SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1995
- OR -
TRANSACTION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-17728
Northern Illinois Financial Corporation
(Exact Name of Registrant as Specified in its Charter)
Illinois 36-6137500
State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification No.)
486 W. Liberty St., Wauconda, IL 60084-2489
(Address of Principal Executive Office) (Zip Code)
Registrant's telephone number, including area code: (708) 487-1818
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter
period that the registrant was required to file such reports) and (2) has
been subject to such filing requirements for the past 90 days. Yes X
or No
The number of shares of the registrant's Common Stock outstanding on
October 31, 1995 was 2,956,440 shares.
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
FORM 10-Q - QUARTERLY REPORT
FOR QUARTER ENDED SEPTEMBER 30, 1995
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION Page
Item 1. Financial Statements
Consolidated Balance Sheets, September 30, 1995
and December 31, 1994. 1
Consolidated Statements of Income
Nine Months Ended September 30, 1995 and 1994 2 - 3
Three Months Ended September 30, 1995 and 1994 4 - 5
Consolidated Statements of Changes in Shareholders'
Equity, Nine Months Ended September 30, 1995 and 1994 6
Consolidated Statements of Cash Flow, Nine Months
Ended September 30, 1995 and 1994 7 - 8
Notes to Consolidated Financial Statements 9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10 - 18
PART II. OTHER INFORMATION 19
Item 6. A. Exhibits
B. Reports on Form 8-K
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(000's omitted
except share data)
September 30, December 31,
1995 1994
(Unaudited ) (Audited)
Cash and due from banks $ 25,877 $ 27,856
Interest bearing deposits in other banks 196 1,128
Securities
Held for investment, at amortized cost
(market value $71,527 in 1995
and $73,756 in 1994) 69,674 73,661
Available for sale, at market 248,372 249,196
Federal funds sold 20,350 9,010
Loans, net of unearned income 530,735 478,255
Less allowance for loan losses (5,652) (6,050)
Premises and equipment 22,472 22,553
Accrued interest receivable 7,799 6,862
Other real estate owned 1,410 1,575
Other assets 6,413 8,517
------- -------
$927,646 $872,563
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities
Deposits
Noninterest bearing $103,261 $112,640
Interest bearing 675,333 629,061
------- -------
Total deposits 778,594 741,701
Short-term borrowings 45,881 40,577
Long-term borrowings 6,588 5,650
Other liabilities 9,156 9,104
Dividends payable 503 872
------- -------
Total liabilities 840,722 797,904
------- -------
Shareholders' equity
Common stock, no par value; authorized
10,000,000 shares; issued and outstanding
2,956,784 and 3,006,477 shares 16,697 16,978
Retained earnings 65,888 61,090
Net unrealized securities gains(losses) 4,339 (3,409)
------- -------
Total shareholders' equity 86,924 74,659
------- -------
$927,646 $872,563
======= =======
The accompanying notes are an integral
part of these financial statements.
-1-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(000's omitted
except per share data)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Interest income
Interest and fees on loans $33,354 $27,824
Interest on federal funds sold 590 289
Interest on securities
Taxable 10,184 8,670
Exempt from federal income tax 3,403 3,744
Interest on deposits in other banks 12 121
Other interest income 10
------ ------
Total interest income 47,543 40,658
------ ------
Interest expense
Interest on deposits 20,690 15,760
Interest on short-term borrowings 1,926 1,410
Interest on long-term obligations 325 61
------ ------
Total interest expense 22,941 17,231
------ ------
Net interest income 24,602 23,427
Provision for loan losses 154 400
------ ------
Net interest income after provision
for loan losses 24,448 23,027
------ ------
Other income
Fees for customer deposit services 2,514 2,257
Other operating income 1,554 1,169
Trust department income 330 287
Securities gains 1,629 930
------ ------
Total other income 6,027 4,643
------ ------
Other expenses
Salaries and employee benefits 10,980 10,764
Occupancy and equipment expense 2,985 2,849
Data processing 863 1,239
Other 6,359 6,238
------ ------
Total other expenses 21,187 21,090
------ ------
The accompanying notes are an integral
part of these financial statements.
-2-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
(000's omitted
except per share data)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Income before income taxes $ 9,288 $ 6,580
Applicable income taxes 1,882 1,108
------ ------
Net income $ 7,406 $ 5,472
====== ======
Average number of common shares
outstanding 2,976 3,017
====== ======
Earnings per common share $ 2.49 $ 1.81
====== ======
The accompanying notes are an integral
part of these financial statements.
-3-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(000's omitted
except per share data)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Interest income
Interest and fees on loans $11,621 $ 9,618
Interest on federal funds sold 175 166
Interest on securities
Taxable 3,565 2,984
Exempt from federal income tax 1,141 1,231
Interest on deposits in other banks 3 55
Other interest income 3
------ ------
Total interest income 16,505 14,057
------ ------
Interest expense
Interest on deposits 7,414 5,448
Interest on short-term borrowings 675 530
Interest on long-term obligations 110 46
------ ------
Total interest expense 8,199 6,024
------ ------
Net interest income 8,306 8,033
Provision for loan losses 60 31
------ ------
Net interest income after provision
for loan losses 8,246 8,002
------ ------
Other income
Fees for customer deposit services 849 787
Other operating income 554 377
Trust department fees 115 96
Securities gains 405 903
------ ------
Total other income 1,923 2,163
------ ------
Other expenses
Salaries and employee benefits 3,589 3,570
Occupancy and equipment expense 1,072 927
Data processing 256 422
Other 1,884 1,846
------ ------
Total other expenses 6,801 6,765
------ ------
The accompanying notes are an integral
part of these financial statements.
-4-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(Continued)
(000's omitted
except per share data)
THREE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Income before income taxes $ 3,368 $ 3,400
Applicable income taxes 609 635
------ ------
Net income $ 2,759 $ 2,765
====== ======
Average number of common shares
outstanding 2,958 3,011
====== ======
Earnings per common share $ .93 $ .92
====== ======
The accompanying notes are an integral
part of these financial statements.
-5-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Unaudited)
(000's omitted
except share data)
Net
Unrealized
Gains(Losses)
on Available
Common Stock Retained for Sale
Shares Amount Earnings Securities
Balance January 1, 1994 3,029,775 $17,109 $56,334 $ 4,117
Net Income 5,472
Cash dividends $.51 per share (1,537)
Cost of shares acquired (18,670) (105) (366)
Change in unrealized gains
(losses) on available
for sale securities (5,544)
--------- ------ ------ -----
Balance, September 30, 1994 3,011,105 $17,004 $59,903 $(1,427)
========= ====== ====== =====
Balance, January 1, 1995 3,006,477 $16,978 $61,090 $(3,409)
Net income 7,406
Cash dividends $.51 per share (1,516)
Cost of shares acquired (49,693) (281) (1,092)
Change in unrealized gains
(losses) on available
for sale securities 7,748
--------- ------ ------ -----
Balance, September 30, 1995 2,956,784 $16,697 $65,888 $ 4,339
========= ====== ====== =====
The accompanying notes are an integral
part of these financial statements.
-6-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Cash flows from operating activities:
Interest and dividends received $47,421 $43,244
Fees and commissions received 4,398 3,713
Interest paid (22,044) (16,610)
Cash paid to suppliers and employees (21,094) (19,955)
Income taxes paid (3,781) (84)
------ ------
Net cash provided by operating activities 4,900 10,308
------ ------
Cash flows from investing activities:
Net decrease in interest bearing deposits
in other banks 932 2,971
Sales of securities
Held to maturity (Note 2) 182
Available for sale 31,345 12,128
Maturities of securities
Held to maturity 3,765 12,817
Available for sale 69,102 55,405
Purchase of investment securities
Held to maturity (3,306)
Available for sale (86,260) (62,390)
Net increase in loans (53,270) (23,127)
Purchase of officer life insurance (174) (124)
Capital expenditures (1,495) (2,027)
Proceeds from the sale of property and equipment 22 202
Proceeds from sale of other real estate owned 435 1,519
------ ------
Net cash used in investing activities (35,416) (5,932)
------ ------
Cash flows from financing activities
Net increase in deposits 36,893 8,856
Net increase in short term borrowings 5,304 1,381
Net increase in long term borrowings 938 2,827
Dividends paid (1,885) (1,750)
Common stock acquired (1,373) (473)
------ ------
Net cash provided by financing activities 39,877 10,841
------ ------
Net increase in cash and cash equivalents 9,361 15,217
Cash and cash equivalents at beginning of period 36,866 32,743
------ ------
Cash and cash equivalents at end of period $46,227 $47,960
====== ======
The accompanying notes are an integral
part of these financial statements.
-7-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(Continued)
(Unaudited)
(in thousands)
NINE MONTHS ENDED SEPTEMBER 30, 1995 AND 1994
1995 1994
Reconciliation of net income to net
cash provided by operating activities:
Net income $ 7,406 $ 5,472
------ ------
Adjustments to reconcile net income to
net cash provided by operating activities:
Provision for premium amortization 1,873 3,080
Provision for discount accretion (1,058) (173)
Provision for depreciation 1,522 1,324
Provision for loan losses 154 400
Provision for deferred income taxes (2,857) (456)
Provision for write-down of other real estate owned 141
Provision for write-down of securities
held for investment 85
Capitalization of interest during construction (4)
Gain on sale of securities (1,629) (930)
(Gain) loss on disposition of equipment 32 (2)
(Gain) loss on sale of other real estate owned (32) 20
Changes in assets and liabilities:
(Increase) Decrease in other assets (574) 960
Increase in other liabilities 63 391
------ ------
Total adjustments (2,506) 4,836
------ ------
Net cash provided by operating activities $ 4,900 $10,308
====== ======
Supplemental schedule of noncash investing
and financing activities:
Net change in unrealized gains on securities
available for sale $ 7,748 $(5,544)
Loans transferred to other real estate owned ===== ======
throughout the year $ 238 $ 165
Other real estate owned transferred to loans === ===
throughout the year $ 205
Contributions and net earnings of ===
the Execuflex Plan $ 225 $ 457
=== ===
Securities purchased payable in October $ 700 $ 1,048
=== =====
Securities sold receivable in October $ $ 112
===
Securities purchased in 1994 settled in 1995 $ (936)
===
The accompanying notes are an integral
part of these financial statements.
-8-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements include the financial
information of Northern Illinois Financial Corporation and its subsidiaries.
All significant intercompany balances and transactions have been eliminated.
In Management's opinion, all adjustments (consisting of normal recurring
accruals) necessary for a fair presentation of the financial position and the
results of operations for the interim periods have been made. For a further
description of significant accounting policies of the Company, see the 1994
Form 10-K.
2. SECURITIES
Proceeds from the sale of held to maturity securities were $182,000
during 1995. Management believed that a debt issue of a municipality, already
rated at the minimum investment grade for a bank, would suffer credit
deterioration based on management's evaluation of the economic outlook for
the municipality and its source of revenue to retire the debt.
-9-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following is management's discussion and analysis of the financial
condition of the Company and subsidiaries at September 30, 1995 (unaudited)
when compared with December 31, 1994 (audited) and the results of operations
for the three and nine month periods ended September 30, 1995 and 1994
(unaudited). This discussion and analysis should be read in conjunction with
the Company's consolidated financial statements and notes thereto appearing
elsewhere in this quarterly report. In October of 1995 the Company's Board
of Directors approved a plan to consolidate the Company's four existing
subsidiary bank charters to a single bank charter. The plan calls for the
restructuring to be accomplished in multiple phases. The first phase will
consolidate the bank charters from a regulatory and data handling
prospective. This phase is slated for the first quarter of 1996. The
subsequent phases will focus on identification and implementation of
efficiencies within various functional areas. The one charter structure
provides opportunities in eliminating redundancies, creates additional
economies of scale, insures more effective utilization of resources while
providing better opportunities for enhanced client services. The subsequent
phases will begin early 1996 and may take several months to implement. The
plan does not project any material financial impact in 1996. Productivity
and efficiency gains will be slated for 1997.
Financial Condition at September 30, 1995 Compared to December 31, 1994
Total assets of the Company increased $55.1 million or 6.3% between the
periods ended December 31, 1994 and September 30, 1995. Asset growth for the
first nine months of 1995 is right on target with the Company's expectation.
Total investment securities as reported on the consolidated balance
sheets declined $4.8 million included the effects of marking to market
investment securities available for sale. Cash proceeds from the sale and
maturity of all investment securities exceeded purchases by $18 million due
to a strong loan demand. Excluding the effects of marking to market
securities available for sale the Company expects the portfolio volume to
change little for the remainder of 1995.
Loans net of unearned income increased $52.5 million of which 79% was in
the commercial portfolio and 21% in retail loans. This growth exceeded the
Company's nine month ended projections by 6.3%. The Company projected 1995
loan growth to be 9.25%. Increasing loan demand coupled with business
development efforts have resulted in growth exceeding expectations and the
Company anticipates that trend to continue for the remainder of 1995.
Premises and equipment remained virtually unchanged between the
comparative periods. The variance from the Company's original 1995 forecast
for a $3 million plus capital expenditures is due to certain planned facility
and equipment projects being delayed and or restructured. By year end 1995
the Company expects fixed assets to approximate the 1994 year end total.
Other real estate owned showed a slight decrease and is expected to
remain unchanged for the remainder of 1995.
-10-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
Total deposits increased $36.9 million from year end 1994 and is within
0.6% of the Company's nine month projection. Non interest bearing deposits
are below Company expectations while interest bearing deposits are above
projections. The Company expects the deposit growth trend to continue for
the remainder of 1995.
Short and long term borrowing increased $6.2 million for the comparative
periods and is within 2% of the Company's nine month ended forecast. The
Company expects this trend to continue.
Results of Operations for the Nine Months Ended September 30, 1995 and 1994
Income:
Net income increased from $5,472,000 to $7,406,000 for the comparative
periods. Earnings per share increased from $1.81 to $2.49.
Net interest income before provision for loan losses increased $1,175,000
from $23,427,000 to $24,602,000 and is within 3.8% of the Company's nine
month ended forecast. Total interest income rose $6,885,000 from $40,658,000
to $47,543,000 while the increase in total interest expense amounted to
$5,710,000. The increase in interest income is primarily due to rate
variances for taxable securities plus rate and volume variances for loans.
The interest expense increase is largely due to rate and volume variances in
other time deposits plus rate variances in money market and NOW portfolios.
The comparative net yield on average earning assets was virtually unchanged
going from 3.96% to 3.97%. The reduction in spread from 3.43% to 3.24%, as
well as, the variance from our original 1995 net interest income projections
was primarily due to a relatively flat yield curve coupled with the mix of
earning assets and interest bearing liabilities (see Average balance,
interest and average rates earned and paid on page 16). The Company
anticipates net yield on average earning assets to be 3.95% by year end 1995.
Provision for loan losses were $400,000 and $154,000 for the nine months
ended 1994 and 1995, respectively. The bank subsidiaries' analysis of the
current and prospective economic conditions, credit quality, historic trends
and implementation of Financial Accounting Standards Nos 114 and 118
determine the amounts transferred to the provision for loan loss. The
allowance for loan loss as a percent of loans net of unearned income was
1.35% and 1.06% on September 30, 1994 and September 30, 1995, respectively.
Total noninterest income increased $1,384,000 to $6,027,000. Fees for
customer services increased $257,000 and is right on target with the
Company's 1995 nine month expectations. The trend is expected to continue.
Other operating income increased $385,000, 38% of which was a one time
litigation award. The remaining increase constitutes a trend that is
expected to continue for the remainder of 1995. Trust department income
increased $43,000 which is on target with the Company projection. Realized
security gains were $930,000 and $1,629,000 for nine months ended 1994 and
1995, respectively. The Company does not anticipate any continued trend in
realized security gains.
-11-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
For the nine months ended 1994 and 1995, noninterest expense increased
$97,000 from $21,090,000 to $21,187,000. Salaries and benefits rose
$216,000. The salaries portion of this category rose approximately 1.4%
while benefits increased approximately 3.8%. The increase is less than the
Company's original nine month expectations, however by filling the Company's
current job vacancies that positive variance will narrow by the end of 1995.
Occupancy and equipment expense went from $2,849,000 to $2,985,000. This
increase is 8% below the Company's original forecast primarily due to certain
facility and equipment projects that were delayed and or restructured. The
Company expects that positive variance to narrow by year end. Data
processing decreased $376,000 for the comparative nine month periods. The
significant decline is attributed to costs associated with major data
processing conversions for three subsidiary banks during the first four
months of 1994 and cost reductions in 1995 attributed to the Company
transferring the functions of remote job entry and print back from a third
party vendor to the Company's centralized operation division. The trend is
expected to continue for the rest of 1995. Other expense increased less than
2% from $6,238,000 to $6,359,000. The difference encompasses several areas
worth noting. A significant increase occurred in costs associated with
employee training as the Company committed financial and other resources to
an extensive training program. Another significant increase is attributed to
a one time charge, at one of the subsidiary banks, recorded in 1995 for an
overdraft loss. Offsetting much of the increases were notable reductions in
supply and printing costs, expenses to maintain and account for other real
estate owned and premiums for federal deposit insurance. In the first four
months of 1994, supply and printing costs were inordinately high as
subsidiary banks had to replace forms and customer checks as part of a data
processing conversion. In September 1995 the Federal Deposit Insurance
Corporation rebated a portion of premiums paid for 1995 to reflect the rate
reduction from $.23 per $100 deposit to $.04 per $100 deposit. For fiscal
1995, the Company expects other expense to be within 1% of the 1994 year end
level.
Results of Operations for the Three Months Ended September 30, 1995 and 1994
Income:
Net income decreased slightly from $2,765,000 to $2,759,000 for the
comparative three month periods. Earnings per share increased from $.92 for
the three months ended September 30, 1994 to $.93 for comparative period in
1995.
Net interest income before provision for loan losses rose 3.4% from
$8,033,000 to $8,306,000 for the comparative three month periods. Total
interest income rose $2,448,000 or 17.4%. Similar to the discussion for the
nine months ended the interest income increase was largely due to rate
variances for taxable securities coupled with rate and volume variances for
loans. Total interest expense increased $2,175,000 or 36.1%. The increase
was due primarily to rate and volume variances in money market, NOW and other
time deposits. Net yield on average earning assets declined from 4.02% to
3.91% and the spread decreased from 3.46% to 3.16%. The reduction in net
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NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
yield and spread was generally due to the effects of a flat yield curve that
began in early 1995 and the composition of the Company's interest earning and
interest bearing portfolios. These declines were not anticipated due to the
unexpected continuation of the flat yield curve.
Provision for loan losses for the three months ended in 1994 was $31,000
and $60,000 for the comparable period in 1995. For further discussion
regarding the provision for loan losses refer to Results of Operations for
the nine months ended.
Total noninterest income decreased $240,000 from $2,163,000 in 1994 to
$1,923,000 in 1995. The decrease is due to a $498,000 reduction in realized
security gains for the comparative periods. Fees for customer services
increased $62,000 and is within 1% of the Company's quarterly projection. The
trend for remainder of 1995 is expected to continue. Other operating income
increased from $377,000 in 1994 to $554,000 in 1995. The Company anticipates
this trend to continue for the remainder of 1995. Trust department fees
increased $19,000 and is on track with the Company's projection.
Total noninterest expense increased $36,000 from $6,765,000 to
$6,801,000 for the comparative periods. Salaries and benefits rose less than
1% from $3,570,000 to $3,589,000. The actual increase is below the Company's
original quarterly projection. For further comment please refer to the
discussion of the nine months ended. Occupancy and equipment increased
$145,000. The quarterly increase is within the Company's forecast. Certain
facility and equipment projects that were slated for earlier in 1995 were
pushed back into the third quarter and beyond or have been restructured. The
Company expects the quarterly trend to continue into the fourth quarter of
1995. Data processing expenses decreased by $166,000 between the comparable
quarters. The reduction is primarily due to the Company transferring, in
1995, the functions of remote job entry and print back from a third party
vendor to the Company's centralized operation division. For additional
commentary please refer to the discussion for the nine months ended. Other
expense increased slightly from $1,846,000 to $1,884,000. Material increases
occurred in training (see discussion for the nine months ended), courier
costs associated with the transfer of remote job entry and print back from a
third party to the Company's operation division and consulting services.
These increases were offset by the premium rebate obtained from the Federal
Deposit Insurance Corporation as explained in the discussion for the nine
months ended.
Liquidity and Interest Rate Sensitivity
The Company, from a consolidated viewpoint, and each subsidiary bank,
from a stand alone viewpoint, oversee the liquidity position to ensure that
sufficient funds are available to meet customers' needs for borrowing and
deposit withdrawals. Liquidity is provided for by cash and investing in
marketable short term assets with staggered maturity dates, loan maturities,
payments and access to immediate funding sources. Many of the assets can be
quickly converted to cash with a minimum exposure to loss. The Company and
subsidiaries have credit accommodations that can be quickly utilized in
liquidity management. The "Gap Table" on page 18 reconciles maturing and
-13-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
repricing of interest earning assets and interest bearing liabilities by
future one year increments up to five years, and greater than five years.
The Company's and subsidiaries' liquidity ratios are within Company policy
guidelines, as well as, industry norms and indicate that the Company is not
exposed to undue short or long term liquidity risks.
Interest rate sensitivity has a major impact on the earnings of the
Company in changing rate environments. The Company and subsidiary banks'
rate risk management operates within written policy guidelines. The
measurement and monitoring of short and long term interest rate risk is
necessary to insure stability in earnings given different interest rate
environments. The Company and its subsidiaries have measurement systems in
place that provide information relative to exposures to both long and short
term interest rate risk. Proper management of this risk involves
recognition, awareness and possible impact of the matching and mismatching of
interest sensitive assets and liabilities in the short and long term (see
"Gap Table" on page 18). The consolidated Company and the bank subsidiaries'
measurements indicate acceptable overall exposure to earnings fluctuations
associated with swings in the interest rate environment.
Capital
The Company's major source of capital is the retention of net income.
The subsidiary Banks' earnings provide the Company with a reliable source of
capital to fund growth, pay dividends and enhance shareholder value. Total
shareholder equity increased $11,444,000, or 15.2%, from $75,480,000 on
September 30, 1994 to $86,924,000 on September 30, 1995. The increase in
total shareholder equity includes $5,766,000 associated with net unrealized
gains (losses) on securities available for sale net of tax.
Removing the effect of the net unrealized gains (losses) net of tax,
shareholder equity would have risen 7.4% from 76,907,000 on September 30,
1994 to $82,585,000 on September 30, 1995. Regulatory capital ratios are
categorized for banks and the Company as "well capitalized", "adequately
capitalized" and "undercapitalized". The table below illustrates the
regulatory capital ratio classifications:
Capital Category Total Risk Based Tier I Risk Based Leverage
Capital % Capital % Ratio %
Well Capitalized 10% 6% 5%
Adequately Capitalized 8% 4% 4%
Undercapitalized < 8% < 4% < 4%
The Company and its subsidiaries are all "well capitalized" by regulatory
definition.
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NORTHERN ILLINOIS FINANCIAL CORPORATION
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATION
(continued)
Inflation
The impact of inflation on a banking organization is difficult to
assess. Unlike an industrial company, a banking organization's assets and
liabilities are primarily monetary. Therefore, a banking organization does
not necessarily gain or lose because of inflation. Moreover, interest rates,
which are a major determinant of a banking organization's profitability, do
not necessarily follow changes in the prices of goods and services. An
analysis of a banking organization's asset and liability structure provides
the best indication of how a banking organization is positioned to respond to
changing interest rates and maintain profitability.
<PAGE>
<TABLE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE, INTEREST AND AVERAGE RATES EARNED AND PAID
9 MONTHS ENDED
<S> <C> <C> <C> <C> <C>
SEPT 30, 1995 AVERAGE 09/30/95 AVERAGE AVERAGE 09/30/94 AVERAGE VOLUME RATE RATE-VOL
BALANCE INTEREST RATE BALANCE INTEREST RATE VARIANCE VARIANCE VARIANCE
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INT-BEARING DEPOSITS IN OTHER BANKS 217 12 7.37% 3,692 121 4.37% (114) 83 (78)
FEDERAL FUNDS SOLD 13,875 590 5.67% 8,008 289 4.81% 212 52 38
SECURITIES: TAXABLE (1) 241,149 10,184 5.63% 249,038 8,670 4.64% (275) 1,847 (59)
SECURITIES: TAX EXEMPT(1,2) 73,676 3,403 6.16% 82,678 3,744 6.04% (408) 75 (8)
LOANS NET OF UNEARNED INCOME(3) 498,239 33,354 8.93% 444,708 27,834 8.35% 3,350 1,936 233
------- ------ ---- ------- ------ ---- ------ ----- ---
TOTAL AVERAGE EARNING ASSETS 827,156 47,543 7.66% 788,124 40,658 6.88% 2,766 3,993 126
OTHER ASSETS
CASH & NONINTEREST BEARING DEPOSITS 25,925 27,677
PREMISES AND EQUIPMENT 22,410 22,375
OTHER REAL ESTATE OWNED 1,463 3,617
OTHER ASSETS 14,841 13,213
AVAIL FOR SALE SECURITIES VALUATION 254 1,764
ALLOWANCE FOR LOAN LOSS (5,854) (6,351)
------- -------
TOTAL AVERAGE ASSETS 886,195 850,419
======= =======
DEMAND DEPOSITS: MONEY MRKT & NOW 166,399 3,962 3.17% 150,473 2,469 2.19% 261 1,114 118
SAVINGS DEPOSITS 158,758 3,303 2.77% 176,664 3,204 2.42% (325) 472 (48)
OTHER TIME DEPOSITS 317,171 13,425 5.64% 290,903 10,087 4.62% 911 2,226 201
SHORT-TERM BORROWINGS 42,579 1,926 6.03% 47,283 1,410 3.98% (140) 729 (73)
LONG-TERM BORROWINGS 6,328 325 6.85% 1,389 61 5.86% 217 10 37
------- ------ ----- ------- ------ ----- --- ----- ---
TOTAL AVE INT-BEARING LIABILITIES 691,235 22,941 4.43% 666,712 17,231 3.45% 924 4,551 235
OTHER LIABILITIES AND STOCKHOLDER EQTY
NON INTEREST BEARING DEPOSITS 104,977 102,061
OTHER LIABILITIES 9,507 6,321
SHAREHOLDER EQUITY 80,476 75,325
------- -------
TOTAL LIABS & SHAREHOLDER EQTY 886,195 850,419
======= =======
NET INTEREST INCOME 24,602 3.24% 23,427 3.43%
====== =======
NET YIELD ON INTEREST EARNING ASSETS 3.97% 3.96%
(1) Securities are at amortized cost. The valuation from amortized cost to market for available-for-sale
is shown separately.
(2) Yields are not on a tax equivalent basis.
(3) Average volume includes nonaccrual loans.
-16-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
AVERAGE BALANCE, INTEREST AND AVERAGE RATES EARNED AND PAID
3 MONTHS ENDED
SEPT 30, 1995 AVERAGE 09/30/95 AVERAGE AVERAGE 09/30/94 AVERAGE VOLUME RATE RATE-VOL
BALANCE INTEREST RATE BALANCE INTEREST RATE VARIANCE VARIANCE VARIANCE
INT-BEARING DEPOSITS IN OTHER BANKS 201 3 5.97% 3,922 55 5.61% (52) 4 (3)
FEDERAL FUNDS SOLD 12,095 175 5.79% 12,333 166 5.38% (3) 12 (0)
SECURITIES: TAXABLE (1) 246,564 3,565 5.78% 246,475 2,984 4.84% 1 580 0
SECURITIES: TAX EXEMPT(1,2) 74,370 1,141 6.14% 81,281 1,231 6.06% (105) 16 (1)
LOANS NET OF UNEARNED INCOME(3) 515,887 11,621 9.01% 454,554 9,621 8.47% 1,298 618 83
------- ------ ---- ------- ------ ---- ----- ----- ---
TOTAL AVERAGE EARNING ASSETS 849,117 16,505 7.78% 798,565 14,057 7.04% 1,139 1,230 79
OTHER ASSETS
CASH & NONINTEREST BEARING DEP 27,693 27,021
PREMISES AND EQUIPMENT 22,453 22,462
OTHER REAL ESTATE OWNED 1,489 3,227
OTHER ASSETS 10,840 14,166
AVAIL FOR SALE SECURITIES VALUATION 5,300 (1,253)
ALLOWANCE FOR LOAN LOSS (5,720) (6,268)
------- -------
TOTAL AVERAGE ASSETS 911,172 857,920
======= =======
DEMAND DEPOSITS: MONEY MRKT & NOW 176,349 1,395 3.16% 149,640 856 2.29% 153 328 58
SAVINGS DEPOSITS 155,894 1,103 2.83% 173,774 1,062 2.44% (109) 168 (17)
OTHER TIME DEPOSITS 329,556 4,916 5.97% 298,994 3,530 4.72% 361 930 95
SHORT-TERM BORROWINGS 41,918 675 6.44% 47,258 530 4.49% (60) 231 (26)
LONG-TERM BORROWINGS 6,588 110 6.68% 3,007 46 6.12% 55 4 5
------- ------ ---- ------- ------ ---- ---- ----- ----
TOTAL AVE INT-BEARING LIABILITIES 710,305 8,199 4.62% 672,673 6,024 3.58% 399 1,661 115
OTHER LIABILITIES AND STOCKHOLDER EQTY
NON INTEREST BEARING DEPOSITS 108,687 104,044
OTHER LIABILITIES 7,460 6,196
SHAREHOLDER EQUITY 84,720 75,007
------- --------
TOTAL LIABS & SHAREHOLDER EQTY 911,172 857,920
======= ========
NET INTEREST INCOME 8,306 3.16% 8,033 3.46%
===== =====
NET YIELD ON INTEREST EARNING ASSETS 3.91% 4.02%
(1) Investments are at amortized cost. The valuation from amortized cost to market for available-for-sale
is shown separately.
(2) Yields are not on a tax equivalent basis.
(3) Average volume includes nonaccrual loans.
-17-<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION AND SUBSIDIARIES
GAP TABLE
September 30, 1995
(In thousands)
Year 1 Year 2 Year 3 Year 4 Year 5 Years > 5 TOTAL
<S> <S> <C> <C> <C> <C> <C> <C> <C>
Interest bearing deposits Maturity 196 0 0 0 0 0 196
in other banks Rate 7.37% 0.00% 0.00% 0.00% 0.00% 0.00% 7.37%
Repricing 196 0 0 0 0 0 196
Rate 7.37% 0.00% 0.00% 0.00% 0.00% 0.00% 7.37%
Securities Maturity 114,288 61,394 22,048 34,110 5,594 80,612 318,046
Rate 5.55% 6.15% 6.90% 6.25% 6.24% 6.26% 6.03%
Repricing 130,206 61,008 21,636 33,670 5,123 66,403 318,046
Rate 5.51% 6.15% 6.90% 6.24% 6.20% 6.52% 6.03%
Fed funds sold Maturity 20,350 0 0 0 0 0 20,350
Rate 5.38% 0.00% 0.00% 0.00% 0.00% 0.00% 5.38%
Repricing 20,350 0 0 0 0 0 20,350
Rate 5.38% 0.00% 0.00% 0.00% 0.00% 0.00% 5.38%
Loans net of unearned income Maturity 150,164 83,627 72,996 83,683 28,731 111,534 530,735
Rate 9.26% 8.93% 8.71% 8.59% 8.68% 8.33% 8.80%
Repricing 226,072 63,809 59,671 65,959 25,044 90,180 530,735
Rate 9.24% 8.76% 8.63% 8.46% 8.61% 8.15% 8.80%
Interest bearing deposits Maturity 264,808 106,781 77,887 37,473 16,341 172,043 675,333
Rate 5.54% 4.53% 5.36% 4.39% 3.44% 3.10% 4.62%
Repricing 349,588 81,347 66,018 32,724 14,204 131,452 675,333
Rate 5.15% 4.75% 5.36% 4.39% 4.10% 2.88% 4.62%
Short-term borrowings Maturity 45,881 0 0 0 0 0 45,881
Rate 5.97% 0.00% 0.00% 0.00% 0.00% 0.00% 5.97%
Repricing 45,881 0 0 0 0 0 45,881
Rate 5.97% 0.00% 0.00% 0.00% 0.00% 0.00% 5.97%
Long-term borrowings Maturity 3,838 2,750 0 0 0 0 6,588
Rate 6.50% 6.67% 0.00% 0.00% 0.00% 0.00% 6.57%
Repricing 3,838 2,750 0 0 0 0 6,588
Rate 6.50% 6.67% 0.00% 0.00% 0.00% 0.00% 6.57%
Maturing gap (29,529) 35,490 17,157 80,320 17,984 20,103 141,525
Repricing gap (22,483) 40,720 15,289 66,905 15,963 25,131 141,525
Cumulative maturing gap (29,529) 5,961 23,118 103,438 121,422 141,525
Cumulative repricing gap (22,483) 18,237 33,526 100,431 116,394 141,525
ASSUMPTIONS: Principle payments of amortized loans and securities are based on the contractual schedule or assumed
average life. Maturing and repricing of interest bearing liability balances that have no stated maturity (N.O.W.,
Money Market and Savings) are treated as 10-20% payable in the first year, 15-30% payable in the second year, 10-20%
payable in the third year, 10% payable in the fourth year, 5-10% payable in the fifth year, and 15-45% payable in
greater than 5 years. Maturity and repricing of interest earning assets with no stated maturity are treated as due
in the greater than 5 year category. Quoted rates are average weighted rates. Subtotals may not foot due to rounding.
</TABLE>
-18-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibit and Reports on Form 8-K
(a) Exhibit
None required to be filed
(b) Reports on Form 8-K
No Form 8-K was required to be filed during the quarter ended
September 30, 1995 as there were no events or transactions to
be reported.
-19-
<PAGE>
NORTHERN ILLINOIS FINANCIAL CORPORATION
SIGNATURES
Pursuant to the requirements 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.
NORTHERN ILLINOIS FINANCIAL CORPORATION
(Registrant)
November 10, 1995 /s/ Robert W. Hinman
Date Robert W. Hinman, President
November 10, 1995 /s/ David Albright
Date David Albright, Chief Financial Officer
-20-
<TABLE> <S> <C>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 25877000
<INT-BEARING-DEPOSITS> 196000
<FED-FUNDS-SOLD> 20350000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 248372000
<INVESTMENTS-CARRYING> 71527000
<INVESTMENTS-MARKET> 69674000
<LOANS> 530735000
<ALLOWANCE> 5652000
<TOTAL-ASSETS> 927646000
<DEPOSITS> 778594000
<SHORT-TERM> 45881000
<LIABILITIES-OTHER> 9156000
<LONG-TERM> 6588000
<COMMON> 16697000
0
0
<OTHER-SE> 0
<TOTAL-LIABILITIES-AND-EQUITY> 927646000
<INTEREST-LOAN> 33354000
<INTEREST-INVEST> 13587000
<INTEREST-OTHER> 602000
<INTEREST-TOTAL> 47543000
<INTEREST-DEPOSIT> 20690000
<INTEREST-EXPENSE> 22941000
<INTEREST-INCOME-NET> 24602000
<LOAN-LOSSES> 154000
<SECURITIES-GAINS> 1629000
<EXPENSE-OTHER> 21187000
<INCOME-PRETAX> 7406000
<INCOME-PRE-EXTRAORDINARY> 7406000
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 7406000
<EPS-PRIMARY> 2.49
<EPS-DILUTED> 2.49
<YIELD-ACTUAL> 7.66
<LOANS-NON> 0
<LOANS-PAST> 0
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 6050000
<CHARGE-OFFS> 754000
<RECOVERIES> 202000
<ALLOWANCE-CLOSE> 5652000
<ALLOWANCE-DOMESTIC> 5652000
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
