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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission file number: 0-15123
FIRST NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois 31-1182986
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(State of Incorporation) (IRS Employer
Identification No.)
78 North Chicago Street, Joliet, Illinois 60432
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 726-4371
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Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Common Stock, $10.00 par value None
Securities registered pursuant to Section 12(g) of the Act: Common
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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 report(s), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of Common Stock held by non-affiliates on March 17,
1997 was $111,862,984. Based on the last reported price of an actual
transaction in registrant's Common Stock on March 17, 1997, and reports of
beneficial ownership filed by directors and executive officers of registrant and
by beneficial owners of more than 5% of the outstanding shares of Common Stock
of registrant; however, such determination of shares owned by affiliates does
not constitute an admission of affiliate status or beneficial interest in shares
of Common Stock of registrant. At March 17, 1997 there were 1,215,902 shares of
registrant's sole class of common stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
There is incorporated by reference in this Annual Report on Form 10-K portions
of the information contained in the registrant's proxy statement for its annual
meeting of stockholders held March 13, 1997, to the extent indicated herein.
There is incorporated by reference in Parts II and IV of this Annual Report on
Form 10-K portions of the information contained in the registrant's annual
report to stockholders to the extent indicated herein.
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TABLE OF CONTENTS
PAGE
PART I
ITEM 1. Business................................................. 1
ITEM 2. Properties............................................... 8
ITEM 3. Legal Proceedings........................................ 9
ITEM 4. Submission of Matters to a Vote of Security Holders...... 9
PART II
ITEM 5. Market for the Company's Common Stock and Related
Stockholder Matters...................................... 9
ITEM 6. Selected Financial Data.................................. 9
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................... 9
ITEM 8. Financial Statements and Supplementary Data.............. 10
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Matters.............. 10
PART III
ITEM 10. Directors and Executive Officers of the Registrant....... 10
ITEM 11. Executive Compensation................................... 10
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management............................................... 10
ITEM 13. Certain Relationships and Related Transactions........... 10
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K.............................................. 11
SIGNATURES......................................................... 14
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PART I
ITEM 1. BUSINESS
OVERVIEW
First National Bancorp, Inc. ("First National" or the "Company") was
formed and became the parent holding company of First National Bank of Joliet
("FNB") on September 30, 1986. Upon shareholders' approval, First National
Bancorp, Inc. issued 625,000 shares of its $10 par value common stock for all
of the outstanding common stock of FNB. The merger was accounted for as a
pooling of interests and thus all financial statements and data include the
results of operations of First National Bank of Joliet as a wholly-owned
subsidiary.
On January 9, 1989, the Company acquired 100% of the outstanding shares of
Southwest Suburban Bank ("SWSB") located in Bolingbrook, Illinois at a
total cash purchase price of $4,681,000. The excess of acquisition cost over
the fair value of net assets acquired was $2,198,000. The acquisition has
been accounted for as a purchase.
On December 14, 1990, the Company acquired 100% of the outstanding shares of
Bank of Lockport ("BOL") located in Lockport, Illinois for $12,077,000 paid
through issuing 99,505 common shares of First National Bancorp, Inc. stock
valued at $7,167,000 plus cash of $4,910,000. The excess of acquisition cost
over the fair value of net assets acquired was $6,442,000. The acquisition
has been accounted for as a purchase.
On October 31, 1994, the Company acquired 100% of the outstanding shares of
Plano Bancshares, Inc. ("Bancshares") located in Plano, Illinois.
Bancshares is the parent holding company of Community Bank of Plano
("Plano"). The purchase price of Bancshares was $10,737,000, paid through
issuing debentures of $3,776,000 plus cash of $6,961,000. The excess of
acquisition cost over the fair value of net assets acquired was $2,311,000.
The acquisition has been accounted for as a purchase with results of
operations of Bancshares since October 31, 1994 included in the consolidated
financial statements. FNB, SWSB, BOL and Plano are sometimes referred to as
the "Banks".
The Company has no employees and conducts no active business except through
its banking subsidiaries. The only significant asset of the Company is its
stock ownership of the Banks.
SUBSIDIARY DESCRIPTIONS
FNB is a commercial, national FDIC insured bank with its main office located
at 78 North Chicago Street, Joliet, Illinois 60432. FNB is located
approximately 45 miles southwest of Chicago and has Joliet and the western
portion of Will County as its primary service area. FNB was organized as a
national banking organization on June 6, 1933, and currently has ten branch
locations.
SWSB is a state chartered, FDIC insured bank, located at 224 Lily Cache Lane
in Bolingbrook, Illinois. SWSB is located approximately 25 miles southwest
of Chicago and has Bolingbrook, Romeoville, Woodridge, and Lemont as its
primary service area. Southwest Suburban Bank was organized as a state bank
on July 18, 1979.
BOL is a state chartered, FDIC insured bank, located at 826 East 9th Street
in Lockport, Illinois. The only branch of BOL is located at the intersection
of 159th Street and Cedar Road, approximately 3 miles from the main office.
BOL is located approximately 35 miles southwest of Chicago and has Lockport,
Joliet, Homer Township, New Lenox, Romeoville and Lemont as its primary
service area. BOL was organized as a state bank on June 11, 1971. Bancshares
is a bank holding company organized in Delaware in 1984 which owns 100% of
the capital stock of Plano.
Bancshares has no other subsidiaries and conducts no other operations. Plano
is a state chartered, FDIC insured bank located at 2005 West Route 34 in
Plano, Illinois. Plano is located approximately 45 miles west of Chicago and
has Plano, Sandwich and Yorkville as its primary service area. Plano was
organized as a state bank on October 1, 1943.
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COMPETITION
Active competition exists in all services offered by the Banks, not only with
other national and state banks, but also with savings and loan associations,
finance companies, personal loan companies, credit unions, money market mutual
funds, mortgage bankers and other financial institutions serving this market
area. The principal methods of competition in the financial services industry
are price, service and convenience.
BANK LOANS
The Banks' loan portfolios consist of commercial loans, commercial real estate
loans, residential real estate loans and consumer loans. The general terms and
rates, credit criteria employed, and risks associated with each loan category
are established and reviewed by the Executive Lending Committee. This committee
meets biweekly and has representation from each of the subsidiary banks.
BANK DEPOSITS AND LOANS
No material portion of any the Banks' deposits have been obtained from a person
or group that withdrawal of such deposits would have an adverse effect on the
business of the Company.
The loan portfolio is diversified so that slowdowns or problems in one specific
area would not cause a significant problem.
SEASONAL
Business is not affected in a material manner by change of seasons.
FOREIGN SOURCES
Neither the First National Bancorp, Inc. nor its subsidiaries, the First
National Bank of Joliet, Southwest Suburban Bank, Bank of Lockport, and
Community Bank of Plano are involved with foreign investments.
COMPLIANCE
Compliance with federal, state, and local provisions relating to the protection
of the environment should not have a material effect upon the capital
expenditures, earnings and competitive position of the Company.
EMPLOYMENT
As of December 31, 1996, the Banks had 299 full-time and 102 part-time
employees.
SERVICES
The Banks offer varied savings and certificate of deposit options, commercial
lending, consumer lending, along with credit card and regular checking services.
SUPERVISION AND REGULATION
GENERAL
Financial institutions and their holding companies are extensively regulated
under federal and state law. As a result, the growth and earnings performance
of the Company can be affected not only by management decisions and general
economic conditions, but also by the requirements of applicable state and
federal statutes and regulations and the policies of various governmental
regulatory authorities including, but not limited to, the Board of Governors of
the Federal Reserve System (the "FRB"), the Federal Deposit Insurance
Corporation (the "FDIC"), the Office of the Comptroller of the Currency (the
"OCC"), the Illinois Commissioner of Banks and Real Estate (the
"Commissioner"), the Internal Revenue Service and state taxing authorities and
the Securities and Exchange Commission (the "SEC"). The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.
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Federal and state laws and regulations generally applicable to financial
institutions, such as the Company and its subsidiaries, regulate, among other
things, the scope of business, investments, reserves against deposits,
capital levels relative to operations, the nature and amount of collateral
for loans, the establishment of branches, mergers, consolidations and
dividends. The system of supervision and regulation applicable to the Company
and its subsidiaries establishes a comprehensive framework for their
respective operations and is intended primarily for the protection of the
FDIC's deposit insurance funds and the depositors, rather than the
shareholders, of financial institutions.The following references to material
statutes and regulations affecting the Company and its subsidiaries are brief
summaries thereof and do not purport to be complete, and are qualified in
their entirety by reference to such statutes and regulations. Any change in
applicable law or regulations may have a material effect on the business of
the Company and its subsidiaries.
RECENT REGULATORY DEVELOPMENTS
On September 30, 1996, President Clinton signed into law the "Economic Growth
and Regulatory Paperwork Reduction Act of 1996" (the "Regulatory Reduction
Act"). Subtitle G of the Regulatory Reduction Act consists of the "Deposit
Insurance Funds Act of 1996" (the "DIFA"). The DIFA provides for a one-time
special assessment on each depository institution holding deposits subject to
assessment by the FDIC for the Savings Association Insurance Fund (the
"SAIF") in an amount which, in the aggregate, will increase the designated
reserve ratio of the SAIF (I.E., the ratio of the insurance reserves of the
SAIF to total SAIF-insured deposits) to 1.25% on October 1, 1996. Subject to
certain exceptions, the special assessment was payable in full on November
27, 1996. None of FNB, BOL, SWSB or Plano (collectively, the "Banks") holds
any SAIF-assessable deposits and, therefore, none of the Banks was subject to
the special assessment.
Prior to the enactment of the DIFA, a substantial amount of the SAIF
assessment revenue was used to pay the interest due on bonds issued by the
Financing Corporation ("FICO"), the entity created in 1987 to finance the
recapitalization of the Federal Savings and Loan Insurance Corporation (the
"FSLIC"), the SAIF's predecessor insurance fund. Pursuant to the DIFA, the
interest due on outstanding FICO bonds will be covered by assessments against
both SAIF and Bank Insurance Fund ("BIF") member institutions beginning
January 1, 1997. Between January 1, 1997 and December 31, 1999, FICO
assessments against BIF-member institutions cannot exceed 20% of the FICO
assessments charged SAIF-member institutions. From January 1, 2000 until the
FICO bonds mature in 2019, FICO assessments will be shared by all
FDIC-insured institutions on a PRO RATA basis. It has been estimated that the
FICO assessments for the period January 1, 1997 through December 31, 1999
will be approximately 0.013% of deposits for BIF members versus approximately
0.064% of deposits for SAIF members, and will be less than 0.025% of deposits
thereafter.
The DIFA also provides for a merger of the BIF and the SAIF on January 1,
1999, provided there are no state or federally chartered, FDIC-insured
savings associations existing on that date. To facilitate the merger of the
BIF and the SAIF, the DIFA directs the Treasury Department to conduct a study
on the development of a common charter and to submit a report, along with
appropriate legislative recommendations, to the Congress by March 31, 1997.
In addition to the DIFA, the Regulatory Reduction Act includes a number of
statutory changes designed to eliminate duplicative, redundant or unnecessary
regulatory requirements. Among other things, the Regulatory Reduction Act
establishes streamlined notice procedures for the commencement of new
nonbanking activities by bank holding companies, eliminates the need for
national banks to obtain OCC approval to establish off-site ATMs, excludes
ATM closures and certain branch office relocations from the prior notice
requirements applicable to branch closings, significantly expands the
authority of well-capitalized and well-managed national banks to invest in
office premises without prior regulatory approval and establishes time frames
within which the FDIC must act on applications by state banks to engage in
activities which, although permitted for state banks under applicable state
law, are not permissible activities for national banks. The Regulatory
Reduction Act also clarifies the liability of a financial institution, when
acting as a lender or in a fiduciary capacity, under the federal
environmental laws. Although the full impact of the Regulatory Reduction Act
on the operations of the Company and the Banks cannot be determined at this
time, management believes that the legislation may reduce compliance costs to
some extent and allow the Company and the Banks somewhat greater operating
flexibility.
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THE COMPANY
GENERAL. The Company, as the sole shareholder of the Banks, is a bank
holding company. As a bank holding company, the Company is registered with,
and is subject to regulation by, the FRB under the Bank Holding Company Act,
as amended (the "BHCA"). In accordance with FRB policy, the Company is
expected to act as a source of financial strength to the Banks and to commit
resources to support the Banks in circumstances where the Company might not
do so absent such policy. Under the BHCA, the Company is subject to periodic
examination by the FRB and is required to file with the FRB periodic reports
of its operations and such additional information as the FRB may require.
The Company is also subject to the requirements of the Illinois Bank Holding
Company Act, as amended.
INVESTMENTS AND ACTIVITIES. Under the BHCA, a bank holding company must
obtain FRB approval before: (i) acquiring, directly or indirectly, ownership
or control of any voting shares of another bank or bank holding company if,
after such acquisition, it would own or control more than 5% of such shares
(unless it already owns or controls the majority of such shares); (ii)
acquiring all or substantially all of the assets of another bank; or (iii)
merging or consolidating with another bank holding company. Subject to
certain conditions (including certain deposit concentration limits
established by the BHCA), the FRB may allow a bank holding company to acquire
banks located in any state of the United States without regard to whether the
acquisition is prohibited by the law of the state in which the target bank is
located. In approving interstate acquisitions, however, the FRB is required
to give effect to applicable state law limitations on the aggregate amount of
deposits that may be held by the acquiring bank holding company and its
insured depository institution affiliates in the state in which the target
bank is located or which require that the target bank have been in existence
for a minimum period of time (not to exceed five years) before being acquired
by an out-of-state bank holding company.
The BHCA also prohibits, with certain exceptions, the Company from acquiring
direct or indirect ownership or control of more than 5% of the voting shares
of any company which is not a bank and from engaging in any business other
than that of banking, managing and controlling banks or furnishing services
to banks and their subsidiaries. The principal exception to this prohibition
allows bank holding companies to engage in, and to own shares of companies
engaged in, certain businesses found by the FRB to be "so closely related to
banking ... as to be a proper incident thereto." Under current regulations
of the FRB, the Company and its non-bank subsidiaries are permitted to engage
in, among other activities, such banking-related businesses as the operation
of a thrift, sales and consumer finance, equipment leasing, the operation of
a computer service bureau, including software development, and mortgage
banking and brokerage. The BHCA generally does not place territorial
restrictions on the activities of non-bank subsidiaries of bank holding
companies.
Federal legislation also prohibits acquisition of "control" of a bank or bank
holding company, such as the Company, without prior notice to certain federal
bank regulators. "Control" is defined in certain cases as acquisition of 10%
of the outstanding shares of a bank or bank holding company.
CAPITAL REQUIREMENTS. Bank holding companies are required to maintain
minimum levels of capital in accordance with FRB capital adequacy guidelines.
If capital falls below minimum guideline levels, a bank holding company,
among other things, may be denied approval to acquire or establish additional
banks or non-bank businesses.
The FRB's capital guidelines establish the following minimum regulatory
capital requirements for bank holding companies: a risk-based requirement
expressed as a percentage of total risk-weighted assets, and a leverage
requirement expressed as a percentage of total assets. The risk-based
requirement consists of a minimum ratio of total capital to total
risk-weighted assets of 8%, of which at least one-half must be Tier 1
capital. The leverage requirement consists of a minimum ratio of Tier 1
capital to total assets of 3% for the most highly rated companies, with
minimum requirements of 4% to 5% for all others. For purposes of these
capital standards, Tier 1 capital consists primarily of permanent
stockholders' equity less intangible assets (other than certain mortgage
servicing rights and purchased credit card relationships) and total capital
means Tier 1 capital plus certain other debt and equity instruments which do
not qualify as Tier 1 capital and a portion of the company's allowance for
loan and lease losses.
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The risk-based and leverage standards described above are minimum
requirements, and higher capital levels will be required if warranted by the
particular circumstances or risk profiles of individual banking organizations.
Further, any banking organization experiencing or anticipating significant
growth would be expected to maintain capital ratios, including tangible
capital positions (I.E., Tier 1 capital less all intangible assets), well
above the minimum levels. As of December 31, 1996, the Company had
regulatory capital in excess of the FRB's minimum requirements, with a
risk-based capital ratio of 13.0% and a leverage ratio of 7.7%.
DIVIDENDS. The FRB has issued a policy statement with regard to the payment
of cash dividends by bank holding companies. In the policy statement, the
FRB expressed its view that a bank holding company should not pay cash
dividends exceeding its net income or which can only be funded in ways that
weaken the bank holding company's financial health, such as by borrowing.
Additionally, the FRB possesses enforcement powers over bank holding
companies and their non-bank subsidiaries to prevent or remedy actions that
represent unsafe or unsound practices or violations of applicable statutes
and regulations. Among these powers is the ability to proscribe the payment
of dividends by banks and bank holding companies. In addition to the
restrictions on dividends that may be imposed by the FRB, the Illinois
Business Corporation Act, as amended, prohibits the Company from paying a
dividend if, after giving effect to the dividend, the Company would be
insolvent or the net assets of the Company would be less than zero or less
than the maximum amount then payable to shareholders of the Company who would
have preferential distribution rights if the Company were liquidated.
FEDERAL SECURITIES REGULATION. The Company's common stock is registered with
the SEC under the Securities Act of 1933, as amended, and the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Consequently, the
Company is subject to the information, proxy solicitation, insider trading
and other restrictions and requirements of the SEC under the Exchange Act.
THE BANKS
GENERAL. SWSB, BOL and Plano are Illinois-chartered banks, subject to the
examination, supervision, reporting and enforcement requirements of the
Commissioner, as the chartering authority for Illinois banks. FNB is a
national bank, chartered by the OCC under the National Bank Act, and as such
is subject to the examination, supervision, reporting and enforcement
requirements of the OCC. FNB is also a member of the Federal Reserve System.
The deposit accounts of each of the Banks are insured by the BIF of the
FDIC. As BIF-insured banks, the Banks are also subject to the examination,
supervision, reporting and enforcement requirements of the FDIC, as
administrator of the BIF.
DEPOSIT INSURANCE. As FDIC-insured institutions, the Banks are required to
pay deposit insurance premium assessments to the FDIC. The FDIC has adopted
a risk-based assessment system under which all insured depository
institutions are placed into one of nine categories and assessed insurance
premiums based upon their respective levels of capital and supervisory
evaluations. Institutions classified as well-capitalized (as defined by the
FDIC) and considered healthy pay the lowest premium while institutions that
are less than adequately capitalized (as defined by the FDIC) and considered
of substantial supervisory concern pay the highest premium. Risk
classification of all insured institutions is made by the FDIC for each
semiannual assessment period.
During the year ended December 31, 1996, BIF assessments ranged from 0% of
deposits to 0.27% of deposits. The FDIC has announced that for the
semiannual assessment period beginning January 1, 1997, BIF assessment rates
will continue to range from 0% of deposits to 0.27% of deposits.
The FDIC may terminate the deposit insurance of any insured depository
institution if the FDIC determines, after a hearing, that the institution has
engaged or is engaging in unsafe or unsound practices, is in an unsafe or
unsound condition to continue operations or has violated any applicable law,
regulation, order, or any condition imposed in writing by, or written
agreement with, the FDIC. The FDIC may also suspend deposit insurance
temporarily during the hearing process for a permanent termination of
insurance if the institution has no tangible capital. Management of the
Company is not aware of any activity or condition that could result in
termination of the deposit insurance of any of the Banks.
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FICO ASSESSMENTS. Since 1987, a portion of the deposit insurance assessments
paid by SAIF members has been used to cover interest payments due on the
outstanding obligations of the FICO, the entity created to finance the
recapitalization of the FSLIC, the SAIF's predecessor insurance fund.
Pursuant to federal legislation enacted September 30, 1996, commencing
January 1, 1997, both SAIF members and BIF members will be subject to
assessments to cover the interest payment on outstanding FICO obligations.
Such FICO assessments will be in addition to amounts assessed by the FDIC for
deposit insurance. Until January 1, 2000, the FICO assessments made against
BIF members may not exceed 20% of the amount of the FICO assessments made
against SAIF members. It is estimated that SAIF members will pay FICO
assessments equal to 0.064% of deposits while BIF members will pay FICO
assessments equal to 0.013% of deposits. Between January 1, 2000 and the
maturity of the outstanding FICO obligations in 2019, BIF members and SAIF
members will share the cost of the interest on the FICO bonds on a PRO RATA
basis. It is estimated that FICO assessments during this period will be less
than 0.025% of deposits.
SUPERVISORY ASSESSMENTS. Illinois banks and national banks are required to
pay supervisory fees to the Commissioner and the OCC, respectively, to fund
the operations of each agency. The amount of such supervisory fees is based
upon each institution's total assets, including consolidated subsidiaries, as
reported to the agency. During the year ended December 31, 1996, SWSB, BOL
and Plano paid supervisory fees to the Commissioner totaling $27,000, and FNB
paid supervisory assessments to the OCC totaling $128,000.
CAPITAL REQUIREMENTS. Federal regulations require the Banks to meet the
following minimum capital standards: a leverage requirement consisting of a
minimum ratio of Tier 1 capital to total assets of 3% for the most
highly-rated banks with minimum requirements of 4% to 5% for all others, and
a risk-based capital requirement consisting of a minimum ratio of total
capital to total risk-weighted assets of 8%, at least one-half of which must
be Tier 1 capital. For purposes of these capital standards, Tier 1 capital
and total capital consist of substantially the same components as Tier 1
capital and total capital under the FRB's capital guidelines for bank holding
companies (SEE "--The Company--Capital Requirements").
The capital requirements described above are minimum requirements. Higher
capital levels will be required if warranted by the particular circumstances
or risk profiles of individual institutions. For example, federal
regulations provide that additional capital may be required to take adequate
account of interest rate risk or the risks posed by concentrations of credit,
nontraditional activities or securities trading activities.
During the year ended December 31, 1996, none of the Banks was required by
its primary federal regulator to increase its capital to an amount in excess
of the minimum regulatory requirements. As of December 31, 1996, each of the
Banks exceeded its minimum regulatory capital requirements, as follows:
TOTAL
RISK-BASED LEVERAGE
CAPITAL RATIO RATIO
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FNB 14.0% 8.5%
SWSB 13.7% 8.2%
BOL 16.8% 8.8%
Plano 15.8% 8.8%
Federal law provides the federal banking regulators with broad power to take
prompt corrective action to resolve the problems of undercapitalized
institutions. The extent of the regulators' powers depends on whether the
institution in question is "well capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" or "critically
undercapitalized." Depending upon the capital category to which an
institution is assigned, the regulators' corrective powers include:
requiring the submission of a capital restoration plan; placing limits on
asset growth and restrictions on activities; requiring the institution to
issue additional capital stock (including additional voting stock) or to be
acquired; restricting transactions with affiliates; restricting the interest
rate the institution may pay on deposits; ordering a new election of
directors of the institution; requiring that senior executive officers or
directors be dismissed; prohibiting the institution from accepting deposits
from correspondent banks; requiring the institution to divest certain
subsidiaries; prohibiting the payment of principal or interest on
subordinated debt; and ultimately, appointing a receiver for the institution.
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Additionally, institutions insured by the FDIC may be liable for any loss
incurred by, or reasonably expected to be incurred by, the FDIC in connection
with the default of commonly controlled FDIC insured depository institutions
or any assistance provided by the FDIC to commonly controlled FDIC insured
depository institutions in danger of default.
DIVIDENDS. Under the Illinois Banking Act, Illinois-chartered banks, such as
SWSB, BOL and Plano, may not pay, without prior regulatory approval,
dividends in excess of their net profits. Similarly the National Bank Act
imposes limitations on the amount of dividends that may be paid by a national
bank, such as FNB. Generally, a national bank may pay dividends out of its
undivided profits in such amounts and at such times as the bank's board of
directors deems prudent. Without prior OCC approval, however, a national
bank may not pay dividends in any calendar year that exceed the bank's
year-to-date net income plus the bank's adjusted retained net income for the
two preceding years.
The payment of dividends by any financial institution is affected by the
requirement to maintain adequate capital pursuant to applicable capital
adequacy guidelines and regulations, and a financial institution generally is
prohibited from paying any dividends if, following payment thereof, the
institution would be undercapitalized. As described above, each of the Banks
exceeded its minimum capital requirements under applicable guidelines as of
December 31, 1996. As of December 31, 1996, approximately $10 million was
available to be paid as dividends to the Company by the Banks. Notwithstanding
the availability of funds for dividends, however, the federal banking
regulators may prohibit the payment of any dividends by the Banks if
they determine such payment would constitute an unsafe or unsound practice.
INSIDER TRANSACTIONS. The Banks are subject to certain restrictions imposed
by the Federal Reserve Act on extensions of credit to the Company and its
subsidiaries, on investments in the stock or other securities of the Company
and its subsidiaries and the acceptance of the stock or other securities of
the Company or its subsidiaries as collateral for loans. Certain limitations
and reporting requirements are also placed on extensions of credit by the
Banks to their respective directors and officers, to directors and officers
of the Company and its subsidiaries, to principal stockholders of the
Company, and to "related interests" of such directors, officers and principal
stockholders. In addition, such legislation and regulations may affect the
terms upon which any person becoming a director or officer of the Company or
one of its subsidiaries or a principal stockholder of the Company may obtain
credit from banks with which one of the Banks maintains a correspondent
relationship.
SAFETY AND SOUNDNESS STANDARDS. The FDIC and the OCC have adopted guidelines
which establish operational and managerial standards to promote the safety
and soundness of state nonmember banks and national banks, respectively. The
guidelines set forth standards for internal controls, information systems,
internal audit systems, loan documentation, credit underwriting, interest
rate exposure, asset growth, compensation, fees and benefits, asset quality
and earnings. In general, the guidelines prescribe the goals to be achieved
in each area, and each institution is responsible for establishing its own
procedures to achieve those goals. If an institution fails to comply with
any of the standards set forth in the guidelines, the agency may require the
institution to submit a plan for achieving and maintaining compliance. The
preamble to the guidelines states that the agencies expect to require a
compliance plan from an institution whose failure to meet one or more of the
guidelines is of such severity that it could threaten the safety and
soundness of the institution. Failure to submit an acceptable plan, or
failure to comply with a plan that has been accepted by the agency, would
constitute grounds for further enforcement action.
BRANCHING AUTHORITY. Illinois banks, such as SWSB, BOL and Plano, have the
authority under Illinois law to establish branches anywhere in the State of
Illinois, subject to receipt of all required regulatory approvals. National
banks head quartered in Illinois, such as FNB, have the same branching rights
in Illinois as banks chartered under Illinois law.
Effective June 1, 1997 (or earlier if expressly authorized by applicable
state law), the Riegle-Neal Interstate Banking and Branching Efficiency Act
of 1994 (the "Riegle-Neal Act") allows banks to establish interstate branch
networks through acquisitions of other banks, subject to certain conditions,
including certain limitations on the aggregate amount of deposits that may be
held by the surviving bank and all of its insured depository institution
affiliates. The establishment of DE NOVO interstate branches or the
acquisition of individual branches of a bank in another state (rather than
the acquisition of an out-of-state bank in its entirety) is allowed by the
Riegle-Neal Act only if specifically authorized by state law. The
legislation allows individual states to "opt-out" of certain
7
<PAGE>
provisions of the Riegle-Neal Act by enacting appropriate legislation prior
to June 1, 1997. Illinois has enacted legislation permitting interstate
mergers beginning on June 1, 1997.
STATE BANK ACTIVITIES. Under federal law and FDIC regulations, FDIC insured
state banks, such as SWSB, BOL and Plano, are prohibited, subject to certain
exceptions, from making or retaining equity investments of a type, or in an
amount, that are not permissible for a national bank. Federal law and FDIC
regulations also prohibit FDIC insured state banks and their subsidiaries,
subject to certain exceptions, from engaging as principal in any activity
that is not permitted for a national bank or its subsidiary, respectively,
unless the bank meets, and continues to meet, its minimum regulatory capital
requirements and the FDIC determines the activity would not pose a
significant risk to the deposit insurance fund of which the bank is a member.
Impermissible investments and activities must be divested or discontinued
within certain time frames set by the FDIC. These restrictions have not had,
and are not currently expected to have, a material impact on the operations
of SWSB, BOL or Plano.
FEDERAL RESERVE SYSTEM. FRB regulations, as presently in effect, require
depository institutions to maintain noninterest earning reserves against
their transaction accounts (primarily NOW and regular checking accounts), as
follows: for transaction accounts aggregating $49.3 million or less, the
reserve requirement is 3% of total transaction accounts; and for transaction
accounts aggregating in excess of $49.3 million, the reserve requirement is
$1.479 million plus 10% of the aggregate amount of total transaction accounts
in excess of $49.3 million. The first $4.4 million of otherwise reservable
balances are exempted from the reserve requirements. These reserve
requirements are subject to annual adjustment by the FRB. The Banks are in
compliance with the foregoing requirements.
ITEM 2. PROPERTIES
The two-story main building of the Company is located at 78 North Chicago
Street, Joliet, Illinois 60432. FNB owns this building. The land on which
it is located is owned by First National. Also owned by FNB are five
additional facilities in Joliet, which are located at Scott and Jefferson,
Midland and Campbell, Black and Essington Roads, 1590 North Larkin and 191
South Larkin, one facility in Minooka at 207 Mondamin Street, two additional
facilities in Channahon at 23841 West Eames and 24745 West Eames, one
facility in Shorewood at Route 52 and Brookshore, and one facility in
Romeoville at 626 Townhall Drive. SWSB owns their building located at 225
Lily Cache Lane in Bolingbrook. BOL owns their main office at 826 East 9th
Street and a branch office at Cedar Road and 159th Street in Homer Township.
Plano owns their building at 2005 West Route 34 in Plano.
Approximate square footage of each location is as follows:
Approximate
Subsidiary Location Square Feet Status
- - -------------------------------------------------------------------------------
FNB 78 N. Chicago St., Joliet 25,000 Owned
FNB Scott and Jefferson, Joliet 1,600 Owned
FNB Midland and Campbell, Joliet 4,200 Owned
FNB Black and Essington Roads., Joliet 12,000 Owned
FNB 1590 North Larkin, Joliet 1,100 Leased
FNB 191 South Larkin, Joliet 900 Leased
FNB 207 Mondamin St., Minooka 2,000 Owned
FNB 23841 W. Eames, Channahon 100 Leased
FNB Route 52 and Brookshore, Shorewood 1,200 Owned
FNB 24745 West Eames, Channahon, Il. 1,400 Owned
FNB 626 Townhall Drive, Romeoville, Il. 6,500 Owned
SWSB 225 Lily Cache Lane, Bolingbrook 8,800 Owned
BOL 826 E. 9th Street, Lockport 27,000 Owned
BOL Cedar Rd. and 59th St., Lockport 9,000 Owned
Plano 2005 W. Route 34, Plano 10,000 Owned
8
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ITEM 3. LEGAL PROCEEDINGS
There are no material legal proceedings pending to which the Company or its
subsidiaries is a party other than ordinary routine litigation incidental to
their respective businesses.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II.
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS.
MARKET INFORMATION
First National Common Stock is traded primarily through the offices of Stofan,
Agazzi & Co., Richard B. Vance & Co., A. G. Edwards & Sons, Inc., Edward D.
Jones & Co. and the Chicago Corporation. Information on dividends paid and
the price range of the Company's Common Stock on a quarterly basis in 1996
and 1995 is presented on page 25 of the Company's Annual Report to
Stockholders and is incorporated by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The five year summary of selected financial data is presented as Financial
Highlights on page 23 of the Company's 1996 Annual Report to Stockholders and
is incorporated herein by reference.
ASSET/LIABILITY MANAGEMENT
The target GAP position as defined in the Company's Asset & Liabilility
Policy is to maintain a ratio (as adjusted) of rate sensitive assets to rate
sensitive liabilities of at least .75 and not more than 1.25 on a one year
measurement basis. Deviations from these prescribed parameters for three
consecutive months requires discussion on potential solutions and/or courses
of action at the subsequent month's board of directors meeting.
9
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POTENTIAL PROBLEM LOANS
Potential problem loans, exclusive of nonaccrual loans and loans past due by
more than ninety days, at December 31, 1996 were as follows:
Commercial loans $ 423
Commercial real estate loans 1,633
Residential real estate loans 462
Consumer loans 9
--------
$2,527
--------
--------
The Company has no loans or investment concentrations nor are there any foreign
outstandings.
HOLDERS
As of December 31, 1996, the Company had 1,999 shareholders of common capital
stock.
DIVIDENDS
The Subsidiary Banks are limited as to the amount of dividends that can be paid
to the parent company without prior regulatory approval; therefore, the Company
is similarly limited in paying dividends to shareholders. For 1997, the
Subsidiary Banks have approximately $10,000,000, plus their net earnings in
1997, available for paying dividends to First National.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
Management's discussion and analysis appearing on pages 4 through 9 of the 1996
Annual Report to Shareholders is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Consolidated Financial Statements and Notes thereto appearing on pages 11
through 22, and Quarterly Financial Information 1996-1995 appearing on page
25, of the 1996 Annual Report to Stockholders are incorporated herein by
reference. See Item 14 for information concerning financial statements and
schedules filed with the report.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE MATTERS.
Notice of change in accountants was filed under Form 8-K on October 10, 1996
to report the change in accountants from McGladrey & Pullen, LLP to Crowe,
Chizek and Company LLP, effective October 1, 1996. Further discussion of the
change in accountants appears on page 10 of the Notice of Annual Meeting of
Stockholders and Proxy Statement is incorporated herein by reference. No
disagreements on accounting and financial disclosure matters have occurred
for the 24 months prior to, or in months subsequent to, December 31, 1996.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information appearing on pages 5 through 8 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
10
<PAGE>
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information appearing on pages 2 through 4 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.
(a) 1. The following Consolidated Financial Statements of the Company are
incorporated herein by reference from the Annual Report to
Stockholders listed below:
Annual
Report Pages
-------------
Consolidated balance sheets as of
December 31, 1996 and 1995.............................. 11
Consolidated statements of income for the years ended
December 31, 1996, 1995, and 1994....................... 12
Consolidated statements of cash flows for the years ended
December 31, 1996, 1995, and 1994 ...................... 13 and 14
Consolidated statements of changes in stockholders' equity
for the years ended December 31, 1996, 1995, and 1994 .. 15
Notes to consolidated financial statements ............. 16-22
Report of Independent Auditors on the Consolidated
Financial Statements ................................... 10
The following index provides the location of other statistical information
included in the 1996 Annual Report to Stockholders which is incorporated by
reference.
Annual
Report Page
-----------
A. Returns on Equity and Assets......................... 23
B. Average Balance Sheets, Interest Margin, and
Interest Rates....................................... 5
C. Nonaccrual, Past Due and Impaired Loans.............. 6
D. Potential Problem Loans.............................. 6
E. Liquidity............................................ 8 and 9
F. Disclosure of the Effect on Interest Income from
Nonaccrual Loans..................................... 18
G. Financial Highlights................................. 23
H. Interest Differential................................ 23
I. Securities........................................... 17
J. Securities Maturities................................ 24
K. Types of Loans....................................... 24
L. Loan Maturity and Rate Sensitivity................... 24
M. Allocation of Allowance for Loan Losses.............. 24
N. Summary of Loan Loss Activity........................ 25
O. Deposits............................................. 25
P. Short-term Borrowings................................ 19
All schedules have been omitted because they are not applicable, the
data is not significant, or the required information is shown in the
Consolidated Financial Statements or Notes thereto.
3. Exhibits
3.1a Articles of Incorporation of First National Bancorp, Inc.
(incorporated by reference to Appendix III of Registration
Statement Form S-4, File No. 0-15123, dated February 17, 1986.
3.1b Amendment to the Articles of Incorporation dated March 9, 1988
(Incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1987, File No. 0-15123).
3.2 By-laws of First National Bancorp, Inc. (incorporated by
reference to Part IV of Form 10-K for the year ended December 31,
1986, File No. 0-15123)
4 Instruments defining rights of security holders (incorporated by
reference to pages 31 through 33 of Registration Statement Form
S-4, File No. 0-15123, dated February 17, 1986.
4.1 Rights Agreement for Preferred Share Purchase Rights, dated
November 14, 1996 (incorporated by reference to Form 8-A, File
No. 0-15123)
11
<PAGE>
10.1a First National Bank of Joliet Retirement Plan & Trust
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1986, File No. 0-15123)
10.1b First National Bank of Joliet Retirement Plan & Trust as
Amended (incorporated by reference to Part IV of Form 10K for
the year ended December 31, 1989, File No. 0-15123).
10.3a First National Bancorp, Inc. 401(k) plan, (incorporated by
reference to Part IV of Form 10-K for the year ended December 31,
1993, File No. 0-15123).
10.3b Amendment of the First National Bancorp, Inc. 401(K) Plan,
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1994, File No. 0-15123).
10.4 First National Bancorp, Inc. Employees' Cafeteria Plan,
(incorporated by reference to Part IV of Form 10-K for the year
ended December 31, 1995, File No. 0-15123).
10.5 Synopsis of computer service contract dated December 11, 1996
between FISERVE Solutions, Inc. (service provider) and First
National Bancorp, Inc. (customer).
11 Statement re: computation of per share earnings
13 Financial Statements
21 Subsidiaries of the Registrant
23 Notice of Annual Shareholders Meeting of First National Bancorp,
Inc.
(b) Reports on Form 8-K
There were no events or transactions requiring Form 8-K to be filed
during the fourth quarter of 1996 other than the Form 8-K filed on
October 10, 1996 to report the change in accountants from
McGladrey & Pullen, LLP to Crowe, Chizek and Company LLP.
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities Exchange Act of 1934, as amended. The Company intends such
forward-looking statements to be covered by the safe harbor provisions for
forward-looking statements contained in the Private Securities Litigation
Reform Act of 1995, and is including this statement for purposes of these
safe harbor provisions. Forward-looking statements, which are based on
certain assumptions and describe future plans, strategies and expectations of
the Company, are generally identifiable by use of such words as "believe",
"expect", "intend", "anticipate", "estimate", "project" or similar
expressions. The Company's ability to predict results or the actual effect
of future plans or strategies is inherently uncertain. Factors which could
have a material adverse affect on the operations and future prospects of the
Company and subsidiaries, include, but are not limited to, changes in:
interest rates, general economic conditions, legislative/regulatory changes,
monetary and fiscal policies of the U.S. Government, including policies of
the U.S. Treasury and the Federal Reserve Board, the quality or composition
of the loan or investment portfolios, demand for loan products, deposit
flows, competition, demand for financial services in the Company's market
area and changes in accounting principles and policies. These risks and
uncertainties should be considered in evaluating forward-looking statements
and undue reliance should not be placed on such statements.
12
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Act of
1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized, in the City of Joliet, State
of Illinois, on this 24th day of March, 1997.
FIRST NATIONAL BANCORP, INC.
(Registrant)
By: /s/ Kevin T. Reardon
___________________________________
Kevin T. Reardon
Chairman of the Board
& Chief Executive Officer
By: /s/ Albert G. D'Ottavio
___________________________________
Albert G. D'Ottavio
President & Director
(Chief Financial Officer)
Principal Accounting Officer
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below on the 24th day of March, 1997 by the following persons on
behalf of the registrant in the capacities indicated.
NAME TITLE
/s/ Kevin T. Reardon Chairman of the Board
_________________________________ and
Chief Executive Officer
/s/ Albert G. D'Ottavio President and Director
_________________________________ (Chief Operating Officer)
(Chief Financial Officer)
/s/ Charles R. Peyla Director
_________________________________
/s/ Watson A. Healy Director
_________________________________
/s/ George H. Buck Director
_________________________________
/s/ Walter F. Nolan Director
_________________________________
<PAGE>
Exhibit 10.5
SYNOPSIS OF COMPUTER SERVICE CONTRACT
Agreement dated December 12, 1996 (The Agreement) between FISERV SOLUTIONS,
INC. a Wisconsin corporation d/b/a as Fiserv CIR ("Fiserv") and First
National Bancorp, Inc. a bank holding company. ("Client").
Fiserv and Client hereby agree as follows:
1. TERM: The initial term of this Agreement shall be five (5) years and,
unless written notice of non-renewal is provided by either party at
least 180 days prior to expiration of the initial term or any renewal
term, this Agreement shall automatically renew for a renewal term of
one (1) year. This Agreement shall commence on the earliest day the
Fiserv Services are first used by Client.
2. SERVICES: Fiserv, itself and through its affiliates, agrees to provide
Client, and client agrees to obtain from Fiserv the services and
products in the Exhibits listed below:
Exhibit A - Account Processing Services
Exhibit E - Equipment
Exhibit F - Software Products
The Exhibits set forth specific terms and conditions applicable to the
Service and/or Products and where applicable, the Fiserv affiliate
performing the Services and/or Products.
(a) Conversion Services: Fiserv will convert existing applicable
Client data files to the Fiserv Services.
(b) Training Services: Fiserv shall provide training, training
aids, user manuals, and other documentation for Client's use as
Fiserv, deems necessary to enable Client personnel to become
familiar with Fiserv Services.
(c) Network Support Services: At Clients request, Fiserv shall
provide Network support Services consisting of communication
line monitoring and diagnostic equipment and support personnel
to discover, diagnose and report line problems to the
appropriate telephone company.
3. FEES FOR FISERV SERVICES: General: Client agrees to pay Fiserv the fees
for the Fiserv Services specified in the Exhibits. Fees for Fiserv
Services may be increased from time to time as set forth in the
applicable Exhibit. The estimated monthly fee is $85,943.
(a) Additional Charges: Fees for pass through expenses such as
telephone, microfiche, courier, and other charges incurred by
Fiserv for goods and services obtained by Fiserv on the Client's
behalf shall be billed to Client at cost plus the applicable
Fiserv service fee.
(b) Payment Terms: Fees for Fiserv Services are due and payable
monthly upon receipt of invoice. Such invoice will contain:
i) Estimated fees for the following month services
ii) Estimated out of pocket charges for the following month
payable by Fiserv for the Client.
iii) Estimated sales or other taxes thereon.
4. TERMINATION: Either party may terminate this Agreement in the event of
a material breach by the other party not cured within ninety (90)
days-following written notice stating, with reasonable detail the
nature of the claimed breach. If arbitration is required to solve any
disputes between parties, the proceedings to resolve the disputes will
be held in the State of Illinois.
<PAGE>
EXHIBIT 11
STATEMENT RE COMPUTATION OF EARNINGS PER SHARE
Years Ended December 31,
1996 1995 1994
- - -----------------------------------------------------------------------------
Weighted average number of shares
outstanding 1,215,902 1,215,902 1,215,902
Net income (in thousands) $ 8,521 $ 8,211 $ 7,507
Earnings per share $ 7.01 $ 6.75 $ 6.17
Note: Earnings per common share have been retroactively restated to reflect the
7 for 5 stock in 1994.
<PAGE>
FIRST NATIONAL BANCORP, INC.
BUILDING FOR THE FUTURE
ANNUAL REPORT 1996
FINANCIAL HIGHLIGHTS...
In thousands, except per share data 1996 1995 % INCREASE
---- ---- ----------
Total Assets at year end $ 824,570 $ 749,990 9.94%
Net Income $ 8,521 $ 8,211 3.78%
Earnings per share $ 7.01 $ 6.75
Stockholders' Equity $ 71,391 $ 66,425 7.48%
Equity Per Share $ 58.71 $ 54.63
THREE YEAR COMPARISONS
In thousands, except per share data 1996 1995 1994
---- ---- ----
Total Assets at year end $ 824,570 $ 749,990 $ 692,642
Net Income $ 8,521 $ 8,211 $ 7,507
Earnings per share $ 7.01 $ 6.75 $ 6.17
Stockholders' Equity $ 71,391 $ 66,425 $ 61,657
CONTENTS...
Letter to Shareholders... 2
Management's Discussion and Analysis.. 4
Report of Independent Auditors... 10
Consolidated Balance Sheets... 11
Consolidated Statements of Income... 12
Consolidated Statements of Cash Flow... 13
Consolidated Statements of Changes
in Stockholders' Equity... 15
Notes to Consolidated Financial Statements.. 16
Selected Financial Data... 23
Directors... 26
Officers... 28
A GROWING CONCERN DOES NOT RELY ON TRADITION BUT BUILDS UPON IT. THE FOUNDATION
HAS BEEN LAID, THE FRAMEWORK BUILT, THE STRUCTURE EVOLVES--ALL ACCORDING TO
PLAN. RECOGNIZING THE NUANCES OF CHANGE, WE STAY THE COURSE--TRUE TO THE
BLUEPRINT OF CORE VALUES YET ALWAYS LOOKING AHEAD. THE GRAND PROJECT
CONTINUES--ALWAYS PERFECTING THE VISION. ALWAYS BUILDING FOR THE FUTURE.
TO OUR SHAREHOLDERS:
The Bancorp's performance in 1996 is significant not only in view of profit
but in an emerging strategic plan that will help us achieve future growth. The
Bancorp continued its long trend of setting records in virtually every financial
category. Each of the four subsidiary banks contributed by reaching new heights
within their respective operations.
Total Assets approached $825 million, an approximate 10% increase over last
year. Each of the four banks reached new asset highs in 1996. Total Deposits
also set a new standard, nearly $691
million, up 14% over last year. A concerted effort to attract new deposits with
an aggressive marketing program helped us achieve this deposit record.
Strong relationship lending contributed to our Asset growth. Net Loans
improved 8.5% to $464.4 million. Aided by a stable prime rate, steady economic
growth, and more direct lending through our branches, Real Estate Loans were up
nearly $24 million and Consumer Loans increased nearly $10 million over 1995.
Over 60% of the Real Estate Loan increase came in the Residential category.
Entering the new year, loan demand remains very strong.
Net Income rose to an all time high of $8.5 million. Each of the banks
reported increases over their Net Income totals in 1995. Earnings per share
were $7.01, a 26-cent jump over last year's figure
To enhance customer convenience and maintain a high level of personalized
service, the Bancorp expanded its branch and ATM network. In the past year,
First National Bank of Joliet began serving customers in new facilities in
Channahon and Romeoville. The Bank has now opened four new facilities over the
past two years. Recognizing the potential of the Romeoville market, the Bank
moved its data processing facilities into the new office and recently purchased
another site on the western edge of the Village for future expansion.
-1-
<PAGE>
During the past year and a half, the Bancorp undertook a comprehensive
technology study. After reviewing recommendations of its internal task force
and outside consultants, the Bancorp is now initiating an extensive upgrade of
its voice and data infrastructure encompassing all facets of our operation.
With a wider array of products and improved delivery systems, we will strengthen
existing customer relationships and forge new ones. Ultimately, this upgrade
will improve our competitive position in the future financial services
environment of 1998 and beyond.
Recognizing the need for continuity of leadership throughout the Bancorp,
the Board of Directors promoted John J. Keigher, James T. Limacher, Jack A.
Podlesny and Michael C. Reardon to the positions of Senior Vice President at
First National Bank of Joliet. These officers have made many contributions to
all the banks and their collective insight will be an invaluable asset to the
Board of Directors as it guides the Bancorp into the new millennium.
Early in 1997, the Board also moved to accelerate the payment of cash
dividends to shareholders. Beginning in June 1997, shareholders will receive
their dividends on a quarterly basis.
Building the future begins in the present--identifying opportunities,
assessing alternatives, and seizing initiatives. The building process is not
limited to corporate planning but permeates every workstation. We cannot
foretell the future with certainty, but through collective vision and diligent
effort, we are placing the future within our grasp.
Sincerely,
Kevin T. Reardon Albert G. D'Ottavio
Chairman of the Board and President and Chief
Chief Executive Officer Operating Officer
1996 HIGHLIGHTS
REGION ON A ROLL
Economic development may be likened to a high stakes poker game. When the
cards fall right, residential and commercial development is "on a roll."
Will County, which is right in the heart of the Bancorp's retail and
commercial trading areas, ranks second in population growth among all Illinois
counties with an increase of 56,000 in the period between April, 1990 and July,
1995. (Source: U.S. Census Bureau)
In a year-to-date survey through November 1996, approximately 13% of all
residential building permits issued in the State of Illinois originated in Will
County. Between 1990 and 1995, the value of building permits in the County
increased by more than $300 million. (Source: U.S. Census Bureau, Construction
Statistics Division)
During the same five year period, retail sales increased by over 34% in
Will County to more than $3 billion. (Source: Illinois Department of Revenue)
These growth trends indicate tremendous opportunities for commercial and
residential financing by the Bancorp.
SITE LINES
Service is our lifeblood. It's not only a question of how well we serve but
how close we are to our customers.
To optimize our service delivery and enhance customer convenience, the
Bancorp carefully considers where its customers are, residential growth patterns
and commercial development when selecting sites for offices and Automatic Teller
Machines.
In 1996, new First National Bank of Joliet offices in Channahon and
Romeoville began serving customers in those communities. That marks four new
facilities in two years. The Bancorp also expanded its ATM network into gas
station convenience stores in Joliet and Romeoville. Bancorp customers can use
any of our twenty ATMs located in three counties without charge.
That's an investment in our customers and soon-to-be customers who want
"Banking Made Easier."
90 YEARS OF EXPERIENCE
And then there are four--senior vice presidents entrusted with the future
of First National Bank of Joliet.
Collectively, these four senior vice presidents bring 90 years of
experience to customer service, financial analysis, lending, investment
management, and branch operations. Their contributions extend beyond the bottom
line--to expanding customer relationships, to motivating their respective
staffs, to improving their communities.
Imbued with the community bank philosophy, their decisions transcend the
daily course of business to help the Chairman and President shape First
National's future.
-2-
<PAGE>
EVERYTHING'S COMING UP--SILVER!
The Bank of Lockport is part of the recent history of a very historical
town. Since opening its doors in 1971 on Ninth Street, just east of the downtown
area, it's been an integral part of the community. A year long celebration of
its 25th anniversary began June 11th. As part of its silver anniversary, the
Bank refurbished its interior decor. Six years ago, the Bank opened its second
office on Route 7 in Homer Township to serve the burgeoning population in the
area between Lockport, Lemont and Orland Park.
Bank president Bruce Wolfersberger has watched the Bank's growth parallel
that of the Lockport community. "This is a community built on loyalty and a
tradition of trust. Our involvement in the business community has been mutually
beneficial, and the response of the people of Lockport has been most
gratifying."
MAKING A DIFFERENCE
For Theretha "Tee" Fleming, work as a Land Trust administrator in First
National Bank of Joliet's Investment Management and Trust Department may seem
routine in comparison to her volunteer activities in Joliet.
For the past 12 years, she has brought harmony to the youth of Joliet in
more ways than one. Her gospel choir, Tee and Company, is making a difference in
the community.
Nearly all fifty members have had firsthand experience with gangs, drugs
and alcohol, teenage parenthood, or poverty. Beyond directing beautiful music,
Tee directs their lives so they can safely reach their full potential.
If you ever hear Tee and Company, you'll see more than just gospel music,
you'll see the handiwork of a hard-working volunteer making a major contribution
to area youth.
THE ART OF BUSINESS BANKING
Satisfying the financial needs of the business customer is an art.
Cultivating a business relationship demands knowledge of the organization's key
executives, their operation and their markets.
Each firm's needs are unique in penetrating old and new market segments, in
resources required for achieving growth, and in deposit services needed to
optimize the financial operation. Beyond the initial handshake, the business
development representative, the commercial lender, and the customer service
representative at each bank work as a team to build the relationship through
frequent contact and strategic direction.
Whether it's a start-up entrepreneur or a large developer, Bancorp officers
and staff have refined the art of business banking.
DISTINGUISHED SERVICE
Technology is a tool that helps people work at peak efficiency. In
financial services, the fastest data systems can't guarantee customer loyalty.
But the level and degree of service will. Service is the essence of our business
- - --the difference between getting by and getting ahead. Our core value of
personalized service begins with people (our staff) and ends with people (our
customers and prospects). Little things make the difference: the smile and name
recognition at the teller line, the one day response on a loan application, the
switchboard operator's greeting, the time taken to answer a question about an
account balance.
We're investing in more than upgraded technology. We're investing in people
- - --training them in sales technique, product knowledge, and the use of our new
systems. Our response to customers must be warm, knowledgeable and timely. The
optimal service delivery satisfies the customer's need time after time.
Building for the future is something we do one customer at a time.
FUTURE STARS
Reaching out to our future, First National Bank of Joliet and the Herald
News co-sponsored Future Stars, an age-group competition for area boys and
girls.
Youngsters from as far away as Naperville descended upon Bicentennial Park
to test their athletic prowess in four events. Under the watchful eye of parents
and peers, they ran against the clock, took aim at the basket, launched the
football far down field and reached back for something extra on the fastball.
Not everyone captured a medal, yet all were winners.
Through sponsorships and scholarships, the Bancorp renews its commitment to
youth year after year. Each has a talent that gives one a sense of
accomplishment and confidence. Supporting youth activities is an investment in
their future and ours.
MANAGEMENT'S DISCUSSION AND ANALYSIS
-3-
<PAGE>
(Table dollar amounts in thousands, except per share data)
The following presents management's discussion and analysis of the results of
operations and financial condition of the First National Bancorp, Inc. (the
Company) as of the dates and for the periods indicated. This discussion
should be read in conjunction with "Selected Financial Data," the Company's
Consolidated Financial Statements and the Notes thereto and other financial
data appearing elsewhere in this Annual Report. The statements contained in
this management's discussion and analysis that are not historical facts are
forward-looking statements subject to the safe harbor created by the Private
Securities Litigation Reform Act of 1995.
OVERVIEW
The Company is a multi-bank holding company serving primarily the Will, Grundy
and Kendall Counties, Illinois area. The Company was originated on September
30, 1986 with the merger of First National Bank of Joliet. While the principal
office of the Company and the First National Bank of Joliet continues to be
Joliet, Illinois, expansion has occurred through the acquisition in January
1989 of Southwest Suburban Bank, located in Bolingbrook, Illinois (25 miles
southwest of Chicago), and the acquisition in December 1990 of Bank of Lockport
(35 miles southwest of Chicago). In March 1992, the First National Bank of
Joliet acquired the Minooka facility of Morris Federal Savings Bank. Plano
Bancshares, Inc., the parent of Community Bank of Plano (45 miles west of
Chicago), was acquired in October 1994. At December 31, 1996, the Company,
with its four wholly-owned subsidiaries now has fifteen customer banking
locations and total assets of $824,570,000 compared to $749,990,000 at the end
of 1995. During 1996, the Company established two new banking locations. Four
new branch offices have been opened in the past two years. These acquisitions
and branch openings are reflective of management's strategic plan to expand in
areas where the Company either already has market penetration or where the
Company's present customer service area borders the new market.
RESULTS OF OPERATIONS
For the year ended December 31, 1996, the Company earned $8,521,000 or $7.01 per
share as compared to $8,211,000 or $6.75 per share and $7,507,000 or $6.17 per
share for the years ended December 31, 1995 and 1994, respectively. On a
percentage basis, net income for 1996 increased by 3.78% over that of 1995 while
a 9.38% increase was achieved in 1995 over net income for 1994. The operating
performance of bank holding companies is often measured, and comparisons made,
based on net income to average assets and net income to average equity. The
Company's return on average assets for the year ended December 31, 1996 was
1.10%. Corresponding figures were 1.13% and 1.17% for 1995 and 1994
respectively. Return on average equity was 12.48% in 1996, 12.88% in 1995 and
12.70% in 1994.
NET INTEREST INCOME
Net interest income, the difference between total interest earned on earning
assets and total interest expense on interest bearing liabilities, is the
Company's principal source of income. Net interest income is influenced by
changes in the volume and yield on earning assets as well as changes in the
volume and rates paid on interest bearing liabilities. The Company attempts to
favorably impact net interest income through investment decisions on interest
earning assets and monitoring interest rates its banking subsidiaries offer,
particularly rates for time deposits and short-term borrowings.
On a tax equivalent basis (35% income tax rate), the Company's net interest
income expressed as a percentage of average interest earning assets was 4.47%
for 1996 as compared to 4.62% in 1995 and 4.72% in 1994. The decrease in net
interest income in 1996 is due primarily to a drop in the yield on earning
assets to 7.91% in 1996 from 8.11% in 1995 as the yield on interest bearing
liabilities remained relatively stable during the year. The drop in the yield
on interest earning assets was caused by the combined volume of securities and
federal funds sold becoming a larger proportion of average earning assets during
1996, combined with a decrease in yield on these earning assets during 1996.
The decrease in net interest income during 1995 was due to the cost of
interest bearing deposits increasing at a faster rate than the yield on earning
assets. The yield on earning assets increased 70 basis points to 8.11% in 1995,
while the yield on interest bearing liabilities increased 88 basis points to
4.12% in 1995. A portion of the increase in the cost of interest bearing
liabilities is because time deposits and short-term borrowings combined became a
larger percentage of total interest bearing liabilities during 1995.
Net interest income for the year ended December 31, 1996 increased by $833,000,
or 2.7%, compared to 1995. The increase in the volume of earning assets net of
interest bearing liabilities produced $1,765,000 of the net interest income
increase while changes in interest rates reduced income by $932,000. Net
interest income for the year ended December 31, 1995 increased by $3,075,000, or
11.1%, compared to 1994. The increase in earning assets net of interest bearing
liabilities produced $2,205,000 of the net interest income increase with the
remainder due to the changes in interest rates during the year.
-4-
<PAGE>
As the following table illustrates, the Company has maintained consistent levels
of average interest earning assets to total average assets and to average
interest bearing liabilities over the past three years. The ratio of average
time deposits and borrowed funds to total average liabilities has also remained
stable during the past two years.
1996 1995 1994
---- ---- -----
Interest earning assets to total assets .91 .91 .91
Interest earning assets to interest bearing liabilities 1.19 1.18 1.20
Time deposits and borrowed Funds to interest
bearing liabilities .53 .53 .49
-5-
<PAGE>
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 years 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% income tax rate. The average balance sheet amounts
for loans include balances for non-performing loans and the securities average
balance sheet amounts are based on amortized cost.
<TABLE>
<CAPTION>
Analysis of Average Balances, Tax Equivalent Interest
and Yield/Rates For the Years Ended December 31,
<S> <C> <C> <C>
1996 1995 1994
-------------------------- ------------------------- --------------------------
YIELD/ YIELD/ YIELD/
AVERAGE RATE AVERAGE RATE AVERAGE RATE
BALANCE INTEREST (%) BALANCE INTEREST (%) BALANCE INTEREST (%)
Interest Earning Assets:
Interest-bearing deposits in
other financial institutions $ -- $ -- $ 70 $ 3 4.29% $ 6,014 $ 214 3.56%
Federal funds sold 50,143 2,568 5.12% 47,572 2,800 5.89 14,791 559 378
Taxable securities 178,087 10,980 6.17 149,884 9,428 6.29 150,036 8,177 5.45
Tax-exempt securities 35,566 3,102 8.72 39,721 3,549 8.93 42,854 3,841 8.96
Loans 441,619 39,148 8.86 426,523 38,027 8.92 371,442 30,585 8.23
------- ------ ------- ------ ------- ------
Total interest earning assets 705,415 55,798 7.91 663,770 53,807 8.11 585,137 43,376 7.41
------- ------ ------- ------ ------- ------
Noninterest Earning Assets:
Cash and due from banks 32,368 30,469 26,960
Premises and equipment 16,898 14,861 12,900
Intangibles and other assets 19,111 20,701 15,391
-------
Total noninterest earning
assets 68,377 66,031 55,251
------- ------- -------
Total assets $773,792 $729,801 $640,388
------- ------- -------
Interest Bearing Liabilities:
Deposits:
NOW and Money Market $108,735 $ 2,559 2.35 $ 99,827 $ 2,338 2.34 $ 91,237 $ 1,991 2.18
Savings 160,224 4,007 2.50 153,661 3,872 2.52 152,383 3,778 2.48
Time 263,545 14,525 5.51 224,427 12,012 5.35 170,939 7,205 4.21
Short-term borrowings 51,993 2,600 5.00 74,552 4,210 5.65 69,647 2,624 3.77
Long-term debt 7,239 581 8.03 7,966 682 8.56 2,235 160 7.16
------- ------ ------- ------ ------- ------
Total interest bearing
liabilities 591,736 24,272 4.10 560,433 23,114 4.12 486,441 15,758 3.24
------- ------ ----- ------- ------ ----- ------- ------ -----
Noninterest Bearing Liabilities:
Demand deposits 107,981 99,178 90,994
Other liabilities 5,806 6,449 3,863
Stockholders' equity 68,269 63,741 59,090
------- ------- -------
Total liabilities and
stockholders' equity $773,792 $729,801 $640,388
======== ======== ========
Net interest income $ 31,526 $30,693 $27,618
------ ------
Net interest spread 3.81% 3.99% 4.17%
---- ---- ====
Net interest margin to average
interest earning assets 4.47% 4.62% 4.72%
---- ---- ====
</TABLE>
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's judgment of the amount
necessary to maintain the allowance for loan losses at an adequate level. The
provision for loan losses amounted to $1,024,000 in 1996 as compared to
$1,191,000 and $830,000 in 1995 and 1994, respectively. The provision is
determined by management through an evaluation which takes into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of
-6-
<PAGE>
specific problem loans, and current economic conditions. On December 31, 1996,
the allowance for loan losses was $4,414,000 or 0.94% of outstanding loans,
compared to $3,931,000 or 0.91% of outstanding loans at December 31, 1995.
One measurement used by management in assessing the risk inherent in the loan
portfolio is the level of nonperforming loans. Nonperforming loans are
comprised of those loans on which interest income is not being accrued and those
loans which are contractually in arrears as to principal or interest for ninety
days or more. Non-performing assets, which include other real estate acquired
in satisfaction of loans, at December 31 for each of the past five years are as
follows:
NONPERFORMING ASSETS
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C> <C>
1996 1995 1994 1993 1992
------ ------ ------ ------ ------
Non-accrual loans $ 785 $ 169 $1,084 $ 449 $ 917
Other loans contractually past
due ninety days or more 1,072 981 985 1,168 1,034
Other real estate 13 444 444 534 498
------ ------ ------ ------ ------
$1,870 $1,594 $2,513 $2,151 $2,449
====== ====== ====== ====== ======
Total non-performing assets to
total stockholders' equity 2.62% 2.40% 4.08% 3.74% 4.61%
Total non-performing assets
to total assets 0.23% 0.21% 0.36% 0.34% 0.41%
</TABLE>
Impaired loans are included in non-accrual loans and totaled $580,000 at
December 31, 1996. Impaired loans consist of commercial and commercial real
estate loans. Management has allocated approximately $147,000 of the allowance
for loan losses specifically to impaired loans as of December 31, 1996. There
was no interest income recognized on impaired loans during 1996. No loans were
considered impaired as of December 31, 1995.
The management process for evaluating the adequacy of the allowance for loan
losses includes reviewing each month's loan committee reports which list all
loans that do not meet certain internally developed criteria as to collateral
adequacy, payment performance, economic conditions and overall risk credit
risk. These reports, in narrative form, also address the current status and
actions in process on each listed loan. From this information, adjustments
are made to the allowance for loan losses. Such adjustments include both
specific loss allocation amounts and general provisions by loan category
based on present and past collection experience, nature and volume of the
loan portfolio, overall portfolio quality, and current economic conditions
that may affect the borrower's ability to pay.
For the five years presented, there were no restructured loans or leases to be
reported. As of December 31, 1996 management has identified potential problem
loans by type of loan. This includes the non-accrual and past due loans listed
above in Nonperforming Assets.
Commercial $ 967
Real estate, commercial 2,918
Real estate, residential 490
Consumer 9
------
$4,384
======
NONINTEREST INCOME
Noninterest income consists primarily of service charges on customer deposit
accounts and fees earned on trust department and farm management services.
Total noninterest income increased $367,000, or 7.2%, in 1996 compared with $1.3
million, or 33.5%, in 1995. The ratio of noninterest income to income before
taxes was 43%, 43% and 36% in 1996, 1995 and 1994, respectively.
Trust department and farm management services income increased $164,000, or
19.7%, in 1996 after consistent amounts in 1995 and 1994. The 1996 increase is
generally reflective of the increased emphasis by management in marketing trust
services. During 1996, the specific trust revenues which had meaningful
percentage increases over 1995 included employee/benefit trusts, agency trusts,
estates and guardianships, and custodial accounts.
Service fees, which consist primarily of service fees on deposit accounts,
increased $174,000, or 6.0%, in 1996 after increasing $519,000, or 21.9%, in
1995. Both years increases are generally reflective of increases in overdraft
and demand deposit
-7-
<PAGE>
service charges as a result of increases in the number of demand deposit
accounts as well as fee schedule increases. Approximately $280,000 of the 1995
increase relates to reporting a full year of activity for the Community Bank of
Plano, which was acquired in October 1994.
Other income increased $163,000, or 14.8%, in 1996 compared with $459,000, or
71.7%, in 1995. The 1996 increase relates to many items, including increases in
ATM fees, merchant credit card fees, credit life insurance income, demand
deposit check charges, and gains on sales of other real estate owned, partially
offset by a decrease of $74,000 in gains on sales of mortgage loans. The 1995
increase relates primarily to gains on sales of mortgage loans ($108,000 in 1995
compared to $17,000 in 1994) and other real estate owned ($51,000 in 1995 and
none in 1994). The Company also recorded loan servicing fees of $108,000 in
1995 compared to a nominal amount in 1994. The rest of the increase in other
income is primarily due to reporting a full year of activity for the Community
Bank of Plano.
NONINTEREST EXPENSES
Total noninterest expenses increased $830,000, or 3.9%, in 1996 after increasing
$2.9 million, or 15.5%, in 1995. A portion of the 1995 increase pertains to the
inclusion of the Community Bank of Plano for a full year after its October 1994
acquisition. Details of noninterest expenses for the three years ended December
31, 1996 are presented in the following schedule:
1996 1995 1994
---- ---- ----
Salaries and employee benefits $11,122 $10,372 $ 9,157
Occupancy expense 1,799 1,548 1,387
Data processing 1,085 945 818
Equipment expense 1,329 1,356 1,002
FDIC insurance and bank
examination assessments 160 893 1,249
Printing, stationary and supplies 754 598 461
Postage 461 391 342
Amortization of intangibles 1,070 1,070 553
All other expenses 4,469 4,246 3,571
------ ------ ------
$22,249 $21,419 $18,540
======= ======= =======
Salaries and employee benefits, which represent the largest component of
noninterest expenses, increased by $750,000, or 7.2%, in 1996 after
increasing $1.2 million, or 13.3%, in 1995. The 1996 increase is primarily
due to a 6.7% increase in the average full-time equivalent number of
employees at the Company. The 1995 increase is primarily due to the inclusion
of the salaries and benefits of the Community Bank of Plano for a full year.
General pay increases also contribute to the increased payroll expense in
both 1996 and 1995. At December 31, 1996, 1995 and 1994, the Company's
number of full-time equivalent employees was 352, 301 and 311,
respectively.
During 1995, the Federal Deposit Insurance Corporation (FDIC) lowered deposit
insurance rates and reduced the Company's premiums by $555,000 from the expense
incurred in 1994. The 1996 expense reflects a full year at the lower premium
rates established by the FDIC. During each of the three years in the period
ended December 31, 1996, the subsidiary Banks were categorized as "well-
capitalized" and, therefore, were being assessed at the lowest deposit
insurance premium rate. Deposit insurance costs in 1996 were approximately
$8,000, reflecting the fully funded status of the FDIC's Bank Insurance Fund.
Occupancy, printing stationary and supplies, and postage expense increases over
the past two years are generally reflective of the Company's overall growth and
establishment of new facility locations. Data processing expenses have
increased in 1996 and 1995 as a result of the third-party data processing
contract converting to a variable-fee basis from a fixed-fee basis in 1995. The
Company plans to change third party data processing service providers in the
second quarter of 1997 and management expects the fees associated with this new
contract to be less than the fees currently being charged. Lastly, expense
increases in 1995 over 1994 result from reporting a full year of the Community
Bank of Plano's operations.
INCOME TAXES
The Company's income tax expense was $4,137,000 in 1996 compared to $3,754,000
in 1995 and $3,273,000 in 1994. Income tax expense as a percentage of income
before income taxes was 32.7%, 31.4% and 30.4% in 1996, 1995 and 1994,
respectively. The increase in this ratio during 1996 and 1995 is generally a
result of less tax-exempt interest income relative to total income.
-8-
<PAGE>
ASSET/LIABILITY MANAGEMENT
The primary objectives of the Company's asset/liability management program are
to achieve a stable net interest margin, to follow prudent investment strategies
and to maintain adequate liquidity to meet the withdrawal requirements of
depositors and the financing needs of prospective borrowers. Management
continually monitors the liquidity requirements and rate sensitivity of its
short-term sources of funds. The accompanying schedule illustrates repricing of
the Company's rate sensitive assets and liabilities position at December 31,
1996.
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
Less Than 90 to 1 to 5 Over
90 DAYS 365 DAYS YEARS 5 YEARS
--------- -------- ------ -------
Rate sensitive assets:
Securities $ 13,148 $ 24,887 $ 159,278 $ 17,515
Federal funds sold 73,241 -- -- --
Loans 107,605 36,590 198,227 126,364
-------- -------- -------- -------
Total interest earning assets $ 193,994 $ 61,477 $ 357,505 $143,879
========= ========= ========= ========
Cumulative interest earning assets $ 193,994 $ 255,471 $ 612,976 $756,855
========= ========= ========= ========
Rate sensitive liabilities:
Savings deposits $ 160,653 $ -- $ -- $ --
Time deposits 122,873 146,114 32,847 --
Other deposits and liabilities 158,757 9,309 -- --
-------- -------- -------- -------
Total interest-bearing liabilities $ 442,283 $ 155,423 $ 32,847 $ --
========= ========= ========= ========
Cumulative interest-bearing liabilities $ 442,283 $ 597,706 $ 630,553 $630,553
========= ========= ========= ========
Excess interest earning assets
(liabilities) $(248,289) $ (93,946) $ 324,658 $143,879
Cumulative excess interest
earning assets (liabilities) $(248,289) $(342,235) $ (17,577) $126,302
Cumulative rate sensitivity ratio
(interest Earning assets divided by
interest-bearing liabilities) 0.44 0.43 0.97 1.20
</TABLE>
Included in "Less Than 90 Days" rate sensitive liabilities are $160,653,000 of
savings deposits and $111,879,000 of NOW and money market deposits which
management considers more core deposit in nature. While the shorter term
negative GAP position represents a potential adverse impact on the Company's net
interest income position in periods of rising interest rates, the same position
generally results in a favorable impact when interest rates remain constant or
decline.
LIQUIDITY
The Company's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, maturities of securities, federal funds sold, and
short term borrowings (consisting of securities sold under agreements to
repurchase and U.S. Treasury demand note accounts). While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition.
The Company's liquidity, represented by cash equivalents, is a product of its
operating, investing and financing activities. Cash flows from operating
activities were greater than accrual basis net income by $2.9 million, $5.5
million and $1.1 million during 1996, 1995 and 1994, respectively. Management
expects ongoing operating activities to continue to be a primary source of cash
flows for the Company.
A primary investing activity of the Company is the origination of loans. Loans
made to customers, net of principal collections were $37.0 million, $11.3
million and $52.3 million for the years ended December 31, 1996, 1995 and 1994,
respectively. The Company also makes significant investments in securities and
federal funds sold. Investing activities related to these investments resulted
in net cash outflows of $43.4 million in 1996 and $50.2 million in 1995 and cash
inflows of $61.1 million in 1994.
Financing activities are centered primarily in deposits, short term borrowings
(including securities sold under agreements to repurchase) and dividends paid.
The Company has experienced growing deposit levels over the past several years,
which has
-9-
<PAGE>
helped maintain an adequate level of cash for the Company's activities. The
Company has recently established new branch offices in an effort to increase the
deposit base of the Company. Deposits increased $85.4 million, $49.0 million
and $15.4 million in 1996, 1995 and 1994, respectively. As competition for
deposits is expected to remain strong, future deposit growth cannot be
predicted with any certainty.
Many of the repurchase agreements are with municipalities, including county
governmental offices. As such, the amount of the funds borrowed fluctuates from
period to period. Short term borrowings decreased by $15.5 million in 1996,
increased by $5.2 million in 1994 and decreased by $18.4 million in 1994.
Dividends paid to stockholders' as a percentage of net income were 42.8%, 40.7%
and 43.4% in 1996, 1995 and 1994, respectively. Cash dividends per share have
increased in each of the last three years.
Financing activities also include long term debt. The Company's long term debt
was incurred to acquire subsidiary banks. Cash flow activities related to long
term debt obligations consist of debt service requirements. No additional long
term debt was issued in the last two years. To help insure the ability to meet
its funding needs, including any unexpected strain on liquidity, the Company has
$40 million of federal funds lines of credit from three independent banks.
The Company has made expenditures during the past two years related to the
opening of new branch offices and currently plans to continue to open new branch
offices. Additionally, the Company plans to make expenditures during 1997 to
update its current voice and data processing technologies. Management does not
believe these expenditures will have a significant impact on the liquidity of
the Company.
CAPITAL RESOURCES
In 1996, stockholders' equity increased by $4,966,000 to $71,391,000. The
amounts comprising this net increase were net income of $8,521,000 and a $91,000
change in unrealized losses on securities available for sale, offset by
decreases related to dividends paid to stockholders of $3,646,000. At December
31, 1996 stockholders' equity represented 8.66% of total assets compared to the
year earlier position of 8.86%.
Under rules adopted by federal bank regulatory agencies, bank holding
companies and financial institutions are subject to "risk based" capital
measurements. These regulations establish minimum levels for risk-based Tier 1
Capital and Total Capital ratios and the leverage ratio. The parent company (on
a consolidated basis) and its subsidiary Banks currently are considered "well-
capitalized" and exceed the capital requirements established by federal bank
regulatory agencies. Please refer to Note 14 to the Company's Consolidated
Financial Statements for further information with respect to compliance with
regulatory capital requirements.
EFFECTS OF INFLATION
A financial institution's assets and liabilities are primarily monetary. The
net monetary assets of a financial institution are affected more by the general
level of interest rates than by the prices of other goods and services. High
rates of inflation are generally accompanied by higher than normal interest
rates. Conversely, with a low inflation rate, or the anticipation of lower
rates of inflation, interest rates are usually lower. The Company generally is
able to offset the higher cost of funds predominant in periods of higher
inflation with increased yields on loans and securities. When inflation rates
drop, and interest rates follow that pattern, the Company's cost of funds and
interest earned on assets are likely to decrease proportionately. An analysis
of a financial institution's asset and liability structure provides the best
indication of how a financial institution is positioned to respond to changing
interest rates and maintain profitability.
Assets such as premises and equipment are considered non-monetary in nature and
are not directly affected by inflation in the normal flow of business. These
assets are directly affected by current rates of inflation only when purchased
or sold.
IMPACT OF NEW ACCOUNTING STANDARDS
Statement of Financial Accounting Standards No. 125, "Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities", was
issued by the Financial Accounting Standards Board in 1996. This Statement
revises the accounting for transfers of financial assets, such as loans and
securities, and for distinguishing between sales and secured borrowings.
Statement 125 is effective for some transactions in 1997 and others in 1998.
The effect on the Company's financial statements has not yet been determined.
-10-
<PAGE>
REPORT OF INDEPENDENT AUDITORS
CROWE CHIZEK
BOARD OF DIRECTORS
FIRST NATIONAL BANCORP, INC. AND SUBSIDIARIES
JOLIET, ILLINOIS
We have audited the accompanying consolidated balance sheet of First
National Bancorp, Inc. and Subsidiaries as of December 31, 1996, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the year then ended. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audit. The
accompanying consolidated financial statements of the Company as of December 31,
1995, and for the two years then ended, were audited by other auditors whose
report dated January 26, 1996 expressed an unqualified opinion on those
statements.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the 1996 consolidated financial statements referred to
above present fairly, in all material respects, the financial position of First
National Bancorp, Inc. and Subsidiaries as of December 31, 1996, and the results
of their operations and their cash flows for the year then ended in conformity
with generally accepted accounting principles.
Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 25, 1997
-11-
<PAGE>
CONSOLIDATED BALANCE SHEETS
First National Bancorp, Inc. and Subsidiaries
Years Ended December 31, 1996 and 1995
(In thousands, except share data)
<TABLE>
<CAPTION>
<S> <C> <C>
1996 1995
---- ----
ASSETS
Cash and due from banks $ 35,785 $ 42,979
Federal funds sold 73,241 41,537
Securities available-for-sale 11,404 17,337
Securities held-to-maturity (fair value of $203,500 in 1996
and $187,269 in 1995) 203,424 185,374
Loans
Commercial 81,981 79,967
Agricultural 8,692 8,815
Real estate 234,604 210,631
Consumer 144,162 134,344
------- -------
Total loans 469,439 433,757
Unearned discount (653) (1,909)
Allowance for loan losses (4,414) (3,931)
------- -------
Loans, net 464,372 427,917
Premises and equipment, net 17,880 15,579
Accrued interest and other assets 7,954 7,687
Intangibles, net 10,510 11,580
------- -------
Total assets $824,570 $749,990
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand, noninterest-bearing $116,147 $114,035
NOW accounts 74,749 58,027
Money market accounts 37,130 41,646
Savings 160,653 152,128
Time deposits, $100,000 and over 63,189 34,781
Other time deposits 238,645 204,520
------- -------
Total deposits 690,513 605,137
Short-term borrowings 49,236 64,771
Long-term debt 6,951 7,701
Accrued interest and other liabilities 6,479 5,956
------- -------
Total liabilities 753,179 683,565
------- -------
Stockholders' equity
Preferred stock, no par value, authorized
1,000,000 shares; none issued -- --
Common stock, par value $10; 2,750,000 shares
authorized; 1,215,902 shares issued 12,159 12,159
Additional paid-in capital 8,846 8,846
Retained earnings 50,394 45,519
Unrealized loss on securities available-for-sale,
net of taxes (8) (99)
------- -------
Total stockholders' equity 71,391 66,425
------- -------
Total liabilities and stockholders' equity $824,570 $749,990
------- -------
------- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-12-
CONSOLIDATED STATEMENTS OF INCOME
First National Bancorp, Inc. and Subsidiaries
Years Ended December 31, 1996, 1995 and 1994
(In thousands, except for per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
INTEREST INCOME
Loans $39,148 $38,027 $30,585
Securities
Taxable 10,980 9,428 8,177
Tax-exempt 2,016 2,307 2,535
Federal funds sold 2,568 2,800 559
Deposits in other financial institutions -- 3 214
------ ------ ------
Total interest income 54,712 52,565 42,070
------ ------ ------
INTEREST EXPENSE
Deposits 21,091 18,222 12,974
Short-term borrowings 2,600 4,210 2,624
Long-term debt 581 682 160
------ ------ ------
Total interest expense 24,272 23,114 15,758
------ ------ ------
Net interest income 30,440 29,451 26,312
Provision for loan losses 1,024 1,191 830
------ ------ ------
Net interest income after provision
for loan losses 29,416 28,260 25,482
------ ------ ------
NONINTEREST INCOME
Trust department and farm
management income 996 832 833
Service fees 3,058 2,884 2,365
Securities gains, net 175 309 --
Other income 1,262 1,099 640
------ ------ ------
Total noninterest income 5,491 5,124 3,838
------ ------ ------
NONINTEREST EXPENSES
Salaries and employee benefits 11,122 10,372 9,157
Occupancy expense 1,799 1,548 1,387
Data processing 1,085 945 818
Equipment expense 1,329 1,356 1,002
Amortization of intangibles 1,070 1,070 553
Other expenses 5,844 6,128 5,623
------ ------ ------
Total noninterest expenses 22,249 21,419 18,540
------ ------ ------
INCOME BEFORE INCOME TAXES 12,658 11,965 10,780
Income tax expense 4,137 3,754 3,273
------ ------ ------
NET INCOME $ 8,521 $ 8,211 $ 7,507
------ ------ ------
------ ------ ------
Earnings per common share $ 7.01 $ 6.75 $ 6.17
------ ------ ------
------ ------ ------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-13-
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOW
First National Bancorp, Inc. and Subsidiaries
Years Ended December 31, 1996, 1995 and 1994
(In thousands)
<TABLE>
<CAPTION>
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $8,521 $ 8,211 $ 7,507
Adjustments to reconcile net income to
net cash provided by operating activities
Depreciation 1,321 1,288 984
Provision for loan losses 1,024 1,191 830
Deferred income tax benefit (172) (190) (214)
Amortization of securities premiums,
net of accretion (94) 195 327
Amortization of intangibles 1,070 1,070 553
Securities gains, net (175) (309) --
Proceeds from sales of loans 19,482 10,758 4,826
Loans originated for sale (19,942) (10,650) (4,809)
Net gains on sales of loans (34) (108) (17)
(Increase) decrease in accrued interest
and other assets (267) 2,946 (2,033)
Increase (decrease) in accrued interest
and other liabilities 649 (686) 675
------ ------ ------
Net cash provided by
operating activities 11,383 13,716 8,629
------ ------ ------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease in interest-bearing deposits in other
financial institutions -- 4,198 4,455
Proceeds from maturities of securities held-to-maturity
85,143 58,051 66,469
Proceeds from sale of securities available-for-sale
1,653 -- --
Proceeds from maturities of securities available-for-sale
10,028 -- --
Purchase of securities available-for-sale (998) -- --
Purchase of securities held-to-maturity (107,537) (70,924) (48,971)
Change in federal funds sold and securities purchased
under agreements to resell, net (31,704) (41,537) 39,114
Loans made to customers, net of principal collections
(36,985) (11,313) (52,331)
Purchase of Plano Bancshares, Inc., net of cash
acquired and debentures issued -- -- (4,644)
Purchase of premises and equipment (3,622) (2,207) (1,807)
------ ------ ------
Net cash provided by (used in)
investing activities (84,022) (63,732) 2,285
------ ------ ------
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 85,376 48,975 15,393
Net increase (decrease) in short-term borrowings
(15,535) 5,157 (18,423)
Proceeds from long-term debt -- -- 3,800
Principal paid on long-term debt (750) (625) (250)
Cash paid in lieu of fractional shares -- -- (34)
Dividends paid (3,646) (3,344) (3,258)
------ ------ ------
Net cash provided by (used in)
financing activities 65,445 50,163 (2,772)
Net increase (decrease) in cash and due from banks (7,194) 147 8,142
CASH AND DUE FROM BANKS
Beginning of year 42,979 42,832 34,690
------ ------ ------
End of year $35,785 $42,979 $42,832
------ ------ ------
------ ------ ------
</TABLE>
-14-
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash payments for
Interest $23,515 $21,796 $15,529
Income taxes 4,447 4,091 3,503
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING AND FINANCING ACTIVITIES
Transfer of securities held-to-maturity to
securities available-for-sale $-- $17,487 $--
Other real estate acquired in settlement of loans -- 1,123 --
Acquisition of Plano Bancshares, Inc.
Assets acquired
Cash and due from banks $ 2,317
Securities 16,827
Federal funds sold 814
Loans, net 34,174
Premises and equipment 1,609
Accrued interest and other assets 753
Intangibles 6,127
------
$62,621
------
Liabilities assumed
Demand, NOW, and money market deposits $ 6,106
Savings and time deposits 43,649
Deferred taxes 1,526
Other liabilities 603
------
$51,884
-------
Total purchase price $10,737
Debentures issued 3,776
------
Cash paid $ 6,961
------
------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-15-
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
First National Bancorp, Inc. and Subsidiaries
Years Ended December 31, 1996, 1995, and 1994
(In thousands, except per share data)
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
NET
UNREALIZED
LOSS ON
COMMON STOCK ADDITIONAL SECURITIES
PAR PAID-IN RETAINED AVAILABLE-
SHARES VALUE CAPITAL EARNINGS FOR-SALE TOTAL
------ ------ ---------- -------- ------------ -----
Balance, December 31, 1993 869 $8,689 $12,350 $36,403 $-- $57,442
Net income -- -- -- 7,507 -- 7,507
Stock split of two
additional shares for
each five shares
previously held,
fractional shares
paid in cash 347 3,470 (3,504) -- -- (34)
Cash dividends declared-
$1.43 per share prior
to stock split and $1.25
subsequent to stock split -- -- -- (3,258) -- (3,258)
------ ------- ------ ------- ----- -------
Balance, December 31, 1994 1,216 12,159 8,846 40,652 -- 61,657
Net income -- -- -- 8,211 -- 8,211
Cash dividends declared-
$2.75 per share -- -- -- (3,344) -- (3,344)
Net change in unrealized
loss on securities
available-for-sale,
net of taxes -- -- -- -- (99) (99)
------ ------- ------ ------- ----- -------
Balance, December 31, 1995 1,216 12,159 8,846 45,519 (99) 66,425
Net income -- -- -- 8,521 -- 8,521
Cash dividends declared-
$3.00 per share -- -- -- (3,646) -- (3,646)
Net change in unrealized
loss on securities
available-for-sale,
net of taxes -- -- -- -- 91 91
------ ------- ------ ------- ----- -------
Balance, December 31, 1996 1,216 $12,159 $8,846 $50,394 $(8) $71,391
------ ------- ------ ------- ----- -------
------ ------- ------ ------- ----- -------
</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
-16-
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
First National Bancorp, Inc. and Subsidiaries
(Table Amounts in Thousands, Except Per Share Data)
1. NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
First National Bancorp, Inc. (the Company) is a multi-bank holding company
providing financial and other banking services to customers located primarily in
the Will, Grundy, and Kendall Counties, Illinois area. A major portion of loans
are secured by various forms of collateral including real estate, business
assets, consumer property, and other items, although borrower cash flow may also
be a primary source of repayment.
The following summarizes the significant accounting policies used in the
preparation of the accompanying consolidated financial statements.
USE OF ESTIMATES:
In preparing the financial statements in accordance with generally accepted
accounting principles, management makes estimates and assumptions based on
available information. These estimates and assumptions affect the reported
amounts in the financial statements and the disclosures provided, and future
results could differ. The collectibility of loans, fair values of financial
instruments, and status of contingencies are particularly subject to change.
Actual results could differ from those estimates.
PRINCIPLES OF CONSOLIDATION:
The consolidated financial statements include the accounts of the Company and
its wholly-owned subsidiaries, First National Bank of Joliet, Southwest Suburban
Bank, Bank of Lockport, and Plano Bancshares, Inc. (collectively, the Banks).
Plano Bancshares, Inc. owns 100% of the stock of Community Bank of Plano. All
material intercompany items and transactions have been eliminated in
consolidation.
SECURITIES:
Securities are classified as either held-to-maturity or available-for-sale.
Securities classified as held-to-maturity are those debt securities that the
Company has both the intent and ability to hold to maturity regardless of
changes in market conditions, liquidity needs, or changes in general economic
conditions. These securities are carried at cost adjusted for amortization of
premium and accretion of discount, computed by the interest method over their
contractual lives.
Securities classified as available-for-sale are those securities that the
Company intends to hold for an indefinite period of time, but not necessarily to
maturity. Any decision to sell a security classified as available-for-sale
would be based on various factors, including significant movements in interest
rates, changes in the maturity mix of the Company's assets and liabilities,
liquidity needs, regulatory capital considerations, and other similar factors.
Securities available-for-sale are carried at fair value. Unrealized gains or
losses are reported as increases or decreases in stockholders' equity, net of
the related deferred income tax effect.
Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.
LOANS AND ALLOWANCE FOR LOAN LOSSES:
Loans are reported at their unpaid principal outstanding, net of unearned
discount, deferred loan fees, and the allowance for loan losses. Interest on
loans is calculated primarily by using the simple interest method on daily
balances of the principal amount outstanding. Nonrefundable loan fees, net of
related origination costs, are initially deferred with the resulting deferred
income recognized over the term of the related loan as an adjustment to the
yield.
Real estate loans held for sale are carried at the lower of cost or fair value
in the aggregate. Declines in fair value are charged to a valuation allowance.
The allowance for loan losses is established through a provision for loan losses
charged to expense. Loans are charged against the allowance for loan losses
when management believes that the collectibility of the principal is unlikely.
The allowance is an amount that management believes will be adequate to absorb
possible losses on existing loans that may become uncollectible, based on
evaluations of the collectibility of loans and prior loan loss experience. This
evaluation also takes into consideration such factors as changes in the nature
and volume of the loan portfolio, overall portfolio quality, review of specific
problem loans, and current economic conditions that may affect the borrower's
ability to pay. While management uses the best
-17-
<PAGE>
information available to make its evaluation, future adjustments to the
allowance may be necessary if there are significant changes in economic
conditions.
The Company adopted Financial Accounting Standards Board (FASB) Statement 114,
"Accounting by Creditors for Impairment of a Loan", as amended by Statement 118,
"Accounting by Creditors for Impairment of a Loan--Income Recognition and
Disclosures", on January 1, 1995. Loans are considered impaired when, based on
current information and events, it is probable that the Company will not be able
to collect all amounts due according to the contractual terms of the loan
agreement. Under these statements, the impairment is measured based on the
present value of expected future cash flows or, alternatively, the observable
market price of the loans or the fair value of the collateral. However, for
those loans that are collateral dependent and for which management has
determined foreclosure is probable, the measure of impairment is based on the
fair value of the collateral.
For impaired loans and other loans, accrual of interest is discontinued on a
loan when management believes, after considering collection efforts and other
factors, that the borrower's financial condition is such that collection of
interest is doubtful. Cash collections on impaired loans are credited to the
loan receivable balance, and no interest income is recognized on those loans
until the principal balance has been collected.
PREMISES AND EQUIPMENT:
Asset cost is reported net of accumulated depreciation. Depreciation expense is
calculated primarily on the straight-line method for premises and 150%
declining-balance method for equipment over the following estimated useful lives
of the assets.
IN YEARS
--------
Land improvements 5-15
Buildings 15-40
Equipment 5-10
INTANGIBLES:
The portion of the purchase price of subsidiary banks which represents the value
assigned to the existing deposit base for which the annual interest and
servicing costs are below market rates (core deposit intangibles) is being
amortized on the straight-line method over five to ten years. The excess of
cost over fair value of net assets acquired (goodwill) in the purchase of
subsidiary banks is being amortized on the straight-line method over fifteen and
twenty years.
EMPLOYEE BENEFITS:
The Company has a pension plan covering all full-time employees of its
subsidiary banks who have completed one year of service and meet specific age
requirements. The Company's funding policy is to make the minimum annual
contribution that is required by applicable regulations, plus such amounts as
the Company may determine to be appropriate.
The Company also has a defined contribution 401(k) plan. Substantially all the
Company's employees are covered under the 401(k) plan. Participants make tax
deferred contributions. The Company makes matching contributions equal to 50%
of each participant's contribution up to the first 6% of compensation that is
deferred.
INCOME TAXES:
Income tax expense is the sum of the current year income tax due or refundable
and the change in deferred tax assets and liabilities. Deferred tax assets and
liabilities are the expected future tax consequences of temporary differences
between the carrying amounts and tax bases of assets and liabilities, computed
using enacted tax rates. A valuation allowance, if needed, reduces deferred tax
assets to the amount expected to be realized.
EARNINGS PER SHARE:
Earnings per share are calculated on the basis of the weighted average number of
shares outstanding.
PRESENTATION OF CASH FLOWS:
Cash flows from interest-bearing deposits in other financial institutions,
loans, federal funds sold, short-term borrowings, and all customer deposit
accounts are shown net.
SERVICING RIGHTS:
The Company has not purchased rights to service loans for others. Servicing
rights resulting from the origination and sale of loans with servicing retained
are not significant. Therefore, the effect of the Company's adoption of FASB
Statement 122, "Accounting for Mortgage Servicing Rights" on January 1, 1996
has been immaterial.
-18-
<PAGE>
RECLASSIFICATIONS:
Some items in prior financial statements have been reclassified to conform with
the current year presentation.
2. ACQUISITION
On October 31, 1994, the Company acquired 100% of the outstanding shares of
Plano Bancshares, Inc. for $10,737,000 paid through issuing $3,776,000 of
debentures plus cash of $6,961,000. The excess of acquisition cost over the
fair value of net assets acquired was $2,311,000.
The acquisition has been accounted for as a purchase with the results of
operations of Plano Bancshares, Inc. since October 31, 1994 included in the
consolidated financial statements. Unaudited pro forma consolidated financial
operations for the year ended December 31, 1994 as though Plano Bancshares, Inc.
had been acquired as of January 1, 1994 follow:
Net interest income $27,878
Net income 7,125
Earnings per common share 5.86
The above amounts reflect adjustments for amortization and depreciation on
revalued purchased assets, interest expense on long-term debt, and income taxes.
3. INTANGIBLES
Intangibles consist of goodwill, net of accumulated amortization, of $7,503,000
and $8,125,000 as of December 31, 1996 and 1995, respectively, and core deposit
intangibles, net of accumulated amortization, of $3,007,000 and $3,455,000 as of
December 31, 1996 and 1995, respectively.
4. SECURITIES
The amortized cost and fair value of securities available-for-sale at
December 31, 1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
1996
U.S. Treasury $ 9,317 $24 $ (33) $ 9,308
U.S. government agencies 1,800 -- (4) 1,796
Other 300 -- -- 300
------ -- ----- ------
$11,417 $24 $ (37) $11,404
------ -- ----- ------
------ -- ----- ------
1995
U.S. Treasury $12,638 $70 $ (65) $12,643
U.S. government agencies 4,549 1 (156) 4,394
Other 300 -- -- 300
------ -- ----- ------
$17,487 $71 $(221) $17,337
------ -- ----- ------
------ -- ----- ------
</TABLE>
The amortized cost and fair value of securities held-to-maturity at December 31,
1996 and 1995 are as follows:
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- ------
1996
U.S. Treasury $ 40,194 $ 93 $ (155) $ 40,132
U.S. government agencies 127,472 177 (1,012) 126,637
States and political subdivisions 35,758 1,038 (65) 36,731
------- ----- ------- --------
$203,424 $1,308 $(1,232) $203,500
------- ----- ------- --------
------- ----- ------- --------
1995
U.S. Treasury $ 40,968 $ 252 $ (144) $ 41,076
U.S. government agencies 106,661 896 (401) 107,156
States and political subdivisions 37,745 1,350 (58) 39,037
------- ----- ------- ---------
$185,374 $2,498 $ (603) $187,269
------- ----- ------- ---------
------- ----- ------- ---------
</TABLE>
-19-
<PAGE>
The amortized cost and fair value of securities as of December 31, 1996, by
earliest contractual maturity date, are shown below. Actual maturities may
differ from the maturities presented because borrowers may or may not exercise
rights to call or prepay their obligations.
AVAILABLE-FOR-SALE HELD-TO-MATURITY
------------------ ----------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
-------- ----- --------- -----
Due in 1 year or less $ 8,102 $ 8,106 $ 28,883 $ 28,007
Due after 1 through 5 years 3,015 2,998 156,453 157,431
Due after 5 through 10 years -- -- 17,988 17,962
Due after 10 years 300 300 100 100
------- ------- -------- --------
$11,417 $11,404 $203,424 $203,500
------- ------- -------- --------
------- ------- -------- --------
Securities with a carrying value of $133,000,00 and $122,000,000 at December 31,
1996 and 1995, respectively, were pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes required or
permitted by law.
Proceeds from the sales of available-for-sale securities in 1996 were
$1,653,000, resulting in gross losses of $97,000. Securities called before
their contractual maturity date resulted in gains of $272,000 and $309,000
during the years ended December 31, 1996 and 1995, respectively. No securities
were sold in 1995 or 1994.
During December 1995, the Company made a one-time transfer of certain securities
from held-to-maturity to available-for-sale.
5. LOANS
The subsidiary banks make loans to both individuals and commercial entities in a
wide variety of industries. Loan terms vary as to interest rate, repayment
period, and collateral requirements based on the type of loan requested and the
credit worthiness of the prospective borrower. Credit risk tends to be
geographically concentrated in that the majority of the loan customers are
located in the markets served by the subsidiary banks.
The components of real estate loans at December 31, 1996 and 1995 are as
follows:
1996 1995
---- ----
Commercial $ 76,354 $ 70,046
Residential 138,443 123,652
Construction 19,807 16,933
------- -------
$234,604 $210,631
------- -------
------- -------
Included in residential real estate loans are loans held for sale totaling
$460,000 and $0 at December 31, 1996 and 1995, respectively. The carrying value
of loans held for sale approximated fair value at December 31, 1996.
Loans on which the accrual of interest has been discontinued amounted to
$785,000 and $169,000 at December 31, 1996 and 1995, respectively. If interest
on nonaccrual loans had been accrued, such income would have approximated
$33,000, $7,000, and $88,000 for 1996, 1995, and 1994, respectively. No
interest income was received on nonaccrual loans in 1996 and 1994. In 1995,
$4,000 of interest income was received on nonaccrual loans.
At December 31, 1996, impaired loans amounted to $580,000. There were no
impaired loans at December 31, 1995. Impaired loans averaged $747,000 for the
year ended December 31, 1996. The allowance for loan losses related to impaired
loans was $147,000 on December 31, 1996. A portion of the allowance for loan
losses has been allocated to each impaired loan. No interest income was
recognized on impaired loans during 1996.
-20-
<PAGE>
Changes in the allowance for loan losses were as follows:
1996 1995 1994
---- ---- ----
Balance, beginning of year $3,931 $3,082 $2,722
Addition with purchase of Plano
Bancshares, Inc. -- -- 303
Provision charged to operations 1,024 1,191 830
Loans charged-off (700) (646) (950)
Recoveries 159 304 177
------ ------ ------
Balance, end of year $4,414 $3,931 $3,082
------ ------ ------
------ ------ ------
At December 31, 1996 and 1995, certain executive officers and directors, and
companies in which they have management or beneficial ownership, were loan
customers of the Banks. These loans have similar terms to other customer
loans. An analysis of the aggregate changes in these loans, which
individually exceed $60,000, during 1996 and 1995 follows:
1996 1995
---- ----
Balance, beginning of year $4,968 $4,782
Loans 7,448 4,901
Principal repayments (7,058) (4,715)
------ ------
Balance, end of year $5,358 $4,968
------ ------
------ ------
6. PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at
December 31, 1996 and 1995.
1996 1995
---- ----
Land and land improvement $ 4,747 $ 3,926
Buildings 14,515 13,285
Equipment 9,340 8,111
-------- -------
28,602 25,322
Accumulated depreciation (10,722) (9,743)
-------- -------
$ 17,880 $15,579
-------- -------
-------- -------
Total depreciation expense for years ended December 31, 1996, 1995, and 1994 was
$1,321,000, $1,288,000, and $984,000, respectively.
7. EMPLOYEE BENEFIT PLANS
The amount charged to expense for the Company's pension plan consisted of the
following:
1996 1995 1994
---- ---- ----
Service cost $336 $272 $240
Interest cost on projected
benefit obligation 377 341 370
Actual (return) loss
on plan assets (590) (621) 62
Net amortization
and deferral 236 322 (361)
---- ---- ----
Pension expense $359 $314 $311
---- ---- ----
---- ---- ----
-21-
<PAGE>
The following table sets forth the plan's funding status as of October 31,
1996 and 1995 and the amount recognized in the accompanying consolidated
balance sheets as of December 31, 1996 and 1995:
1996 1995
------- -------
Actuarial present value of
benefit obligations
Vested benefits $3,297 $3,135
Accumulated benefits $3,390 $3,217
Projected benefit obligation $5,396 $5,138
Plan assets at fair value 5,034 4,628
Plan assets less than
projected benefit obligation (362) (510)
Unrecognized net loss 811 1,165
Unrecognized prior service cost (18) (19)
Unrecognized net transition asset (561) (591)
------- -------
Prepaid (accrued) pension
asset (liability) $ (130) $ 45
------- -------
------- -------
Assumptions used by the Company in the determination of pension plan
information consisted of the following as of October 31, 1996 and 1995:
1996 1995
------- -------
Discount rate 7.75% 7.50%
Rate of increase in
compensation level 4.50 4.50
Expected long-term rate
of return on plan assets 8.00 8.00
Plan assets consist primarily of investments in common stocks and U.S.
government securities. Plan assets include common stock of the Company with
a market value of $777,000 and $665,000 October 31, 1996 and 1995,
respectively.
Contributions by the Banks to the 401(k) plan for the years ended
December 31, 1996, 1995, and 1994 were $266,000, $255,000, and
$167,000, respectively.
8. DEPOSITS
At December 31, 1996, the scheduled maturities of time deposits are as
follows:
1997 $268,491
1998 20,169
1999 7,202
2000 5,299
2001 673
--------
$301,834
--------
--------
9. INCOME TAXES
Net deferred tax liabilities consist of the following components as of
December 31, 1996 and 1995:
1996 1995
------ -------
Deferred tax assets
Securities available-for-sale $ 5 $ 51
Allowance for loan losses 1,727 1,503
Deferred loan fees 60 88
Other 78 184
------ -------
1,870 1,826
------ -------
------ -------
-22-
<PAGE>
1996 1995
------ -------
Deferred tax liabilities
Premises and equipment (1,008) (1,278)
Intangibles (1,103) (1,197)
Other (364) (82)
------ -------
(2,475) (2,557)
------ -------
Net deferred tax liabilities $ (605) $ (731)
------ -------
------ -------
Net deferred tax liabilities of $605,000 and $731,000 at December 31, 1996
and 1995 are included in accrued interest and other liabilities. No
valuation allowance was considered necessary for deferred tax assets. The
components of income tax expense are as follows:
1996 1995 1994
------- ------- -------
Currently payable tax
Federal $4,065 $3,622 $3,136
State 244 322 351
Deferred tax benefit (172) (190) (214)
------- ------- -------
$4,137 $3,754 $3,273
------- ------- -------
------- ------- -------
The reconciliation of the statutory income tax to income taxes included in
the consolidated statements of income for the years ended December 31, 1996,
1995, and 1994 is as follows:
1996 1995 1994
AMOUNT % AMOUNT % AMOUNT %
------ ----- ------ ----- ------ -----
Income tax at statutory rate $4,430 35.0% $4,188 35.0% $3,773 35.0%
Increase (decrease) resulting
from State income taxes, net of
federal income tax benefit 139 1.1 199 1.7 239 2.2
Tax-exempt income (728) (5.8) (828) (6.9) (891) (8.3)
Goodwill amortization 218 1.7 195 1.6 173 1.6
Nondeductible interest expense 79 .7 84 .7 72 .7
Other items, net (1) -- (84) (.7) (93) (.8)
------ ----- ------ ----- ------ -----
$4,137 32.7% $3,754 31.4% $3,273 30.4%
------ ----- ------ ----- ------ -----
------ ----- ------ ----- ------ -----
10. SHORT-TERM BORROWINGS
Short-term borrowings, consisting of securities sold under agreements to
repurchase and U.S. Treasury demand note accounts, are as follows at
December 31 of each year:
1996 1995 1994
------- ------- -------
End of year
Outstanding balance $49,236 $64,771 $59,614
Weighted average
interest rate 5.25% 5.40% 5.31%
During the year
Average outstanding
balance $51,993 $74,552 $69,647
Maximum outstanding
balance 64,771 92,986 80,379
Weighted average
interest rate 5.00% 5.65% 3.77%
Securities underlying the agreements at December 31, 1996:
Carrying value $59,604
Estimated fair value 59,775
At December 31, 1996, the Company had unused lines of credit to purchase
federal funds from other banks totaling $40 million.
-23-
<PAGE>
11. LONG-TERM DEBT
The Company has a term note payable to another financial institution of
$2,925,000 which accrues interest at the London Interbank Offered Rate plus
175 basis points (7.383% at December 31, 1996) and requires quarterly
principal payments of $125,000 plus interest until October 1999, when the
remaining principal is due. The note is unsecured. The Company also has a
term note payable to another financial institution of $250,000 which accrues
interest at the national prime interest rate (8.25% at December 31, 1996) and
requires semi-annual principal payments of $125,000 plus interest. All the
outstanding common stock of the Bank of Lockport is pledged as collateral on
the note. The Company has debentures payable of $3,776,000 to certain former
stockholders of Plano Bancshares, Inc. The debentures require semi-annual
interest payments at the national prime interest rate and require that
one-third of the outstanding principal be paid annually in October 1997,
1998, and 1999. The debentures are unsecured.
Aggregate maturities of the notes and debentures payable are due as follows:
Year Ending Notes Debentures
December 31, PAYABLE PAYABLE
------------- ------- ----------
1997 $ 750 $1,259
1998 500 1,259
1999 1,925 1,258
------ -------
$3,175 $3,776
------ -------
------ -------
12. COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
At December 31, 1996, reserves of approximately $9,515,000 were required as
deposits with the Federal Reserve or as cash on hand. These reserves do not
earn interest.
The Banks are parties to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of their customers.
These financial instruments include commitments to extend credit and standby
letters of credit, which to varying degrees, involve elements of credit risk
in excess of the amount recognized in the balance sheet.
The Banks' exposure to credit loss in the event of nonperformance by the
customer on commitments to extend credit and standby letters of credit is
represented by the contractual amount of those instruments. The Banks use
the same credit policies in making commitments and conditional obligations as
for on-balance-sheet instruments.
A summary of the contract amounts of the Banks' exposure to off-balance-sheet
risk as of December 31, 1996 and 1995 is as follows:
1996 1995
------- ---------
Financial instruments whose contract
amounts represent credit risk
Loan commitments $96,059 $81,272
Standby letters of credit 19,417 16,000
Commitments to extend credit are agreements to lend to a customer as long as
there is no violation of any condition established in the contract. Loan
commitments include approximately $14,571,000 and $12,900,000 of unused home
equity and credit card lines of credit as of December 31, 1996 and 1995,
respectively. Commitments generally have fixed expiration dates or other
termination clauses and may require payment of a fee. Since many of the
commitments are expected to expire without being drawn upon, the commitment
amounts do not necessarily represent future cash requirements. The Banks
evaluate each customer's credit worthiness on a case-by-case basis. The
amount of collateral obtained is based on management's credit evaluation of
the customer.
Standby letters of credit are conditional commitments issued by the Banks to
guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including commercial paper, bond financing, and similar transactions. The
credit risk involved in issuing letters of credit is essentially the same as
that involved in extending loan commitments to customers. Most of the
Company's standby letters of credit are expected to expire without being
drawn upon.
-24-
<PAGE>
13. PREFERRED STOCK PURCHASE RIGHTS
Pursuant to a Rights Agreement dated November 14, 1996, there is attached to
each share of common stock of the Company one preferred stock purchase right
(Right). Each Right entitles the holder to buy from the Company one
one-thousandth of a share of preferred stock at an exercise price of $300,
subject to adjustment.
The Rights will expire on November 14, 2006 unless redeemed earlier and will
not be exercisable or transferable separately from the shares of common stock
to which they are attached until the earlier of (i) ten days following a
public announcement that a person or group of affiliated or associated
persons (an Acquiring Person) has acquired beneficial ownership of 10% or
more of the then outstanding shares of common stock of the Company (the Stock
Acquisition Date) or (ii) ten business days following a public announcement
or the commencement of a tender offer or exchange offer that would result in
the offeror beneficially owning 10% or more of the outstanding shares of
common stock of the Company.
In the event that any party becomes an Acquiring Person (a Flip-In Event),
each holder of a Right, other than Rights beneficially owned by an Acquiring
Person (which Rights will be void), will thereafter have the right to acquire
shares of common stock at 50% of their current per share market price.
In the event that, at any time following a Flip-In Event, (i) the Company is
acquired in a merger or other business combination transaction, or (ii) 50%
or more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights which have become void as set forth
previously) will thereafter have the right to acquire, upon exercise, shares
of common stock of the acquiring company at 50% of their current per share
market price.
The Board of Directors of the Company may authorize the redemption of the
Rights, at $ .01 per Right, at any time prior to a Flip-In Event. After a
Flip-In Event, the Company may exchange outstanding Rights for common stock
at a ratio of one share of common stock (or the equivalent value of preferred
stock) per Right. The Company cannot, however, exchange Rights for common
stock after an Acquiring Person becomes the beneficial owner of 50% or more
of the Company's common stock.
The Rights Agreement provides for adjustments in the event of such items as
stock splits, dividends, options, reclassifications, etc.
Until a Right is properly exercised, the holder thereof will have no rights
as a holder of the underlying preferred stock.
14. REGULATORY MATTERS
The Banks are limited in the amount of dividends that can be paid without
prior approval of the banking regulatory agencies. As of December 31, 1996,
the Banks could pay dividends to the Company of approximately $10,000,000
without obtaining prior approval of the bank regulatory agencies.
The Company and the Banks are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and
prompt corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject
to qualitative judgments by regulators about components, risk weightings, and
other factors, and the regulators can lower classifications in certain cases.
Failure to meet various capital requirements can initiate regulatory action
that could have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications,
including well capitalized, adequately capitalized, undercapitalized,
significantly undercapitalized, and critically undercapitalized, although
these terms are not used to represent overall financial condition. If
adequately capitalized, regulatory approval is required to accept brokered
deposits. If undercapitalized, capital distributions are limited, as is
asset growth and expansion, and plans for capital restoration are required.
The minimum requirements are:
CAPITAL TO RISK-
WEIGHTED ASSETS
---------------- TIER 1 CAPITAL
TOTAL TIER 1 TO AVERAGE ASSETS
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
-25-
<PAGE>
For the Company and the Banks, Tier I capital consists of stockholders'
equity (excluding unrealized gains and losses on securities available-
for-sale), less intangible assets and related deferred taxes. Total
capital consists of Tier I capital plus the allowance for loan losses.
At December 31, 1996, consolidated actual capital levels and minimum required
levels for the consolidated Company and the First National Bank of Joliet
were:
<TABLE>
<CAPTION>
MINIMUM REQUIRED
TO BE WELL
MINIMUM REQUIRED CAPITALIZED UNDER
FOR CAPITAL PROMPT CORRECTIVE
ACTUAL ADEQUACY PURPOSES: ACTION REGULATIONS:
-------------- ------------------ -------------------
AMOUNT RATIO AMOUNT RATIO AMOUNT RATIO
-------------- ------------------ -------------------
<S> <C> <C> <C> <C> <C> <C>
Total capital (to risk
weighted assets)
Consolidated $66,488 13.07% $40,689 8.0% $50,861 10.0%
First National
Bank of Joliet $54,246 13.99% $31,013 8.0% $38,766 10.0%
Tier I capital (to risk
weighted assets)
Consolidated $62,074 12.20% $20,344 4.0% $30,517 6.0%
First National Bank
of Joliet $50,966 13.15% $15,506 4.0% $23,260 6.0%
Tier I capital (to average
assets)
Consolidated $62,074 7.66% $24,326 3.0% $40,545 5.0%
First National Bank
of Joliet $50,966 8.49% $24,022 4.0% $30,279 5.0%
</TABLE>
At December 31, 1996, the Company and all of the Banks were categorized as
well capitalized per the banking regulations described above.
The Company's consolidated actual capital ratios at December 31, 1996 and
December 31, 1995 are summarized below:
1996 1995
------ ------
Total capital to risk-weighted assets 13.07% 12.96%
Tier I capital to risk-weighted assets 12.20 12.11
Tier I capital to average assets 7.66 7.56
15. FAIR VALUE OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISKS
The carrying amount and estimated fair value of financial instruments as of
December 31, follow:
<TABLE>
<CAPTION>
1996 1995
----------------- ------------------
CARRYING FAIR CARRYING FAIR
AMOUNT VALUE AMOUNT VALUE
------- ------- ------- -------
<S> <C> <C> <C> <C>
Financial assets
Cash and due from banks $35,785 $35,785 $42,979 $42,979
Securities available-for-sale 11,404 11,404 17,337 17,337
Securities held-to-maturity 203,424 203,500 185,374 187,269
Federal funds sold 73,241 73,241 41,537 41,537
Loans 464,372 468,079 427,917 427,836
Accrued interest receivable 6,692 6,692 6,138 6,138
Financial liabilities
Deposits 690,513 691,432 605,137 606,203
Short-term borrowings 49,236 49,236 64,771 64,771
Long-term debt 6,951 6,951 7,701 7,701
Accrued interest payable 4,136 4,136 3,379 3,379
</TABLE>
FASB Statement 107, "Disclosures About Fair Value of Financial
Instruments", requires disclosure of fair value information about financial
instruments, whether or not recognized in the balance sheet, for which it is
practicable to estimate that value. In cases where quoted market prices are
not available, fair values are based on estimates using present value or
-26-
<PAGE>
other valuation techniques. Those techniques are significantly affected by
the assumptions used, including the discount rate and estimates of future
cash flows. In that regard, the derived fair value estimates cannot be
substantiated by comparison to independent markets and, in many cases, may
not be realized in immediate settlement of the instrument. Statement 107
excludes certain financial instruments and all nonfinancial instruments from
its disclosure requirements. Accordingly, the aggregate fair value amounts
presented above do not represent the underlying value of the Company.
The following methods and assumptions were used by the Company in estimating
the fair value of its financial instruments:
CASH AND DUE FROM BANKS AND FEDERAL FUNDS SOLD: The carrying amounts
reported in the consolidated balance sheet for cash and due from banks and
federal funds sold approximate their fair values.
SECURITIES: Fair values for securities are based on quoted market prices,
where available. If quoted prices are not available, fair values are based
on quoted market prices of comparable instruments.
LOANS: Most commercial loans, and some real estate mortgage loans, are made
on a variable rate basis. For those variable-rate loans that reprice
frequently, and with no significant change in credit risk, fair values are
based on carrying values. The fair values for fixed rate and all other loans
are estimated using discounted cash flow analyses, applying the interest
rates currently offered to borrowers for loans of similar credit quality and
comparable payment terms.
ACCRUED INTEREST: The carrying amount of accrued interest receivable and
payable approximate their fair value.
DEPOSIT LIABILITIES: The fair values disclosed for noninterest-bearing
demand, NOW, savings, and money market deposits equal their carrying amounts
which represent the amount payable on demand. Fair values for time deposits
are estimated using a discounted cash flow calculation that applies interest
rates currently being offered on certificates to a schedule of aggregate
expected maturities on time deposits.
SHORT-TERM BORROWINGS: The carrying amounts of securities sold under
agreements to repurchase and other short-term borrowings approximate their
fair values.
LONG-TERM DEBT: The fair value of long-term debt is equal to the outstanding
principal amount because the interest rate is variable based on current
interest rates and on the expected ability of the Company to be able to
borrow additional funds at the same rate and terms of the present existing
debt.
LOAN COMMITMENTS AND LETTERS OF CREDIT: The fair values of loan commitments
and letters of credit are not material.
The Company assumes interest rate risk (the risk that general interest rate
levels will change) as a result of its normal operations. As a result, fair
values of the Company's financial instruments will change when interest rate
levels change and that change may be either favorable or unfavorable to the
Company. Management attempts to match maturities of assets and liabilities
to the extent believed appropriate to manage interest rate risk. However,
borrowers with fixed rate obligations are more likely to prepay in a falling
rate environment and less likely to prepay in a rising rate environment.
Conversely, depositors who are receiving fixed rates are more likely to
withdraw funds before maturity in a rising rate environment and less likely
to do so in a falling rate environment. Management monitors rates and
maturities of assets and liabilities and attempts to manage interest rate
risk by adjusting terms of new loans and deposits and by investing in
securities with terms that mitigate the Company's overall interest rate risk.
-27-
<PAGE>
16. CONDENSED PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of First National Bancorp, Inc. (parent
company only) are presented below:
BALANCE SHEETS
ASSETS 1996 1995
------- -------
Cash $444 $291
Investments in subsidiaries 78,244 74,124
Land 106 106
Other assets 36 37
------- -------
Total assets $78,830 $74,558
------- -------
------- -------
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Long-term debt $6,951 $7,701
Other liabilities 488 432
Stockholders' equity 71,391 66,425
------- -------
Total liabilities and
stockholders' equity $78,830 $74,558
------- -------
------- -------
<TABLE>
<CAPTION>
STATEMENTS OF INCOME YEARS ENDED DECEMBER 31
------------------------
1996 1995 1994
------ ------ ------
<S> <C> <C> <C>
Dividends from subsidiaries $5,183 $4,649 $5,019
Interest and other expenses 1,070 1,126 394
Income before income taxes and equity
in undistributed net income of subsidiaries 4,113 3,523 4,625
Income tax benefit (379) (436) (92)
Income before equity in undistributed net
income of subsidiaries 4,492 3,959 4,717
Equity in undistributed net income of subsidiaries 4,029 4,252 2,790
------ ------ ------
Net income $8,521 $8,211 $7,507
------ ------ ------
------ ------ ------
STATEMENTS OF CASH FLOWS YEARS ENDED DECEMBER 31,
------------------------
1996 1995 1994
------ ------ ------
Cash Flows From Operating Activities
Net income $8,521 $8,211 $7,507
Adjustments to reconcile net income to net
cash provided by operating activities
Undistributed earnings of subsidiaries (4,029) (4,252) (2,790)
Change in other assets and
other liabilities 57 (14) 9
------ ------ ------
Net cash provided
by operating activities 4,549 3,945 4,726
------ ------ ------
Cash flows from investing activities
Purchase of Plano Bancshares, Inc. -- -- (6,961)
------ ------ ------
Cash flows from financing activities
Proceeds from long-term debt -- -- 3,800
Principal payments on
long-term debt (750) (625) (250)
Cash dividends paid (3,646) (3,344) (3,258)
Cash paid in lieu of fractional shares -- -- (34)
------ ------ ------
Net cash provided by (used in)
financing activities (4,396) (3,969) 258
------ ------ ------
Net increase (decrease) In cash 153 (24) (1,977)
Cash
Beginning of year 291 315 2,292
------ ------ ------
End of year $444 $291 $315
------ ------ ------
------ ------ ------
</TABLE>
-28-
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(Table dollar amounts in thousands, except per share data)
FINANCIAL HIGHLIGHTS
1996 1995 1994 1993 1992
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
STATEMENT OF INCOME:
Net interest income $30,440 $29,451 $26,312 $25,096 $23,447
Provision for loan losses 1,024 1,191 830 687 1,153
Noninterest income 5,491 5,124 3,838 3,770 3,483
Noninterest expense 22,249 21,419 18,540 17,730 15,884
Income before taxes 12,658 11,965 10,780 10,449 9,893
Net income 8,521 8,211 7,507 7,366 6,826
BALANCE SHEET - END OF YEAR BALANCES:
Securities $214,828 $202,711 $189,874 $190,872 $170,778
Loans, net 464,372 427,917 418,918 333,243 295,810
Total assets 824,570 749,990 692,642 631,786 594,000
Deposits 690,513 605,137 556,162 491,014 477,388
Stockholders' equity 71,391 66,425 61,657 57,442 53,118
BALANCE SHEET - AVERAGE BALANCES:
Securities $213,653 $189,605 $192,890 $184,559 $158,303
Loans, net 441,619 426,523 371,442 303,578 293,216
Total assets 773,792 729,801 640,388 604,202 577,808
Deposits 640,485 577,093 505,553 477,938 471,494
Stockholders' equity 68,269 63,741 59,090 55,068 49,547
WEIGHTED AVERAGE SHARES
OUTSTANDING (1) 1,215,902 1,215,902 1,215,902 1,215,902 1,215,902
--------- --------- --------- --------- ---------
PER SHARE DATA (1):
Book value $58.71 $54.63 $50.71 $47.24 43.69
Earnings 7.01 6.75 6.17 6.06 5.61
Cash dividends 3.00 2.75 2.68 2.50 2.50
SELECTED FINANCIAL RATIOS:
Average net loans to average
deposits 68.95% 73.91% 73.47% 63.52% 62.19%
Return on average assets 1.10% 1.13% 1.17% 1.22% 1.18%
Return on average equity 12.48% 12.88% 12.70% 13.38% 13.78%
Net interest margin (2) 4.47% 4.62% 4.72% 4.78% 4.73%
Average equity to
average assets 8.82% 8.73% 9.23% 9.11% 8.59%
Dividend payout ratio 42.80% 40.73% 43.40% 41.29% 44.53%
</TABLE>
(1) Adjusted to reflect 7 for 5 stock split in 1994 and 20% stock dividend in
1991.
(2) Based on average interest earning assets with the computation on a fully
tax equivalent basis assuming an income tax rate of 35%.
-29-
<PAGE>
INTEREST DIFFERENTIAL
The following table allocates change in interest income and interest expense
between amounts attributable to changes in rate and changes in volume for the
various categories of interest earning assets and interest bearing
liabilities. The changes in interest income and interest expense due to both
volume and rate has been allocated proportionally. Interest earned is
assumed to be on a tax equivalent basis using an income tax rate of 35%.
<TABLE>
<CAPTION>
1996 COMPARED TO 1995 1995 COMPARED TO 1994
CHANGES DUE TO: CHANGES DUE TO:
------------------------ --------------------------
VOLUME RATE CHANGE VOLUME RATE CHANGE
------------------------ --------------------------
INTEREST EARNED ON:
<S> <C> <C> <C> <C> <C> <C>
Interest-bearing deposits
in other financial institutions $ (3) $ - $ (3) $ (212) $ 1 $ (211)
Federal funds sold 15 (383) (232) 1,239 1,002 2,241
Taxable securities 1,774 (222) 1,552 (8) 1,259 1,251
Tax-exempt securities (371) (76) (447) (281) (11) (292)
Loans 1,346 (225) 1,121 4,533 2,909 7,442
------ ------ ------- ------- ------- -------
Total interest income 2,897 (906) 1,991 5,271 5,160 10,431
------ ------ ------- ------- ------- -------
INTEREST EXPENSE ON:
Deposits
NOW & Money Market 209 12 221 187 160 347
Savings 165 (30) 135 32 62 94
Time 2,094 419 2,513 2,252 2,555 4,807
Short-term borrowings (1,274) (336) (1,610) 185 1,401 1,586
Long-term debt (62) (39) (101) 410 112 522
------ ------ ------- ------- ------- -------
Total interest expense 1,132 26 1,158 3,066 4,290 7,356
------ ------ ------- ------- ------- -------
Net interest income $1,765 $(932) $ 833 $2,205 $ 870 $3,075
------ ------ ------- ------- ------- -------
------ ------ ------- ------- ------- -------
</TABLE>
SECURITIES
The following table shows the book value of the securities of the
Company by category at year end for the past three years.
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- ---------
<S> <C> <C> <C>
Available for Sale (at fair value)
U.S. Treasury Securities $ 9,308 $ 12,643
U.S. government agencies 1,796 4,394
Other 300 300
-------- --------
Total available for sale $ 11,404 $ 17,337
-------- --------
Held to Maturity (at amortized cost)
U.S. Treasury Securities $ 40,194 $ 40,968 $ 42,437
U.S. government agencies 127,472 106,661 104,144
Obligations of states and
political subdivisions 35,758 37,745 42,638
Corporate and other -- -- 655
-------- -------- ---------
Total held to maturity $203,424 $185,374 $189,874
-------- -------- ---------
Total $214,828 $202,711 $189,874
-------- -------- ---------
-------- -------- ---------
</TABLE>
At December 31, 1996, the Company held no securities of any single issuer,
other than the U.S. Treasury and U.S. government agencies, that exceeded 10%
of stockholders' equity.
-30-
<PAGE>
SECURITIES MATURITIES
The following table shows the relative maturities of securities (at carrying
value) held by the Company at December 31, 1996 and the weighted average
interest rate for each range of maturities. The yields on tax-exempt
securities are stated on a fully tax-equivalent basis, assuming a federal
income tax rate of 35%.
AVAILABLE FOR SALE
WEIGHTED
U.S. U.S. AVERAGE
TREASURY GOVERNMENT OTHER INTEREST
SECURITIES AGENCIES SECURITIES TOTAL RATE
---------- ---------- ---------- ------- --------
Under 1 year $ 6,310 $ 1,796 $ - $ 8,106 5.70%
1 to 5 years 2,998 - - 2,998 5.45%
5 to 10 years - - - - -
Over 10 years - - 300 300 6.00%
------- -------- ------ -------
Total $ 9,308 $ 1,796 $ 300 $11,404
------- -------- ------ -------
------- -------- ------ -------
HELD TO MATURITY
WEIGHTED
U.S. U.S. AVERAGE
TREASURY GOVERNMENT OTHER INTEREST
SECURITIES AGENCIES SECURITIES TOTAL RATE
---------- ---------- ---------- ------- --------
Under 1 year $15,701 $ 11,204 $ 1,978 $ 28,883 5.87%
1 to 5 years 24,493 113,175 18,785 156,453 6.20%
5 to 10 years - 3,093 14,895 17,988 5.52%
Over 10 years - - 100 100 3.75%
------- -------- --------- -------
Total $40,194 $127,472 $35,758 $203,424
------- -------- --------- -------
------- -------- --------- -------
TYPES OF LOANS
Set forth below are major categories of the Company's loan portfolio at
December 31:
<TABLE>
<CAPTION>
1996 1995 1994 1993 1992
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Commercial $ 81,981 $ 79,967 $ 91,120 $ 82,942 $ 73,375
Agricultural 8,692 8,815 8,485 6,907 6,319
Real estate:
Construction 19,807 16,933 7,775 3,793 3,143
Commercial 76,354 70,046 68,743 47,417 36,441
Residential 138,443 123,652 108,277 74,998 71,268
Consumer 144,162 134,344 141,611 126,273 115,438
-------- -------- -------- -------- --------
Total Loans* $469,439 $433,757 $426,011 $342,330 $305,984
Less:
Unearned discount (653) (1,909) (4,011) (6,365) (7,525)
Allowance for loan losses (4,414) (3,931) (3,082) (2,722) (2,649)
-------- -------- -------- -------- --------
Net loans $464,372 $427,917 $418,918 $333,243 $295,810
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Ratio of net loans
to total assets 56.32% 57.06% 60.48% 52.75% 49.80%
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
* During 1996, the Company changed its method of classifying loans. The
change has been retroactively applied to this schedule.
-31-
<PAGE>
LOAN MATURITY AND RATE SENSITIVITY
The following sets forth the maturity distribution and interest sensitivity
of certain loan categories at December 31, 1996.
AFTER ONE
ONE YEAR THROUGH OVER
OR LESS FIVE YEARS FIVE YEARS TOTAL
--------- ----------- ---------- --------
Maturity:
Commercial $41,807 $26,331 $13,843 $ 81,981
Agricultural 6,916 1,394 382 8,692
Real Estate, Construction 5,776 2,642 1,389 19,807
Real Estate, Commercial 6,449 27,258 42,647 76,354
------- ------- ------- --------
$70,948 $57,625 $58,261 $186,834
------- ------- ------- --------
------- ------- ------- --------
Interest rate sensitivity:
Fixed rate $22,117 $45,254 $47,681 $115,052
Floating with prime 48,831 12,371 10,580 71,782
------- ------- ------- --------
$70,948 $57,625 $58,261 $186,834
------- ------- ------- --------
------- ------- ------- --------
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
The following table sets forth the allocation of the Company's allowance for
loan losses and percent of each category to the gross loans less any unearned
discount for the period shown. The allowance for loan losses is available to
absorb losses in any particular category of loans, notwithstanding
management's allocation of the allowance.
<TABLE>
<CAPTION>
Loan Type 1996 % 1995 % 1994 % 1993 % 1992 %
------ --- ------ --- ------ --- ------ --- ------ ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial $ 795 17 $ 747 18 $ 678 21 $ 680 24 $ 662 24
Agricultural 88 2 79 2 62 2 54 2 53 2
Real Estate:
Construction 178 4 157 4 62 2 54 1 53 1
Commercial 706 16 629 16 493 16 381 14 318 12
Residential 1,280 30 1,100 29 739 25 487 22 449 23
Consumer 1,367 31 1,219 31 1,048 34 1,007 37 1,033 38
Unallocated - - - - - - 59 - 81 -
------ --- ------ --- ------ --- ------ --- ------ ---
Total $4,414 100 $3,931 100 $3,082 100 $2,722 100 $2,649 100
------ --- ------ --- ------ --- ------ --- ------ ---
------ --- ------ --- ------ --- ------ --- ------ ---
</TABLE>
-32-
<PAGE>
SUMMARY OF LOAN LOSS ACTIVITY
The following table details the component changes in the Company's allowance
for loan losses for the past five years.
1996 1995 1994 1993 1992
------ ------ ----- ------ ------
Allowance, beginning of year $3,931 $3,082 $2,722 $2,649 $1,915
Loans charged off:
Commercial and agricultural $ (39) $ (60) $ (592) $ (398) $ (274)
Real estate:
Construction -- -- -- -- --
Commercial -- -- -- (105) --
Residential -- -- -- -- --
Consumer (661) (586) (358) (273) (352)
Total loan charge offs (700) (646) (950) (776) (626)
Loan recoveries:
Commercial and agricultural 19 145 21 15 54
Real estate:
Construction -- -- -- -- --
Commercial -- 10 -- -- --
Commercial -- -- -- -- --
Consumer 140 149 156 147 153
------ ------ ------ ------ ------
Total loan recoveries 159 304 177 162 207
------ ------ ------ ------ ------
Net loans charged off (541) (342) (773) (614) (419)
Provision for loan losses 1,024 1,191 830 687 1,153
Other additions (1) -- -- 303 -- --
------ ------ ------ ------ ------
Allowance, end of year $4,414 $3,931 $3,082 $2,722 $2,649
------ ------ ------ ------ ------
------ ------ ------ ------ ------
Net loans charged off to
average loans outstanding 0.12% 0.08% 0.21% 0.20% 0.14%
Allowance for loan losses to
ending loans outstanding 0.94% 0.91% 0.73% 0.81% 0.89%
Allowance for loan losses to
nonperforming loans 237.70% 341.83% 148.96% 168.34% 135.78%
(1) Represents increase with purchase of Plano Bancshares, Inc. in 1994.
In determining the provision for loan losses for each of the five years
presented above, management was influenced by the Company's consistent loan
growth and amount of net charge offs in each year. Other factors, such as
changes in the loan portfolio mix, delinquency trends, current economic
conditions and trends, review of larger and known problem credits at each
subsidiary, and the results of internal loan reviews and regulatory examinations
are also considered by management in assessing the adequacy of the allowance for
loan losses.
DEPOSITS
The following shows the maturity schedule and amounts for the Company's time
deposits of $100,000 or more at December 31, 1996.
Under 3 months $38,962
3 to 12 months 21,047
Over 12 months 3,180
--------
$63,189
--------
--------
-33-
<PAGE>
QUARTERLY FINANCIAL INFORMATION 1996-1995 (UNAUDITED)
<TABLE>
<CAPTION>
1996 1995
---- ----
In thousands except net
income per share data 4TH 3RD 2ND 1ST 4TH 3RD 2ND 1ST
------- ------- ------- ------- ------- ------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total interest income $14,639 $13,886 $13,150 $13,037 $13,410 $13,462 $12,966 $12,727
Net interest income $ 7,921 $ 7,779 $ 7,527 $ 7,213 $ 7,281 $ 7,390 $ 7,147 $ 7,633
Provision for loans losses 208 209 300 307 354 279 279 279
Noninterest income 1,432 1,339 1,280 1,440 1,326 1,430 1,294 1,074
Noninterest expense 6,508 5,572 5,248 4,921 6,734 4,871 5,111 4,703
------- ------- ------- ------- ------- ------- ------- --------
Income before income taxes 2,637 3,337 3,259 3,425 1,519 3,670 3,051 3,725
Income tax expense 851 1,073 1,069 1,144 418 1,188 928 1,220
------- ------- ------- ------- ------- ------- ------- --------
Net income $ 1,786 $ 2,264 $ 2,190 $ 2,281 $ 1,101 $ 2,482 $ 2,12 3 $ 2,505
------- ------- ------- ------- ------- ------- ------- --------
------- ------- ------- ------- ------- ------- ------- --------
Net income per
common share $ 1.47 $ 1.86 $ 1.80 $ 1.88 $ 0.90 $ 2.04 $ 1.75 $ 2.06
Average common shares
outstanding 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216
</TABLE>
Income for the fourth quarter of 1996 and 1995 is less than the first three
quarters due to discretionary contributions and other compensation expenses.
COMMON STOCK PRICE RANGE, DIVIDENDS 1996-1995 (UNAUDITED)
PRICE RANGE
------------- CASH DIVIDENDS
HIGH LOW PER SHARE
----- ------ --------------
1996
4th Quarter $90 $89 $ --
3rd Quarter 88 85 1.50
2nd Quarter 85 78 --
1st Quarter 78 77 1.50
1995
4th Quarter $77 $76 $ --
3rd Quarter 76 73 1.50
2nd Quarter 73 71 --
1st Quarter 71 69 1.25
-34-
<PAGE>
BOARD OF DIRECTORS
FIRST NATIONAL BANCORP, INC.
& FIRST NATIONAL BANK OF JOLIET
Kevin T. Reardon
Chairman of the Board
and Chief Executive Officer
Albert G. D'Ottavio
President and Chief Operating Officer
Sheldon C. Bell
President, Coldwell Banker Bell
George H. Buck
President, Werden Buck Company
Watson A. Healy
Architect
Paul A. Lambrecht
Retired Chairman
Brown & Lambrecht Earthmovers, Inc.
Harvey J. Lewis
Farmer
Walter F. Nolan, CPA
Member, Clifton Gunderson & Co., L.L.C.
Charles R. Peyla
President, Illinois Securities
Louis R. Peyla
Chairman, Illinois Securities
Howard E. Reeves
President, HOW Enterprises, Inc.
BUILDING FOR
THE FUTURE
FIRST NATIONAL BANK OF JOLIET
OFFICERS
CHAIRMAN OF THE BOARD AND CEO
Kevin T. Reardon
PRESIDENT & COO
Albert G. D'Ottavio
COMMERCIAL & MORTGAGE LOAN DEPARTMENT
John J. Keigher, Senior Vice President
Terrence P. Hackett, Vice President
Carl D. Holmquist, Vice President
Roger R. Kreig, Assistant Vice President
Gregory L. Schaefer, Assistant Vice President
-35-
<PAGE>
Harry R. McSteen, Assistant Vice President
Catherine E. Crowley, Loan Officer
Michael J. Schutz, Loan Officer
CONSUMER LOAN DEPARTMENT
Steven J. Randich, Vice President
Mark Thelo, Assistant Vice President
Patricia J. Brannick, Assistant Vice President
Lowell G. Conway, Assistant Vice President
Michelle S. Scott, Business Development Officer
James M. Cassady, Loan Officer
Investment Management & Trust Department
James T. Limacher, Senior Vice President
Wayne Huffman, Vice President & Trust Officer
Allan C. Somers, Trust Officer
Jeri L. Madison, Trust Officer
Andrew Midlock, Jr., Trust Officer
OPERATIONS DEPARTMENT
Jack A. Podlesny, Senior Vice President & Cashier
Dominic M. Paone, Assistant Vice President
Leif Hendricksen, Building & Facilities Officer
COMPLIANCE DEPARTMENT
Scott D. Nolan, Vice President & Compliance Officer
HUMAN RESOURCE DEPARTMENT
Betty J. McTee, Vice President
Kathryn G. Porter, Training Officer
SALES & CUSTOMER SERVICE DEPARTMENT
Michael C. Reardon, Senior Vice President
James K. Alexa, Vice President
Daniel A. Friant, Assistant Vice President
Mary Lou Rutherford, Assistant Vice President
Daniel J. Mihelich, Loan Officer
Gail K. Moss, Loan Officer
Ronald E. Wencel, Loan Officer
Judith R. Connelly, Assistant Cashier
Suzanne M. Gazelle, Assistant Cashier
Steven P. Marchio, Assistant Cashier
INFORMATION SYSTEMS DEPARTMENT
Olivier G. May, Director of Information Systems
DATA PROCESSING DEPARTMENT
David E. Glasscock, Vice President
Beverly I. Boostrom, Assistant Vice President
AUDITING DEPARTMENT
Mark Midlock, Assistant Auditor
Saundra K. Lucas, Assistant Auditor
MARKETING DEPARTMENT
Lawrence M. Ryan, Jr., Director of Marketing
-36-
<PAGE>
FIRST NATIONAL BANK OF JOLIET
78 North Chicago Street - Joliet, IL 60432 815/726-4371
78 North Chicago Street, Joliet
Scott & Jefferson, Joliet
Midland & Campbell, Joliet
Black & Essington, Joliet
1590 N. Larkin, Joliet
191 S. Larkin, Joliet
207 W. Mondamin, Minooka
Rte. 52 & Brookshore, Shorewood
23841 W. Eames, (Inside Frank's), Channahon
24745 W. Eames, (Rte. 6), Channahon
626 Townhall Drive, Romeoville
Member FDIC Equal Housing Lender
BANK OF LOCKPORT
BOARD OF DIRECTORS
Bruce J. Wolfersberger
Dr. Reno G. Caneva
Eugene N. Cornolo
Albert G. D'Ottavio
Thomas E. Drake
Sandra M. Pesavento
George K. Pilkenton
Jack A. Podlesny
Kevin T. Reardon
Michael C. Reardon
Ray L. Woock
OFFICERS
PRESIDENT
Bruce J. Wolfersberger
COMMERCIAL & MORTGAGE LOAN DEPARTMENT
Mark J. Griglione, Vice President
Sandra M. Pesavento, Vice President
Michael J. Tierney, Assistant Vice President
OPERATIONS DEPARTMENT
Rhonda L. Bebar, Assistant Cashier
INSTALLMENT LOAN DEPARTMENT
Pamela J. Tarrant, Vice President & Cashier
Phyllis M. Clear, Assistant Vice President
-37-
<PAGE>
BANK OF LOCKPORT
826 East Ninth Street
Lockport, IL 60441
815/838-8600
826 East Ninth Street, Lockport
159th Street & Cedar Road
Homer Township
Member FDIC Equal Housing Lender
COMMUNITY BANK OF PLANO
BOARD OF DIRECTORS
Roger D. Gossett
R. Keith Caywood
Albert G. D'Ottavio
Ronald J. Hill
Thomas E. Klatt
Peter L. Krentz
Jack A. Podlesny
Kevin T. Reardon
OFFICERS
PRESIDENT
Roger D. Gossett
EXECUTIVE VICE PRESIDENT & CASHIER
Ronald J. Hill
LOAN DEPARTMENT
Eric H. Leggett, Vice President
Todd W. Meier,Mortgage Loan Officer
Sharon R. Haggard, Installment Loan Officer
Patricia R. Hatcher, Assistant Loan Officer
OPERATIONS DEPARTMENT
M. Patricia Coultrip, Assistant Cashier
Patricia A. Fiedler, Assistant Cashier
COMMUNITY BANK OF PLANO
2005 West Route 34
Plano, IL 60545
630/552-3154
Member FDIC Equal Housing Lender
SOUTHWEST SUBURBAN BANK OF BOLINGBROOK
BOARD OF DIRECTORS
Kevin T. Reardon, Chairman
Albert G. D'Ottavio
Bruce J. Wolfersberger
Jack A. Podlesny
John J. Keigher
-38-
<PAGE>
OFFICERS
PRESIDENT
Bruce J. Wolfersberger
LOAN DEPARTMENT
Michael W. Nolan, Assistant Vice President
Jeanne Szymanski, Loan Officer
OPERATIONS DEPARTMENT
Jeanie Bettenhausen, Assistant Cashier
SOUTHWEST SUBURBAN BANK
225 Lily Cache Lane
Bolingbrook, IL 60440
630/759-1234
Member FDIC Equal Housing Lender
A copy of the company's Annual Report on Form 10K for 1996 may be obtained by
writing to: Executive Secretary, First National Bancorp, Inc., 78 N. Chicago
Street, Joliet, IL 60432
FIRST NATIONAL BANCORP, INC.
78 NORTH CHICAGO STREET - JOLIET, ILLINOIS 60432
BUILDING FOR THE FUTURE
-39-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF REGISTRANT
STATE OF PERCENT OF CAPITAL STOCK
NAME OF SUBSIDIARY INCORPORATION OWNED AT DECEMBER 31, 1996
First National Bank of Joliet Illinois 100%
Southwest Suburban Bank Illinois 100%
Bank of Lockport Illinois 100%
Community Bank of Plano Illinois 100%
<PAGE>
February 13, 1997
To Our Shareholders:
On behalf of the Board of Directors and management, I cordially invite you to
attend the Annual Shareholders Meeting of First National Bancorp, Inc. to be
held on Thursday, March 13, 1997, at 3:00 p.m. at the main office of First
National Bank of Joliet at 78 North Chicago Street, Joliet, Illinois.
The notice of meeting and proxy statement accompanying this letter describe the
specific business to be acted upon.
In addition to the specific matters to be acted upon, there will be a report on
the progress of First National Bancorp, Inc. and its subsidiaries, First
National Bank of Joliet, Southwest Suburban Bank, Bank of Lockport and Plano
Bancshares, Inc. and its subsidiary the Community Bank of Plano.
It is important that your shares be represented at the meeting. Whether or not
you plan to attend in person, you are requested to please mark, sign, date and
promptly return the enclosed BLUE proxy in the envelope provided.
Sincerely,
Kevin T. Reardon
Chairman of the Board
and Chief Executive Officer
KTR:kgp
<PAGE>
NOTICE OF THE ANNUAL SHAREHOLDERS MEETING OF
FIRST NATIONAL BANCORP, INC.
To the Shareholders of First National Bancorp, Inc.:
NOTICE IS HEREBY GIVEN that the Annual Shareholders Meeting of First National
Bancorp, Inc. (the "Company"), will be held on Thursday, March 13, 1997, at 3:00
p.m. at the main office of the First National Bank of Joliet, 78 North Chicago
Street, Joliet, Illinois, for the purpose of considering and voting upon the
following matters:
1. The election of eleven (11) directors of the Company.
2. The approval of an amendment of the Articles of Incorporation to
authorize additional shares of common stock.
3. The transaction of such other business as may properly be brought
before the meeting or any adjournments or postponements thereof.
The Board of Directors knows of no other business to be brought before the
meeting. The close of business of the Company on Monday, February 3, 1997, has
been fixed by the Board of Directors as the record date for the determination of
Shareholders of the Company entitled to notice of and to vote at the Annual
Shareholders Meeting and any adjournments or postponements thereof.
Dated: February 13, 1997
By Order of the Board of Directors
Kevin T. Reardon
Chairman of the Board
and Chief Executive Officer
IMPORTANT
WHETHER YOU EXPECT TO ATTEND THE MEETING OR NOT, PLEASE MARK, SIGN, DATE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENCLOSED, SELF-ADDRESSED ENVELOPE.
<PAGE>
FIRST NATIONAL BANCORP, INC.
78 NORTH CHICAGO STREET
JOLIET, ILLINOIS 60432
PROXY STATEMENT
This proxy statement is furnished in connection with the solicitation of
proxies to be voted at the Annual Shareholders Meeting of First National
Bancorp, Inc. (the "Company") to be held on Thursday, March 13, 1997, at 3:00
p.m. at 78 N. Chicago Street, Joliet, Illinois, and any adjournments or
postponements thereof and further to inform the Shareholders concerning the use
of the proxy and the business to be transacted at the meeting.
This proxy statement and form of proxy were first mailed to the
Shareholders on or about Thursday, February 13, 1997.
The enclosed proxy is solicited on behalf of the Board of Directors of the
Company. The proxy may be revoked at any time before it is voted whether in
writing delivered to the Company stating that the proxy is revoked or by a
subsequent proxy executed by or attendance at the meeting and voting in person
by the person executing the proxy. The items enumerated herein constitute the
only business which the Board of Directors intends to present or is informed
that others will present at the meeting. If any other matters are properly
presented at the meeting for action, the persons named in the enclosed form of
proxy and acting thereunder will have the discretion to vote on such matters in
accordance with their best judgement.
The expenses in connection with the solicitation of proxies will be borne
by the Company. Solicitation will be made by mail, but may in some cases also
be made by telephone or personal calls by officers, directors or regular
employees of First National Bank of Joliet who will not be specially compensated
for such solicitation.
On the record date, the Company had issued and outstanding and entitled to
vote 1,215,902 shares of $10.00 par value common stock, except that 2,883
shares, or .24%, are held by the Trust Department of First National Bank of
Joliet as sole Trustee and may not be voted. Only Shareholders of record at the
close of business of the Company on Monday, February 3, 1997, are entitled to
notice of and to vote at the Shareholders meeting. Each share of common stock
entitles the holder to one (1) vote on any matter brought before the meeting
except for the election of directors.
A quorum of Shareholders is necessary to take action at the Annual
Shareholders Meeting. A majority of the outstanding shares of common stock of
the Company, represented in person or by proxy, will constitute a quorum of
Shareholders at the Annual Shareholders Meeting. Abstentions will be considered
as present for purposes of a quorum and will be considered as a no vote on any
matter brought before the Shareholders. If a broker indicates on the proxy that
it does not have discretionary authority to vote certain shares of common stock
on a particular matter, those shares will be considered as present for purposes
of a quorum but will not be entitled to vote with respect to that matter. Votes
cast by proxy or in person at the Annual Shareholders Meeting will be tabulated
by the inspectors of election appointed for the Annual Shareholders Meeting.
In the election for directors, each Shareholder shall have the right to
vote the number of shares owned by such Shareholder for as many persons as there
are directors to be elected or to cumulate such votes and give one (1) person as
many votes as shall equal the number of directors to be elected multiplied by
the number of such shares or to distribute such cumulative votes in any
proportion among any number of persons. The eleven (11) persons receiving a
plurality of the votes cast for director shall be elected as directors. The
approval of the holders of two-thirds of the Company's outstanding shares of
common stock is required for the proposal to amend the Company's Articles of
Incorporation to be approved. For any other proposal brought before the
Shareholders, a simple majority of the votes cast is required for the proposal
to be approved.
A copy of the 1996 Annual Report of the Company and its wholly owned
subsidiaries, the First National Bank of Joliet ("FNB"), Southwest Suburban Bank
("SWSB"), the Bank of Lockport ("BOL") and Plano Bancshares, Inc. and its
subsidiary the Community Bank of Plano ("CBP"), is enclosed and accompanies this
Proxy Statement.
<PAGE>
ELECTION OF DIRECTORS
The eleven (11) persons named below are the persons whom the Board of
Directors recommends for election as directors of the Company for a term ending
at the next Annual Shareholders Meeting in 1998. All of the nominees are
members of the current Board of Directors of the Company.
It is intended that all shares of common stock represented by a proxy in
the accompanying form will be voted for the election of the persons listed below
as directors unless authority to vote for the election of directors is withheld
in such proxy. The Board of Directors has no reason to believe that any of the
nominees will refuse or be unable to serve, but if any of the nominees will
refuse or be unable to serve, proxies will be voted for election of other
persons selected by the Board of Directors. Certain information with respect to
the nominees is set forth below.
NOMINEES FOR DIRECTOR
<TABLE>
<CAPTION>
PRINCIPAL OCCUPATION FOR DIRECTOR OF COMPANY O
NAME AND AGE THE PAST FIVE YEARS (1) SUBSIDIARY SINCE
<S> <C> <C>
Sheldon C. Bell President, Coldwell Banker Bell 1973
(Age 62) (Real Estate)
George H. Buck President, Werden Buck Company 1980
(Age 48) (Face Brick-Masonry Materials)
Albert G. D'Ottavio President,Secretary/Treasurer, and COO, 1980
(Age 53) First National Bancorp, Inc.; President
and COO, First National Bank of Joliet
Watson A. Healy Architect 1976
(Age 72)
Paul A. Lambrecht Retired Chairman, Brown & Lambrecht 1976
(Age 73) Construction, Inc. (Earthmoving)
Harvey J. Lewis Farmer 1973
(Age 72)
Walter F. Nolan Member, Clifton Gunderson & Co., L.L.C. 1991
(Age 56) (Certified Public Accountant)
Charles R. Peyla (2) President, Illinois Securities Company 1973
(Age 64) (Insurance)
Louis R. Peyla (2) Chairman of the Board, Illinois Securities 1983
(Age 66) Company (Insurance)
Kevin T. Reardon Chairman of the Board and CEO, First 1973
(Age 61) National Bancorp, Inc. and First National
Bank of Joliet
Howard E. Reeves President, HOW Enterprises, Inc. 1980
(Age 63) (Land Development)
</TABLE>
(1) All of the above named directors have been engaged in the principal
occupation specified for more than five years unless otherwise noted.
(2) Charles R. and Louis R. Peyla are brothers.
2
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information with respect to the
beneficial ownership of the Company's common stock at December 31, 1996, by each
person known by the Company to be the beneficial owner of more than 5% of the
outstanding common stock, by each director or nominee, by each executive officer
named in the Summary Compensation Table, and by all directors and executive
officers of the Company as a group.
PERCENT
NAME OF INDIVIDUAL OR AMOUNT AND NATURE OF OF
NUMBER OF INDIVIDUALS IN GROUP BENEFICIAL OWNERSHIP (1) CLASS
------------------------------ ----------------------- ---------
DIRECTORS
Sheldon C. Bell 10,752 0.88%
George H. Buck 7,898 0.65%
Albert G. D'Ottavio 8,013 0.66%
Watson A. Healy 5,247 0.43%
Paul A. Lambrecht 20,473 1.68%
Harvey J. Lewis 4,350 0.36%
Walter F. Nolan 19,045 1.57%
Charles R. Peyla 24,424 2.01%
Louis R. Peyla 21,257 1.75%
Kevin T. Reardon 27,515 2.26%
Howard E. Reeves 18,657 1.53%
All directors and executive officers
of the Company and the Bank as a
group (14 persons) 175,316 14.42%
(1) All of the listed directors and executive officers exercise sole voting and
investment control over the shares indicated and own the shares directly, except
for the following shares: Sheldon C. Bell--jointly with spouse 1,560 shares;
George H. Buck--custodian 42 shares; Watson A. Healy--trust 4,724 shares; Paul
A. Lambrecht--jointly with spouse 6,858 shares, trust 13,092 shares; Harvey J.
Lewis--trustee 3,075 shares, spouse trustee 1,065 shares; Walter F.
Nolan--jointly with spouse 7,665 shares; Charles R. Peyla--agent for the
Illinois Securities Company 5,511 shares, co-trustee 17,624 shares, spouse 42
shares; Louis R. Peyla--co-trustee 18,056 shares; Kevin T. Reardon--trust 13,265
shares, spouse trust 10,000 shares, trustee 4,050 shares; Howard E.
Reeves--spouse 3,935 shares, trust 5,982 shares, trustee of the Company Profit
Sharing Trust 8,400 shares. The following executive officers named in the
Summary Compensation Table are John J. Keigher--total of 2,812 shares, all held
jointly with spouse; Jack A. Podlesny--total of 1,252 shares, of which 648
shares are held jointly with spouse, 168 shares held jointly with other
relatives; James T. Limacher--total of 3,621 shares, of which 99 are held as
trustee.
3
<PAGE>
TRANSACTIONS WITH MANAGEMENT
Directors and officers of the Company and its subsidiaries and their
associates were customers of, and had transactions with, the Company and its
subsidiaries during 1996. Additional transactions may be expected to take place
in the future. All loans, commitments to loan, transactions in repurchase
agreements and certificates of deposit and depository relationships, in the
opinion of management, were made in the ordinary course of business, on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with other persons and did
not involve more than the normal risk of collectability or present other
unfavorable features.
Charles R. and Louis R. Peyla each own more than a 10% interest in the
Illinois Securities Company. FNB, SWSB, BOL, and CBP have purchased insurance
policies through the Illinois Securities Company for a number of years and the
Company and its subsidiaries will continue to do so in 1997. In 1996 FNBJ,
SWSB, BOL and CBP paid approximately $475,700 in insurance premiums for various
policies to the Illinois Securities Company.
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Securities Exchange Act requires that the Company's
directors, executive officers and persons who own more than 10% of the
Company's common stock file reports of ownership and changes in ownership with
the Securities and Exchange Commission. Such persons are also required to
furnish the Company with copies of all Section 16(a) forms they file. Based
solely on the Company's review of the copies of such forms and, if appropriate,
representations made to the Company by any such reporting person concerning
whether a Form 5 was required to be filed for the 1996 fiscal year, the Company
is not aware that any of its directors and executive officers or 10%
shareholders failed to comply with the filing requirements of Section 16(a)
during the period commencing January 1, 1996 through December 31, 1996.
BOARD OF DIRECTORS AND COMMITTEES OF THE COMPANY
The Board of Directors of the Company had twelve (12) meetings in 1996. No
director attended less than 80% of all such meetings. The directors of the
Company do not receive any compensation for attendance at meetings of the
directors of the Company. All directors of the Company also serve as directors
of FNB and only receive compensation as directors of FNB. Messrs. Reardon and
D'Ottavio also serve as directors of the Company's other subsidiaries without
additional compensation.
The Company's Board of Directors did not have any committees in 1996. The
full Board of Directors considers matters pertaining to nominations to the
Board.
COMPENSATION OF DIRECTORS
Directors of the Company are not paid a fee for serving on the Company's
Board. Directors of FNB receive a fee of $2,000 per meeting of the FNB Board
and $200 for each committee meeting attended.
4
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE ON EXECUTIVE COMPENSATION
Officers of the Company are not compensated separately from their
respective positions at FNB. The Compensation Committee of FNB is responsible
for recommending salaries to the Board of Directors of FNB and establishing
compensation plans and policies for the executive officers and members of
management of FNB. The Board of Directors of FNB reviews and acts upon the
recommendations of the Compensation Committee.
The Compensation Committee has in the past set annual compensation
recommendations by evaluating the responsibilities of the positions and the
individuals' experience, performance, career progress and development. The
Compensation Committee utilized Sheshunoff, Illinois Bank Administration and
Bank Administration Institute surveys in the analysis of compensation levels of
similarly employed individuals. The compensation of the executive officers as
established by the Compensation Committee and approved by the Board of Directors
of FNB are generally targeted in the middle of the compensation levels in these
surveys. In addition, the compensation of its chief executive officer and chief
operating officer are reviewed with respect to their very active roles in the
performance and management of the Company and its four subsidiary banks, FNB,
SWSB, BOL and CBP. With respect to Mr. Kevin T. Reardon, the Compensation
Committee of FNB recommended and the Board of Directors of FNB approved an
increase in his base cash compensation for 1996 from $230,000 to $246,000. With
respect to Mr. Albert G. D'Ottavio, the Compensation Committee of FNB
recommended and the Board of Directors of FNB approved an increase in his base
cash compensation for 1996 from $185,000 to $198,000.
In reaching a decision with respect to bonuses to be awarded, the Committee
gave significant consideration to the individual contributions of the officer,
the favorable operating results of the Company in 1996 and the continued success
of FNB, SWSB, BOL and CBP with respect to earnings, return to Shareholders and
financial condition. No precise weighting was assigned to any of these factors
and the Committee believes that the performance of the Company in each area has
compared favorably with similar sized bank holding companies in this geographic
area. The bonuses reflect the view of the Compensation Committee that the
awards were appropriate in light of the excellent performance over the past
three years of the Company and its subsidiary banks. The Compensation Committee
recognized achievements of the chief executive officer and the chief operating
officer in the areas of customer service, technology use and innovation, and
management efficiency but did not assign a weighting factor to any specific
area. With respect to Mr. Kevin T. Reardon, Chief Executive Officer, the
Compensation Committee of FNB recommended and its Board of Directors approved
his bonus for 1996 in the amount of $180,000. With respect to Mr. Albert G.
D'Ottavio, Chief Operating Officer, the Compensation Committee of FNB
recommended and its Board of Directors approved his bonus for 1996 in the amount
of $112,000. These are the same amounts that were approved in 1995.
Neither Mr. Reardon nor Mr. D'Ottavio participated in discussions of the
Compensation Committee regarding either of their compensation.
This report is submitted on behalf of the members of the Committee:
Charles R. Peyla
Paul A. Lambrecht
Kevin T. Reardon
Albert G. D'Ottavio
Howard E. Reeves
THE INCORPORATION BY REFERENCE OF THIS PROXY STATEMENT INTO ANY DOCUMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY THE COMPANY SHALL NOT BE
DEEMED TO INCLUDE THE PRECEDING REPORT UNLESS SUCH REPORT IS SPECIFICALLY STATED
TO BE INCORPORATED BY REFERENCE INTO SUCH DOCUMENT.
5
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company does not have a Compensation Committee and no compensation is
paid by the Company to any officer. However, Kevin T. Reardon and Albert G.
D'Ottavio, Chief Executive Officer and Chief Operating Officer respectively, do
serve on the Compensation Committee of FNB. They do not participate in any
discussions and they abstain from any vote of the Compensation Committee
regarding either of their compensation as officers of FNB. The Company's Board
of Directors had no compensation committee interlocks with any other entity.
EXECUTIVE COMPENSATION
The following table sets forth information concerning the compensation paid
or granted for the past three fiscal years to the Company's Chief Executive
Officer and to each of the other four most highly compensated executive officers
of the Company whose aggregate salary and bonus exceeded $100,000 for the 1996
fiscal year.
6
<PAGE>
PENSION PLAN
FNB maintains the First National Bank of Joliet Retirement Plan (the
"Plan") to provide retirement benefits to eligible employees of the Company's
subsidiary banks. Prior to November 1, 1991, only employees of FNB were covered
by the Plan. Commencing on November 1, 1991 Plan coverage was extended to
employees of SWSB, on January 1, 1992 Plan coverage was extended to employees of
BOL, and on November 1, 1994 Plan coverage was extended to employees of CBP.
Each year employer contributions to the Plan are required in amounts which are
actuarially determined and are dependent upon participant age, service and
compensation, benefit payments, and investment gains or losses of the trust
fund. Upon attaining normal retirement age under the Plan (sixty-five (65) with
at least 5 years of participation in the Plan), an eligible employee will be
entitled to a monthly pension benefit. The benefit shall be equal to 1.25% of
final average pay plus .625% of final average pay over the covered compensation
amount (based on date of birth) times years of service (maximum 30 years), plus
.5% of final average pay times years of service in excess of 30 years (maximum 5
years).
Employees are eligible to participate in the Plan upon reaching age
twenty-one (21) and the completion of a year of service. A year of service is
(i) the first twelve (12) consecutive months; or (ii) the first Plan year
(November through October) thereafter, during which an employee completes at
least 1,000 hours of service of employment with one or more of the subsidiary
banks.
Any participant in the Plan who terminates his employment for any reason
other than retirement, disability or death, will be entitled to a percentage of
his accrued benefits according to the following vesting schedule:
YEARS OF SERVICE VESTED %
1 0%
2 0%
3 20%
4 40%
5 60%
6 80%
7 100%
7
<PAGE>
PENSION PLAN TABLE
The following Pension Plan Table shows the estimated annual benefits
payable upon retirement in 1996 for participants in the Plan at the specified
compensation and years of service levels:
YEARS OF SERVICE
- - --------------------------------------------------------------------------------
Compensation 15 20 25 30 35
- - --------------------------------------------------------------------------------
20,000 3,750 5,000 6,250 7,500 8,000
- - --------------------------------------------------------------------------------
40,000 8,665 11,553 14,441 17,330 18,330
- - --------------------------------------------------------------------------------
60,000 14,290 19,053 23,816 28,580 30,080
- - --------------------------------------------------------------------------------
80,000 19,915 26,553 33,191 39,830 41,830
- - --------------------------------------------------------------------------------
100,000 25,540 34,053 42,566 51,080 53,580
- - --------------------------------------------------------------------------------
120,000 31,165 41,553 51,941 62,330 65,330
- - --------------------------------------------------------------------------------
140,000 36,790 49,053 61,316 73,580 77,080
- - --------------------------------------------------------------------------------
150,000 39,602 52,803 66,004 79,205 82,955
- - --------------------------------------------------------------------------------
The normal retirement benefit for a retired eligible employee is based upon
final average pay. Final average pay is determined by the average of the
highest sixty (60) consecutive months compensation within the last ten (10)
completed years of employment. Compensation greater than $150,000 exceeds the
current qualified plan compensation limits. Special transition rules apply to
benefits based on compensation above this level. Table benefits are computed
based upon a life annuity and ten-year certain payment form.
The years of credited service for named executive officers is as follows:
Years of Credited Service
NAME OF INDIVIDUAL TOWARDS PLAN
------------------ -------------------------------
Kevin T. Reardon 35
Albert G. D'Ottavio 32
John J. Keigher 35
Jack A. Podlesny 23
James T. Limacher 25
THE INCORPORATION BY REFERENCE OF THIS PROXY STATEMENT INTO ANY DOCUMENT
FILED WITH THE SECURITIES AND EXCHANGE COMMISSION BY THE COMPANY SHALL NOT BE
DEEMED TO INCLUDE THE FOLLOWING PERFORMANCE GRAPH AND RELATED INFORMATION UNLESS
SUCH GRAPH AND RELATED INFORMATION IS SPECIFICALLY STATED TO BE INCORPORATED BY
REFERENCE INTO SUCH DOCUMENT.
8
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following chart illustrates the cumulative total return over the eight year
period from January 1, 1988 through December 31, 1996 based on a $100 investment
made as of December 31, 1987. For purposes of the $100 invested in company
common stock, it is assumed the dividends received during the nine year
measurement period were reinvested at the then current trading price for Company
common stock. The cumulative total return also reflects the change in share
price between the beginning and end of the measurement period. Changes in the
Nasdaq Stock Market Composite and Nasdaq Bank indices over the same nine year
measurement period using an equal $100 investment made as of December 31, 1987
are presented to provide general comparisons to both a broad equity market index
and a specific industry (banking) index.
9
<PAGE>
PROPOSED AMENDMENT TO THE ARTICLES OF INCORPORATION
The Board of Directors recommends that the Shareholders approve a proposal
to amend the Articles of Incorporation of the Company to increase the number of
authorized shares of common stock. The Company presently has 2,750,000 shares
of authorized common stock of which 1,215,902 shares are issued. The Company
proposes to amend the Articles of Incorporation of the Company to increase the
number of authorized shares to 5,500,000. Shareholders of the Company have a
preemptive right to subscribe for any additional shares which may be issued by
the Company except as otherwise provided for in the Articles of Incorporation.
It is the present intention of the Board of Directors of the Company, upon
approval by the Shareholders of the Company and certification of the Amendment
to the Articles of Incorporation, to declare a stock dividend of one hundred
(100%) percent of 1,215,902 shares to its Shareholders of record as of March
13, 1997. The increase in the number of authorized shares will provide for the
issuance of future stock dividends which may, from time to time, be declared by
the Board of Directors of the Company and to make said shares available for
issuance for such corporate purposes as the Board of Directors may in its
discretion determine including, without limitation, acquisition opportunities,
which the Company is actively considering or investment opportunities. Similar
amendments were approved in 1991 and 1994.
The Board of Directors recommends a vote FOR the proposed amendment.
Proxies solicited by management will be so voted unless Shareholders specify a
contrary choice in their proxies. For approval, the proposal requires the
affirmative vote of at least two-thirds of the outstanding shares of common
stock of the Company.
INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors of the Company has appointed Crowe Chizek and
Company LLP, independent auditors ("Crowe Chizek"), to be the Company's auditors
for the fiscal year ending December 31, 1996, and recommends that the
Shareholders ratify the appointment. Crowe Chizek will replace McGladrey &
Pullen, which had been the Company's auditors since 1986. The decision to
engage new auditors was recommended by the Company's management and approved by
the Company's Board of Directors following the closing by McGladrey & Pullen of
its Joliet, Illinois office and the receipt by the Company of various other
proposals for auditing services. The reports of McGladrey & Pullen on the
Company's consolidated financial statements for the years ended December 31,
1994 and December 31, 1995 did not contain any adverse opinion or a disclaimer
of opinion, and the report was not qualified or modified as to uncertainty,
audit scope or accounting principles.
In connection with the audits of the Company's financial statements for
each of the two fiscal years ended December 31, 1994 and December 31, 1995, and
in the subsequent interim period, there were no unresolved issues, scope
restrictions, unanswered questions or disagreements with McGladrey & Pullen on
any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedure which, if not resolved to the
satisfaction of McGladrey & Pullen, would have caused McGladrey & Pullen to make
reference to the matter in their report, and McGladrey & Pullen did not advise
the Company that any of the events described in Item 304 (a)(1)(v) of Regulation
S-K had occurred.
During the Company's fiscal years ended December 31, 1994 and December 31,
1995 and the subsequent period prior to engaging Crowe Chizek, the Company (or
anyone on the Company's behalf) did not consult Crowe Chizek regarding (i)
either the application of accounting principles to a specified transaction,
either completed or proposed; or the type of audit opinion that might be
rendered on the Company's financial statements; and as such no written report
was provided to the Company and no oral advice was provided that the new
accountant concluded was an important factor considered by the Company in
reaching a decision as to any accounting, auditing or financial reporting issue,
or (ii) any matter that was either the subject of disagreement or a reportable
event.
A representative of Crowe Chizek is expected to attend the annual meeting
and will be available to respond to appropriate questions and to make a
statement if he or she so desires. If the appointment of the new auditors is
not ratified, the matter of the appointment of auditors will be considered by
the Board of Directors.
10
<PAGE>
SHAREHOLDER PROPOSALS FOR THE 1998 ANNUAL MEETING OF SHAREHOLDERS
Any proposals of Shareholders intended to be presented at the 1998 Annual
Meeting of Shareholders must be received by the Chairman of the Company at its
principal executive offices at 78 North Chicago Street, Joliet, Illinois 60432
on or before October 27, 1997, to be considered for inclusion in the Company's
Proxy Statement and proxy relating to such meeting.
OTHER BUSINESS
The Board of Directors know of no other matters to be brought before the
Annual Shareholders Meeting. If any other matters should properly come before
the meeting, the persons named in the proxy will have the discretion to vote the
proxy in accordance with their best judgment on those matters.
By Order of the Board of Directors
Kevin T. Reardon
Chairman of the Board
and Chief Executive Officer
Joliet, Illinois
February 13, 1997
A COPY OF THE 1996 FORM 10-K (THE ANNUAL REPORT TO THE SECURITIES AND EXCHANGE
COMMISSION) IS AVAILABLE FREE OF CHARGE TO ANY SHAREHOLDER UPON WRITTEN REQUEST
TO: MR. KEVIN T. REARDON, CHAIRMAN OF THE BOARD, FIRST NATIONAL BANCORP, INC.,
78 NORTH CHICAGO STREET, JOLIET, ILLINOIS 60432.
11
<PAGE>
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following chart illustrates the cumulative total return over the eight year
period from January 1, 1988 through December 31, 1995 based on a $100 investment
made as of December 31, 1987. For purposes of the $100 invested in Company
common stock, it is assumed the dividends received during the eight year
measurement period were reinvested at the then current trading price for Company
common stock. The cumulative total return also reflects the change in share
price between the beginning and end of the measurement period. Changes in the
Nasdaq Stock Market Composite and Nasdaq Bank indices over the same eight year
measurement period using an equal $100 investment made as of December 31, 1987
are presented to provide general comparisons to both a broad equity market index
and a specific industry (banking) index.
<TABLE>
<CAPTION>
Cumulative Total Return (measured as of 12/31)*
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------
First National Bancorp $100 $117 $148 $180 $202 $236 $279 $327 $409 $494
- - ------------------------------------------------------------------------------------------------------------------------
Nasdaq Bank Index $100 $111 $100 $ 65 $ 90 $136 $176 $178 $257 $324
- - ------------------------------------------------------------------------------------------------------------------------
Nasdaq Composite $100 $115 $138 $113 $177 $205 $233 $226 $316 $386
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
<PAGE>
FIRST NATIONAL BANCORP, INC.
78 North Chicago Street, Joliet, Illinois 60432
PROXY FOR ANNUAL MEETING OF SHAREHOLDERS
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS AND MAY BE REVOKED
PRIOR TO ITS EXERCISE
PLEASE SIGN ON REVERSE SIDE AND RETURN IMMEDIATELY
KNOW ALL MEN BY THESE PRESENTS, that the undersigned Shareholder or Shareholders
of First National Bancorp, Inc., ("Company"), do hereby nominate, constitute and
appoint KEVIN T. REARDON and ALBERT G. D'OTTAVIO or any one of them (with
substitution, for me or us and in my or our name, place and stead) to vote all
the shares of common stock of the Company, standing in my or our name, on the
Company's books as of the close of its business on Monday, February 3, 1997 at
the Annual Meeting of Shareholders of the Company to be held at the office of
First National Bank of Joliet, 78 North Chicago Street, Joliet, Illinois, on
Thursday, March 13, 1997 at 3:00 p.m., or any adjournment or postponement
thereof, with all the powers the undersigned would possess if personally
present. The shares are to be voted in accordance with my or our directions as
follows:
1. The election of the eleven (11) persons listed below and in the Company's
Proxy Statement dated February 13, 1997, as directors of the Company:
FOR ( ) WITHHOLD ( )
Sheldon C. Bell Harvey J. Lewis Louis R. Peyla
George H. Buck Walter F. Nolan Kevin T. Reardon
Albert G. D'Ottavio Charles R. Peyla Howard E. Reeves
Watson A. Healy
YOU MAY INDICATE YOUR DESIRE TO WITHHOLD AUTHORITY TO VOTE FOR ANY PERSON BY
LINING THROUGH OR OTHERWISE STRIKING OUT THE NAME OF ANY PERSON.
The Board of Directors recommends a vote "FOR" the election of the above
listed persons as directors of the Company.
(over)
<PAGE>
2. The approval of the following amendment to the Articles of Incorporation:
That Paragraph 1 of Article Four of the Articles of Incorporation of the
Company be amended to read as follows:
ARTICLE FOUR Paragraph 1: The authorized shares shall be:
PAR VALUE NUMBER OF SHARES
CLASS PER SHARE AUTHORIZED
Common $10.00 per share 5,500,000
FOR ( ) AGAINST ( )
The Board of Directors recommends a vote "FOR" the approval of the above
amendment.
3. Such other business as may be properly brought before the meeting or any
adjournment or postponement thereof.
If any other business is properly brought before said meeting, this proxy
shall be voted in accordance with the recommendations of the Board of
Directors.
________________________________ ______________________________
(Signature of Shareholder or (Signature of Shareholder or
Shareholders) Shareholders)
When signing as attorney, executor, administrator, trustee or guardian, please
give full title. If more than one trustee, all should sign. All joint owners
must sign.
DATED: ___________________________________ , 1997
<PAGE>
(1) All of the above named directors have been engaged in the principal
occupation specified for more than five years unless otherwise noted.
(2) Charles R. and Louis R. Peyla are brothers.
<PAGE>
SHAREHOLDER RETURN PERFORMANCE PRESENTATION
The following chart illustrates the cumulative total return over the eight year
period from January 1, 1988 through December 31, 1995 based on a $100 investment
made as of December 31, 1987. For purposes of the $100 invested in Company
common stock, it is assumed the dividends received during the eight year
measurement period were reinvested at the then current trading price for Company
common stock. The cumulative total return also reflects the change in share
price between the beginning and end of the measurement period. Changes in the
Nasdaq Stock Market Composite and Nasdaq Bank indices over the same eight year
measurement period using an equal $100 investment made as of December 31, 1987
are presented to provide general comparisons to both a broad equity market index
and a specific industry (banking) index.
<TABLE>
<CAPTION>
Cumulative Total Return (measured as of 12/31)*
1987 1988 1989 1990 1991 1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
- - ------------------------------------------------------------------------------------------------------------------------
First National Bancorp $100 $117 $148 $180 $202 $236 $279 $327 $409 $494
- - ------------------------------------------------------------------------------------------------------------------------
Nasdaq Bank Index $100 $111 $100 $ 65 $ 90 $136 $176 $178 $257 $324
- - ------------------------------------------------------------------------------------------------------------------------
Nasdaq Composite $100 $115 $138 $113 $177 $205 $233 $226 $316 $386
- - ------------------------------------------------------------------------------------------------------------------------
</TABLE>
* TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 35,785
<INT-BEARING-DEPOSITS> 0
<FED-FUNDS-SOLD> 73,241
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 11,404
<INVESTMENTS-CARRYING> 203,424
<INVESTMENTS-MARKET> 203,500
<LOANS> 468,786
<ALLOWANCE> 4,414
<TOTAL-ASSETS> 824,570
<DEPOSITS> 690,513
<SHORT-TERM> 49,236
<LIABILITIES-OTHER> 6,479
<LONG-TERM> 6,951
0
0
<COMMON> 12,159
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 824,570
<INTEREST-LOAN> 39,148
<INTEREST-INVEST> 12,996
<INTEREST-OTHER> 2,568
<INTEREST-TOTAL> 54,712
<INTEREST-DEPOSIT> 21,091
<INTEREST-EXPENSE> 24,272
<INTEREST-INCOME-NET> 30,440
<LOAN-LOSSES> 1,024
<SECURITIES-GAINS> 175
<EXPENSE-OTHER> 22,249
<INCOME-PRETAX> 12,658
<INCOME-PRE-EXTRAORDINARY> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 8,521
<EPS-PRIMARY> 7.01
<EPS-DILUTED> 7.01
<YIELD-ACTUAL> 04.47
<LOANS-NON> 785
<LOANS-PAST> 1,072
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 2,527
<ALLOWANCE-OPEN> 3,931
<CHARGE-OFFS> 700
<RECOVERIES> 159
<ALLOWANCE-CLOSE> 4,414
<ALLOWANCE-DOMESTIC> 4,414
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
