
Effective January 1, 1996, the Finance Company adopted the practice of
accumulating loss data on individual pools of loans (based on the month of
origination) and allocating portions of the dealer discount representing
nonrefundable dealer reserves to cover such anticipated losses. To the extent
the Company realizes loss experience by pool greater than that initially
established, a loan loss reserve will be established by charges to operating
expense. The portion of the nonrefundable dealer discount which is not allocated
to cover anticipated losses is being amortized into interest income over the
estimated life of the loan pool. Formerly, the discount was amortized over the
contractual life of the individual loan contracts, subject to aggregate loan
charge-offs. Additionally, effective January 1, 1996, repossession expenses,
formerly reported as part of net charge-offs, are being reported in other
operating expenses. These changes had the effect of increasing the net interest
margin, reducing the nonrefundable dealer discount as a percentage of net
finance receivables and reducing net charge-offs.
The Bank's ratio of net charge-offs to average total loans (annualized) totaled
.14% and .51% for the first quarter of 1996 and 1995, respectively. The ratios
of allowance to total loans at end of period and allowance to nonperforming
loans at end of period both decreased to 1.93% and 204.92%, respectively, at
March 31, 1996 from 2.01% and 208.35%, respectively, at March 31, 1995. As of
December 31, 1995, these same ratios were 1.97% and 240.59%, respectively.
Excluding mortgages held for sale, the ratio of the allowance to total loans was
2.01% at March 31, 1996 and 1995.
The Finance Company's ratio of net charge-offs to average total loans
(annualized) totaled 3.66% and 1.76% for the first quarter of 1996 and 1995,
respectively. The ratio of allowance and dealer discounts to total loans at end
of period decreased to 5.27% at March 31, 1996 from 5.66% at March 31, 1995. The
net charge-off ratio for the fourth quarter of 1995 was 4.04% and the allowance
and dealer discount ratio to total loans was 5.46% at December 31, 1995. The
Finance Company's 1996 asset quality ratios as compared to March 1995 reflect
increases with respect to the level of nonperforming loans and repossessions. In
management's view, the increase in the level of nonperforming loans and
repossessions and net charge-offs reflects the continuing maturation of the
finance receivable portfolio.
16
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
The following table sets forth the amounts of nonperforming loans and other
assets at the end of the periods indicated:
<TABLE>
<CAPTION>
March 31, December 31, March 31,
1996 1995 1995
--------- ------------ ---------
<S> <C> <C> <C>
NONPERFORMING ASSETS - COMPANY TOTALS
Nonaccrual loans (nonperforming loans) $13,309 $10,946 $11,592
Other real estate 1,782 2,928 1,836
Other nonperforming assets 6,760 7,723 2,146
------- ------- -------
Total nonperforming assets $21,851 $21,597 $15,574
======= ======= =======
Nonperforming loans to loans 0.86% 0.76% 0.93%
Nonperforming assets to total loans plus
repossessed property 1.41 1.49 1.25
Nonperforming assets to total assets 1.04 1.07 0.85
Loans contractually past due 90 days or
more and still accruing interest $ 2,969 $ 3,737 $ 3,075
======= ======= =======
NONPERFORMING ASSETS - BANK ONLY
Nonaccrual loans (nonperforming loans) $11,923 $ 9,921 $10,896
Other real estate 1,782 2,928 1,836
Other nonperforming assets 277 2,488 217
------- ------- -------
Total nonperforming assets $13,982 $15,337 $12,949
======= ======= =======
Nonperforming loans to loans 0.94% 0.82% 0.96%
Nonperforming assets to total loans plus
repossessed property 1.10 1.26 1.14
Nonperforming assets to total assets 0.77 0.86 0.75
Loans contractually past due 90 days or
more and still accruing interest $ 2,969 $ 3,737 $ 3,075
======= ======= =======
NONPERFORMING ASSETS - FINANCE COMPANY ONLY
Nonaccrual loans (nonperforming loans) $ 1,386 $ 1,025 $ 696
Other nonperforming assets 6,483 5,235 1,928
------- ------- -------
Total nonperforming assets $ 7,869 $ 6,260 $ 2,624
======= ======= =======
Nonperforming loans to loans 0.50% 0.44% 0.45%
Nonperforming assets to total loans plus
repossessed property 2.76 2.64 1.29
Nonperforming assets to total assets 2.86 2.72 2.37
</TABLE>
17
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
The following table summarizes, for the periods indicated, activity in the
allowance for loan losses and nonrefundable dealer discounts, the ratio of
annualized net charge-offs to average total loans, the ratio of the allowance
and dealer discounts to total loans at end of period, and the ratio of the
allowance and dealer discounts to nonperforming loans at end of period:
<TABLE>
<CAPTION>
Three months ended
March 31,
-----------------------
1996 1995
---------- ----------
<S> <C> <C>
Average total loans, net of dealer discounts $1,473,364 $1,220,592
========== ==========
Total loans at end of period $1,543,129 $1,244,757
========== ==========
ALLOWANCE FOR LOAN LOSSES:
Allowance at beginning of period $ 23,869 $ 22,833
Charge-offs (666) (1,721)
Recoveries 231 313
---------- ----------
Net charge-offs (435) (1,408)
---------- ----------
Provisions for loan losses 999 1,277
---------- ----------
Allowance at end of period $ 24,433 $ 22,702
========== ==========
NONREFUNDABLE DEALER DISCOUNTS:
Balance at beginning of period $ 12,655 $ 5,351
Nonrefundable dealer discounts established 5,640 2,296
Discount accretion (1,297) (736)
Net charge-offs (2,314) (448)
---------- ----------
Balance at end of period $ 14,684 $ 6,463
========== ==========
Net charge-offs to average total loans
(annualized) 0.74% 0.61%
Allowance and dealer discounts to total loans
at end of period 2.53 2.34
Allowance and dealer discounts to nonperforming
loans at end of period 293.91 251.60
</TABLE>
18
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF THE
RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Capital Resources
The Company actively monitors compliance with bank regulatory capital
requirements, focusing primarily on the risk-based capital guidelines. Under the
risk based capital method of capital measurement, the ratio computed is
dependent on the amount and composition of assets recorded on the balance sheet,
and the amount and composition of off balance sheet items, in addition to the
level of capital.
The Company's capital ratios were as follows for the dates indicated:
<TABLE>
<CAPTION>
March 31, December 31,
1996 1995
---------- ------------
<S> <C> <C>
Tier 1 risk-based capital ratio 9.43% 9.97%
Total risk-based capital ratio 12.17 12.87
Leverage ratio 7.79 7.67
</TABLE>
Based on fully phased in risk-based capital guidelines of the Federal Reserve
Bank, a bank holding company is required to maintain a Tier 1 capital to risk-
adjusted asset ratio of 4% and total capital to risk-adjusted asset ratio of 8%.
Management of the Company has established a minimum target leverage ratio of 5%.
Based on Federal Reserve Bank guidelines, a bank holding company generally is
required to maintain a leverage ratio of 3% plus an additional cushion of at
least 100 to 200 basis points.
Liquidity:
Earning asset growth at the Bank has continued to exceed core deposit growth,
which has necessitated the use of wholesale funding alternatives to fund the
Bank's expansion. The Bank increased its use of brokered certificates of
deposit, National C/D Network and large public fund deposits to fund its growth
over the preceding year. The Bank's continued growth is dependent upon its
ability to obtain sufficient financing to fund its asset growth. Management is
actively considering additional alternatives to address this need.
A significant portion of the Finance Company's funding is obtained from
commercial paper with maturities of 270 days or less. Because the Finance
Company's finance contracts receivable have average maturities in excess of one
year, the Finance Company's net interest income (and margin) can be negatively
impacted in periods of rising interest rates. In addition, the Finance Company's
continued growth is dependent upon its continued ability to obtain sufficient
financing to fund its purchases of finance contracts. Management is actively
considering additional alternatives to address this need.
19
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Not Applicable
ITEM 2. CHANGES IN SECURITIES
Not Applicable
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not Applicable
ITEM 4. SUBMISSION OF MATTERS TO A VOTE BY SECURITY HOLDERS
Not Applicable
ITEM 5. OTHER INFORMATION
Not Applicable
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - See Exhibit Index on page 22.
(b) Form 8-K - No reports on Form 8-K were filed during the period covered
by this report.
20
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Cole Taylor Financial Group, Inc.
---------------------------------
(Registrant)
Date: May 10, 1996 /s/ J. Christopher Alstrin
------------ ----------------------------------
J. Christopher Alstrin *
Chief Financial Officer
* Duly authorized to sign on behalf of the Registrant
21
<PAGE>
COLE TAYLOR FINANCIAL GROUP, INC.
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit Page
Number Description of Documents Number
- ----------- ------------------------ ------
<S> <C> <C>
11 Statement regarding computation of primary earnings per share.... 23
27 Financial Data Schedule........................................... 24
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT 11
COMPUTATION OF PRIMARY EARNINGS PER SHARE
For the three months
ended March 31,
--------------------------
1996 1995
----------- -----------
<S> <C> <C>
AVERAGE COMMON AND COMMON
EQUIVALENT SHARES OUTSTANDING
1 Average common shares outstanding 14,576,280 14,515,866
2 Net additional shares assuming stock
options exercised and proceeds used to
purchase treasury stock. 789,422 635,849
----------- -----------
3 Average number of common and common
equivalent shares outstanding 15,365,702 15,151,715
----------- -----------
EARNINGS
4 Net income $ 6,863,000 $ 4,857,000
=========== ===========
PER SHARE AMOUNTS
Net income per share (line 4 / line 3) $ 0.45 $ 0.32
=========== ===========
Note: In all periods, earnings per share were calculated using the treasury
stock method. Fully diluted earnings per share are not presented as they
are less than 3% dilutive.
</TABLE>
23
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1995<F1>
<PERIOD-START> JAN-01-1996 JAN-01-1995
<PERIOD-END> MAR-31-1996<F3> MAR-31-1995<F2>
<CASH> 58,973 68,413
<INT-BEARING-DEPOSITS> 46,280 19,134
<FED-FUNDS-SOLD> 300 5,000
<TRADING-ASSETS> 0 0
<INVESTMENTS-HELD-FOR-SALE> 338,512 361,735
<INVESTMENTS-CARRYING> 75,085 76,613
<INVESTMENTS-MARKET> 78,036 80,239
<LOANS> 1,543,129 1,443,348
<ALLOWANCE> 39,117 36,524
<TOTAL-ASSETS> 2,102,220 2,009,183
<DEPOSITS> 1,460,478 1,359,136
<SHORT-TERM> 299,469 329,919
<LIABILITIES-OTHER> 24,607 21,929
<LONG-TERM> 160,093 143,660
<COMMON> 146 146
0 0
0 0
<OTHER-SE> 157,427 154,393
<TOTAL-LIABILITIES-AND-EQUITY> 2,102,220 2,009,183
<INTEREST-LOAN> 42,243 31,139
<INTEREST-INVEST> 6,693 7,364
<INTEREST-OTHER> 173 198
<INTEREST-TOTAL> 49,109 38,701
<INTEREST-DEPOSIT> 12,655 10,740
<INTEREST-EXPENSE> 7,598 6,286
<INTEREST-INCOME-NET> 28,856 21,675
<LOAN-LOSSES> 999 1,277
<SECURITIES-GAINS> 0 0
<EXPENSE-OTHER> 21,551 17,089
<INCOME-PRETAX> 10,372 6,800
<INCOME-PRE-EXTRAORDINARY> 10,372 6,800
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 6,863 4,857
<EPS-PRIMARY> 0.45 0.32
<EPS-DILUTED> 0 0
<YIELD-ACTUAL> 6.19 5.31
<LOANS-NON> 13,309 11,592<F4>
<LOANS-PAST> 2,969 3,075<F4>
<LOANS-TROUBLED> 0 0<F4>
<LOANS-PROBLEM> 0 0<F4>
<ALLOWANCE-OPEN> 23,869 22,833<F4>
<CHARGE-OFFS> 666 1,721<F4>
<RECOVERIES> 231 313<F4>
<ALLOWANCE-CLOSE> 24,433 22,702<F4>
<ALLOWANCE-DOMESTIC> 24,433 22,702<F4>
<ALLOWANCE-FOREIGN> 0 0<F4>
<ALLOWANCE-UNALLOCATED> 0 0<F4>
<FN>
<F1> Balance Sheet
<F2> Income Statement
<F3> All Statements
<F4> Balance Sheet Data at 3/31/95
</FN>
</TABLE>
