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, 1995
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
-------------------- --------------------------
Commission file number: 0-15123
FIRST NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
Illinois 31-1182986
- ------------------------ ----------------------------
(State of Incorporation) (IRS Employer
Identification No.)
78 North Chicago Street, Joliet, Illinois 60432
- ----------------------------------------- ----------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (815) 726-4371
----------------------------
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
- ------------------------------ ----------------------------
Common Stock, $10.00 par value None
Securities registered pursuant to Section 12(g) of None
the Act:
----------------------------
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
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 14,
1996 was $94,840,356. Based on the last reported price of an actual transaction
in registrant's Common Stock on March 14, 1996, 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 14, 1996 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 Parts I and III of this Annual Report on
Form 10-K portions of the information contained in the registrant's proxy
statement for its annual meeting of stockholders to be held March 14, 1996, to
the extent indicated herein.
TABLE OF CONTENTS
Page
PART I
ITEM 1. Business.......................................................
ITEM 2. Properties.....................................................
ITEM 3. Legal Proceedings............................................
ITEM 4. Submission of Matters to a Vote of Security Holders............
PART II
ITEM 5. Market for the Company's Common Stock and Related
Stockholder Matters.............................................
ITEM 6. Selected Financial Data.........................................
ITEM 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations............................
ITEM 8. Financial Statements and Supplementary Data.....................
ITEM 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure Matters....................
PART III
ITEM 10. Directors and Executive Officers of the Registrant............
ITEM 11. Executive Compensation........................................
ITEM 12. Security Ownership of Certain Beneficial Owners and
Management....................................................
ITEM 13. Certain Relationships and Related Transactions................
PART IV
ITEM 14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K.........................................
SIGNATURES ............................................................
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 bank with its main office located at 78 North
Chicago Street, Joliet, Illinois 60431. 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 seven 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. Banchares 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.
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 Deposits and Loans
No material portion of any of 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, 1995, the Banks had 267 full-time and 96 part-time employees.
Services
The Banks offer varied savings and certificate of deposit options, commercial
lending, consumer lending, along with regular checking and savings services.
Supervision and Regulation
General
The growth and earnings performance of the Company can be affected not only by
management decisions and general economic conditions, but also by the policies
of various governmental regulatory authorities including, but not limited to,
the Office of the Comptroller of the Currency (the "OCC"), the Board of
Governors of the Federal Reserve System (the "FRB"), the FDIC, the Illinois
Commissioner of Banks and Trust Companies (the "Commissioner"), the Internal
Revenue Service and state taxing authorities and the Securities and Exchange
Commission (the "SEC"). Financial institutions and their holding companies are
extensively regulated under federal and state law. The effect of such statutes,
regulations and policies can be significant, and cannot be predicted with a high
degree of certainty.
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 August 8, 1995, the FDIC amended its regulations to change the range of
deposit insurance assessments charged to members of the Bank Insurance Fund (the
"BIF"), such as FNB, SWSB, BOL and Plano (collectively, the "Banks"), from the
then-prevailing range of 0.23% to 0.31% of deposits, to a range of 0.04% to
0.31% of deposits. Additionally, because the change in BIF-assessments was
applied retroactively to June 1, 1995, BIF-member institutions, including the
Banks, received a refund of the difference between the amount of assessments
previously paid at the higher assessment rates for the period from June 30, 1995
through September 30, 1995, and the amount that would have been paid for that
period at the new rates. In the case of the Banks, this refund totalled
$339,428. The FDIC did not, however, change the assessment rates charged to
members of the Savings Association Insurance Fund (the "SAIF"), and SAIF-insured
institutions continue to pay assessments ranging from 0.23% to 0.31% of
deposits.
The deposit insurance assessments paid by BIF-member institutions will decrease
further in calendar year 1996. On November 14, 1995, the FDIC reduced the
deposit insurance assessments for BIF-member institutions by four basis points.
As a result, the range of BIF assessments for the semi-annual assessment period
commencing January 1, 1996 will be between 0% and 0.27% of deposits. BIF-member
institutions which qualify for the 0% assessment category will, however, still
have to pay the $1000 minimum semi-annual assessment required by federal
statute.
The FDIC was able to change the range for BIF-member deposit insurance
assessments to their current levels because the ratio of the insurance reserves
of the BIF to total BIF-insured deposits exceeds the statutorily designated
reserve ratio of 1.25%. Because the SAIF does not meet this designated reserve
ratio, the FDIC is prohibited by federal law from reducing the deposit insurance
assessments charged to SAIF-member institutions to the same levels currently
charged BIF-member institutions. Legislative proposals pending before the
Congress would recapitalize the SAIF to the designated reserve ratio by imposing
a special assessment against SAIF-insured institutions. In conjunction with the
proposed recapitalization of the SAIF, legislation has also been introduced in
the Congress that would, among other things, require federal thrift institutions
to convert to state or national banks and merge the BIF and the SAIF into a
single deposit insurance fund administered by the FDIC. At this time, it is not
possible to predict whether, or in what form, any such legislation will be
adopted or the impact, if any, such legislation would have on the Company and
the Banks.
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 Bank and to commit resources to support the
Bank 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 periodic reports of its operations and such additional
information as the FRB may require. Because SWSB, BOL and Plano (collectively,
the "State Banks") are chartered under Illinois law, the Company is also subject
to supervision and regulation by the Commissioner under the Illinois Bank
Holding Company Act.
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 bank holding company; or
(iii) merging or consolidating with another bank holding company.
Prior to September 29, 1995, the BHCA prohibited the FRB from approving any
direct or indirect acquisition by a bank holding company of more than 5% of the
voting shares, or of all or substantially all of the assets, of a bank located
outside of the state in which the operations of the bank holding company's
banking subsidiaries are principally located unless the laws of the state in
which the bank to be acquired is located specifically authorize such an
acquisition. Pursuant to amendments to the BHCA which took effect September 29,
1995, the FRB may now allow a bank holding company to acquire banks located in
any state of the United States without regard to geographic restrictions or
reciprocity requirements imposed by state law, but subject to certain
conditions, including limitations on the aggregate amount of deposits that may
be held by the acquiring holding company and all of its insured depository
institution affiliates.
The BHCA also prohibits the Company, with certain exceptions noted below, 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, except that bank holding companies may
engage in, and may 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 does not
place territorial restrictions on the activities of non-bank subsidiaries of
bank holding companies.
Federal legislation also prohibits the 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 the
acquisition of 10% of the outstanding shares of a bank or bank holding company.
Capital Requirements. The FRB uses capital adequacy guidelines in its
examination and regulation of bank holding companies. If capital falls below
minimum guideline levels, a bank holding company may, among other things, 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 (which consists principally of
stockholders' equity). 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.
The risk-based and leverage standards presently used by the FRB 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, 1995, 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 7.6%.
Dividends. The FRB has issued a policy statement on the payment of cash
dividends by bank holding companies. In the policy statement, the FRB expressed
its view that a bank holding company experiencing earnings weaknesses should not
pay cash dividends exceeding its net income or which could only be funded in
ways that weakened 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 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 distributions 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. FNB is a national bank, chartered by the OCC under the National Bank
Act. The deposit accounts of the Bank are insured by the BIF of the FDIC, and it
is a member of the Federal Reserve System. As a BIF-insured national bank, the
Bank is subject to the examination, supervision, reporting and enforcement
requirements of the OCC, as the chartering authority for national banks, and the
FDIC, as administrator of the BIF.
The State Banks are Illinois-chartered banks, the deposit accounts of which are
also insured by the BIF of the FDIC. As BIF-insured, Illinois-chartered banks,
the State Banks are subject to the examination, supervision, reporting and
enforcement requirements of the Commissioner, as the chartering authority for
Illinois banks, and 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 amount each institution
pays for FDIC deposit insurance coverage is determined in accordance with 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 level of capital and supervisory evaluation. 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. For the semi-annual assessment period ended December 31, 1995, BIF
assessments ranged from 0.04% to 0.31% of deposits. Risk classification of all
insured institutions is made by the FDIC for each semi-annual assessment period.
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.
Capital Requirements. Under the regulations of the OCC (in the case of FNB) and
the FDIC (in the case of the State Banks), the Banks are subject to 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.
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, the regulations of the
OCC provide that additional capital may be required to take adequate account of
the risks posed by concentrations of credit, nontraditional activities and the
institution's ability to manage such risks. Additionally, on August 2, 1995, the
federal banking regulators, including the OCC, published amendments to their
respective risk-based capital standards designed to take into account interest
rate risk ("IRR") exposure. The amendments provide that a bank's exposure to
declines in the economic value of its capital due to changes in interest rates
will be among the factors considered by the agencies in evaluating a bank's
capital adequacy. Management does not anticipate that this amendment will
adversely affect the ability of the Banks to maintain compliance with applicable
capital requirements.
The IRR amendments do not establish a system for measuring IRR exposure.
However, concurrently with the adoption of the amendments, the agencies issued a
proposed joint policy statement setting out a framework that would be used to
measure the IRR exposure of individual banks. The proposed policy statement
would generally require banks to quantify their level of IRR exposure using a
measurement system developed by the regulators that weights a bank's assets,
liabilities and off-balance sheet positions by risk factors designed to reflect
the approximate change in each instrument's value that would result from 200
basis point changes in interest rates. The level of IRR exposure reflected by
this measurement process, as well as the level of IRR exposure reflected by a
bank's own internal measurement system, would then be considered by the agencies
in assessing a bank's capital adequacy. Although it is not presently possible to
predict whether, or in what form, the proposed policy statement will be adopted,
management does not anticipate that the adoption of a policy statement
substantially in the form proposed would have a material adverse effect on the
ability of the Banks to maintain compliance with applicable capital
requirements.
During the year ended December 31, 1995, none of the Banks was required by
regulatory authorities to maintain capital in an amount in excess of the minimum
regulatory requirements. As of December 31, 1995, each of the Banks exceeded its
minimum regulatory capital requirements, as follows:
Risk-Based Capital Ratio Leverage Ratio
------------------------ --------------
FNB 14.7% 8.7%
SWSB 14.5% 8.4%
BOL 14.5% 8.6%
Plano 13.8% 8.7%
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," as defined by regulation. 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.
Dividends. The National Bank Act imposes limitations on the amount of dividends
that a national bank, such as FNB, may pay without prior regulatory approval.
Generally, the amount is limited to the national bank's current year's net
earnings plus the adjusted retained earnings for the two preceding years.
Under the Illinois Banking Act, Illinois-chartered banks, such as the State
Banks, may not pay, without prior regulatory approval, dividends in excess of
their adjusted profits.
The payment of dividends by any financial institution or its holding company is
affected by the requirement to maintain adequate capital pursuant to applicable
capital adequacy guidelines and regulations. As described above, each of the
Banks exceeded its minimum capital requirements under applicable guidelines as
of December 31, 1995. As of December 31, 1995, approximately $9,116,000 million
was available to be paid as dividends to the Company by the Banks.
Insider Transactions. The Banks are subject to certain restrictions imposed by
the Federal Reserve Act on any 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 each of the
Banks to its 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. On July 10, 1995, the federal banking
regulators, including the OCC and the FDIC, published final guidelines
establishing operational and managerial standards to promote the safety and
soundness of federally insured depository institutions. The guidelines, which
took effect on August 9, 1995, establish standards for internal controls,
information systems, internal audit systems, loan documentation, credit
underwriting, interest rate exposure, asset growth, and compensation, fees and
benefits. In general, the guidelines prescribe the goals to be achieved in each
area, and each institution will be 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 institution's primary federal
regulator 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 standards is of such severity that it could threaten the safe
and sound operation of the institution. Failure to submit an acceptable
compliance plan, or failure to adhere to a compliance plan that has been
accepted by the appropriate regulator, would constitute grounds for further
enforcement action. The federal banking agencies have also published for comment
proposed asset quality and earnings standards which, if adopted, would be added
to the safety and soundness guidelines. This proposal, like the final
guidelines, would establish the goals to be achieved with respect to asset
quality and earnings, and each institution would be responsible for establishing
its own procedures to meet such goals.
State Bank Activities. Under federal law, as implemented by FDIC regulations,
FDIC insured state banks (such as the State Banks) 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, as
implemented by FDIC regulations, also prohibits 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 the State Banks.
Branching Authority. Illinois-chartered banks, such as the State Banks, have the
authority under Illinois law to establish branches any where in the State of
Illinois, subject to receipt of all required regulatory approvals. Federal law
grants the same branching authority to national banks, such as FNB, which are
headquartered in Illinois. 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 provisions of the
Riegle-Neal Act by enacting appropriate legislation prior to June 1, 1997.
Illinois has enacted legislation permitting interstate bank mergers beginning on
June 1, 1997.
Restrictions on Resale of First National Debentures
by Affiliates
Under Rule 145 of the 1933 Act, certain persons who receive First National
Debentures pursuant to the Community Bank of Plano merger and who were deemed to
be "affiliates" of Community Bank of Plano are limited in their right to resell
the debenture so received. The term "affiliate" is defined to include any person
who, directly or indirectly, controls, or is controlled by, or is under common
control with Community Bank of Plano at the time the merger was submitted to
shareholders' vote. Each affiliate of Community Bank of Plano (e.g. any director
or executive officer or shareholder of Community Bank of Plano who beneficially
owned a substantial number of outstanding common shares of Community Bank of
Plano) who desires to resell the First National Debenture received in the merger
must sell such First National Debenture either pursuant to an effective
Registration Statement or in accordance with the applicable provisions of Rule
145(d) under the 1933 Act.
Rule 145(d) requires that persons deemed to be affiliates resell their First
National Debenture pursuant to certain of the requirements of Rule 144 under the
1933 Act if such First National Debenture is sold within the first two years
after the receipt thereof. After two years if such person is not a former
affiliate of First National and First National is current in the filing of its
periodic securities law reports, a former affiliate of the Community Bank of
Plano may freely resell the First National Debenture received in the Merger
without limitation. After three years from the issuance of the First National
Debenture, if such person is not an affiliate of First National at the time of
sale or for at least three months prior to such sale, such person may freely
resell such First National Debenture, without limitation, regardless of the
status of First National's periodic securities law reports.
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
additional facility in Minooka at 207 Mondamin Street, one additional facility
in Channahon at 23841 West Eames and one additional facility in Shorewood at
Route 52 and Brookshore. 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 Onwed
FNB Midland and Campbell, Joliet 4,200 Owned
FNB Black and Essington Rds, 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
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
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 incidential 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.
Item 6. Selected Financial Data.
Financial Highlights
(Table dollar amounts in thousands except per share data)
1995 1994 1993 1992 1991
- ---------------------------------------------------- ---------- --------- ---------- ----------- ----------
Statement of income:
Net interest income ............................. $ 29,451 $ 26,312 $ 25,096 $ 23,447 $ 19,906
Provision for loan losses ....................... 1,191 830 687 1,153 681
Net non-interest expense ........................ 21,419 18,540 17,730 15,884 14,492
Income before income taxes ...................... 11,965 10,780 10,449 9,893 8,059
Net income ...................................... 8,211 7,507 7,366 6,826 5,805
Balance sheet-end of year balances
Securities ...................................... 202,711 189,874 190,872 170,778 145,226
Loans, net ...................................... 427,917 418,918 333,243 295,810 301,362
Total assets .................................... 749,990 692,642 631,786 594,000 553,671
Deposits ........................................ 605,137 556,162 491,014 477,388 443,619
Stockholders' equity ............................ 66,425 61,657 57,442 53,118 49,332
Balance sheet-average balances:
Securities ...................................... 189,605 192,890 184,559 158,303 146,529
Loans, net ...................................... 426,523 371,442 303,578 293,216 284,278
Total assets .................................... 729,801 640,388 604,202 577,008 534,510
Deposits ........................................ 577,093 505,553 477,938 471,494 446,424
Stockholders' equity ............................ 63,741 59,090 55,068 49,547 47,604
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 ......................................... 54.63 50.71 47.24 43.69 40.57
Earnings ........................................... 6.75 6.17 6.06 5.61 4.77
Cash dividends ..................................... 2.75 2.68 2.50 2.50 1.91
Selected financial ratios:
Average net loans to average deposits ........... 73.91% 73.47% 63.52% 62.19% 63.68%
Return on average assets ........................ 1.13 1.17 1.22 1.18 1.09
Return on average equity ........................ 12.88 12.70 13.38 13.78 12.19
Net interest margin (2) ......................... 4.62 4.72 4.78 4.73 4.38
Average equity to average assets ................ 8.73 9.23 9.11 8.59 8.91
Dividend payment ratio .......................... 40.73 43.40 41.29 44.53 40.00
<FN>
(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%.
</FN>
The Company has no loans or investment concentrations nor are there any foreign
outstandings.
Holders
As of December 31, 1995, the Company had 1,664 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 1996, the
Subsidiary Banks have approximately $9,116,000, plus their net earnings in 1996,
available for paying dividends to First National.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations.
Introduction
First National Bancorp, Inc. (the Company) is a multi-bank holding company
serving primarily the Will, Grundy and Kendall Counties, Illinois area. First
National Bancorp, Inc. originated with the merger of First National Bank of
Joliet on September 30, 1986. While the principal office of the Company and
First National Bank 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. (Community Bank of Plano) (45 miles
west of Chicago) was acquired in October, 1994. At December 31, 1995, the
Company with its four wholly-owned banking subsidiaries now has fourteen
customer banking locations and total assets of $749,990,000. These acquisitions
are part of the Company'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, 1995 the Company earned $8,211,000 or $6.75 per
share as compared to $7,507,000 or $6.17 per share and $7,366,000 or $6.06 per
share for the years ended December 31, 1994 and December 31, 1993, respectively.
On a percentage basis net income for 1995 increased by 9.38% over that of 1994
while a 1.91% increase was achieved in 1994 over reported net income for 1993.
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 returns on average assets and average equity for
the three years ended December 31, 1995 are as follows:
1995 1994 1993
- ------------------------------------------------------------------------------
Return on average assets 1.13% 1.17% 1.22%
Return on average equity 12.88 12.70 13.38
Net Interest Income
Net interest income, which is the difference between the interest and fees
earned on loans and investments and the interest paid on deposits and borrowed
funds, is the principal source of income for the Company. Net interest income is
influenced by changes in the volume and yield on interest 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 results through
managing the 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 margin expressed as a percentage of
average interest earning assets was 4.62% for 1995 as compared to 4.72% in 1994
and 4.78% in 1993. Net interest income margin for the year ended December 31,
1995 increased by $3,075,000 as compared to 1994. The increase in interest
earning assets net of interest bearing liabilities produced $2,205,000 of the
net interest income margin increase with the remainder due to an increase in
interest rates.
As the following table illustrates, the Company has maintained a high level of
interest earning assets to total average assets and to interest bearing
liabilities. The ratio of time deposits and borrowed funds to total liabilities
has fluctuated as shown.
1995 1994 1993
- ------------------------------------------------------------------------------
Interest earning assets to total assets 0.91 0.91 0.92
Interest earning assets to interest bearing
liabilities 1.18 1.20 1.20
Time deposits and borrowed funds to total
liabilities 0.46 0.42 0.42
In the three years ended December 31, 1995 the Company achieved a $78,633,000
increase in average interest earning assets. Approximately $55,081,000 or 70% of
this increase was due to growth in the lending area. The following table
illustrates the Company's average balance sheets and interest rates for the last
three years. The average balance sheet amounts for loans include balances for
non-performing loans.
Average
Balance Interest
Sheets Rates
------------------------------ -----------------------
1995 1994 1993 1995 1994 1993
-------- -------- -------- ----- ----- -----
Interest Earning Assets:
Interest-bearing deposits in other
financial institutions ....................... $ 70 $ 6,014 $ 23,364 4.29% 3.56% 3.43%
Taxable securities .............................. 149,884 150,036 141,620 6.29 5.45 6.02
Tax-exempt securities ........................... 39,721 42,854 42,939 8.93 8.96 9.42
Federal funds sold .............................. 47,572 14,791 41,988 5.89 3.78 3.00
Loans ........................................... 426,523 371,442 303,578 8.92 8.23 8.77
--------- -------- --------
Total interest earning assets .............. 663,770 585,137 553,489 8.11% 7.41% 7.45%
-------- -------- -------- ------ ------ ------
Noninterest Earning Assets:
Cash and due from banks ......................... 30,469 26,960 25,749
Premises & equipment ............................ 14,861 12,900 11,450
Other assets and intangibles .................... 20,701 15,391 13,514
-------- -------- --------
Total noninterest earning assets ........... 66,031 55,251 50,713
-------- -------- --------
Total assets ............................... $729,801 $640,388 $604,202
======== ======== ========
Interest Bearing Liabilities:
Deposits:
Demand .................................... $ 99,827 $ 91,237 $ 86,818 2.34% 2.18% 2.39%
Savings ................................... 153,661 152,383 145,815 2.52 2.48 2.77
Time ...................................... 224,427 170,939 161,904 5.35 4.21 4.05
Short-term borrowings ........................ 74,552 69,647 66,210 5.65 3.77 2.95
Long-term debt ............................... 7,966 2,235 1,812 8.56 7.16 7.67
-------- -------- --------
Total interest bearing liabilities....... 560,433 486,441 462,559 4.12% 3.24% 3.19%
-------- -------- -------- ----- ----- -----
Noninterest Bearing Liabilities:
Demand deposits .............................. 99,178 90,994 83,401
Other liabilities ............................ 6,449 3,863 3,174
Stockholders' equity ............................ 63,741 59,090 55,068
-------- -------- --------
Total liabilities and
stockholders' equity ................ $729,801 $640,388 $604,202
======== ======== ========
Net interest spread ............... 3.99% 4.17% 4.26%
===== ===== =====
Net interest margin to
average interest earning
assets........................... 4.62% 4.72% 4.78%
===== ===== =====
The following table presents the components of the Company's net interest margin
(tax equivalent basis) for the three years ended December 31, 1995:
1995 1994 1993
------- ------- -------
Interest Income
Interest earning assets:
Interest-bearing deposits in other financial institutions ................... $ 3 $ 214 $ 801
Taxable securities .......................................................... 9,428 8,177 8,524
Tax-exempt securities ....................................................... 3,549 3,841 4,043
Federal funds sold .......................................................... 2,800 559 1,258
Loans ....................................................................... 38,027 30,585 26,615
------- ------- -------
Total ....................................................................... 53,807 43,376 41,241
------- ------- -------
Interest Expense
Interest bearing liabilities:
Demand deposits ............................................................. 2,338 1,991 2,074
Savings deposits ............................................................ 3,872 3,778 4,037
Time deposits ............................................................... 12,012 7,205 6,565
Short-term borrowings ....................................................... 4,210 2,624 1,956
Long-term debt .............................................................. 682 160 139
------- ------- -------
Total ....................................................................... 23,114 15,758 14,771
------- ------- -------
Net interest margin ............................................................ $30,693 $27,618 $26,470
======= ======= =======
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 is determined through a historical evaluation of the risk inherent in
the present loan portfolio, the overall level of loans outstanding and the
current level of net charge-offs. On December 31, 1995, the allowance for loan
losses was at $3,931,000 or .91% of outstanding loans. The provision for loan
losses amounted to $1,191,000 for 1995 as compared to $830,000 and $687,000 in
1994 and 1993, respectively.
One measurement used by management in assessing the risk inherent in the loan
portfolio is the level of non-performing loans. Non-performing 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 due the subsidiary banks, at December 31 for each of the
past five years are as follows:
Non-Performing Assets
----------------------------------------
1995 1994 1993 1992 1991
------ ------ ------ ------ -------
Non-accrual loans ................... $ 169 $1,084 $ 449 $ 917 $1,045
Past due loans ...................... 981 985 1,168 1,034 1,304
Other real estate ................... 444 444 534 498 426
------ ------ ------ ------ ------
$1,594 $2,513 $2,151 $2,449 $2,775
====== ====== ====== ====== ======
Total non-performing assets to total
stockholders' equity ............. 2.40% 4.08% 3.74% 4.61% 5.63%
Total non-performing assets to
total assets ..................... 0.21 0.36 0.34 0.41 0.50
For the five years presented, there were no restructured loans or leases to be
reported.
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 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 and total loan dollars outstanding.
As of December 31, 1995 management has identified potential problem loans by
type of loan. This includes the non-accrual and past due loans listed above in
Non-Performing Assets.
Commercial $ 1,716
Agricultural 2,179
Real estate, mortgage 353
Consumer 389
--------
$ 4,637
========
Other Income
Other income consists primarily of service charges on customer deposit accounts
and fees earned on trust department and farm management services. A portion of
the increase in 1995 is the result of gains in 1995 from the sale of student
loans and other real estate owned of $115,000 and $53,000, respectively. A
comparison of the amount and relative significance of other income for the last
three years is as follows:
1995 1994 1993
------ ------ ------
Other income ................................ $5,124 $3,838 $3,770
Ratio of other income to income before
income taxes ............................. 43% 36% 36%
Other Expenses
Salaries and employee benefits, which represent the largest component of other
expenses, increased by $1,215,000 or 13.3% in 1995 primarily due to the
inclusion of the salaries and employee benefits of the Community Bank of Plano
for a full year, additional employees at the new branch banking location in
Shorewood and general pay increases of 4%. During 1995 the FDIC lowered deposit
insurance rates which reduced the Company's premium expense by $555,000 from the
expense incurred in 1994. Details of other expenses for the three years ended
December 31, 1995 are presented in the following schedule:
1995 1994 1993
------- ------- -------
Salaries and employee benefits .................... $10,372 $ 9,157 $ 8,863
Occupancy expense ................................. 1,548 1,387 1,269
Data processing ................................... 945 818 799
Equipment expense ................................. 1,356 1,002 988
FDIC insurance and bank examination assessments ... 893 1,249 1,192
Printing, stationery and supplies ................. 598 461 469
Postage ........................................... 391 342 368
Amortization of intangibles ....................... 1,070 553 469
All other expenses ................................ 4,246 3,571 3,313
------- ------- -------
$21,419 $18,540 $17,730
======= ======= =======
Applicable Income Taxes
The Company's income tax expense was $3,754,000 for 1995 compared to $3,273,000
for 1994 and $3,083,000 in 1993. The increases in 1995 and 1994 are primarily
due to increased gross income.
The Financial Accounting Standards Board Statement No. 109, Accounting for
Income Taxes requires that deferred tax assets be recognized for deductible
temporary differences and operating loss and tax credit carryforwards and the
deferred tax liabilities be recognized for taxable temporary differences.
Temporary differences are the differences between the reported amounts of assets
and liabilities and their tax bases.
Liquidity
The primary objectives of the Company's asset/liability management program are
to achieve the optimum 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. The
interest rates offered during 1995 caused an increase in deposit dollars placed
in time certificates. Management continually monitors the liquidity requirements
and rate sensitivity of its short-term source of funds. The accompanying
schedule illustrates the Company's rate sensitive asset and liability position
("GAP") by period and on a cumulative basis at December 31, 1995.
Less Than 90 To 1 to 5 Over
90 Days 365 Days Years 5 Years
--------- --------- -------- --------
Rate sensitive assets:
Current:
Securities ..................... $ 17,188 $ 91,399 $ 78,239 $ 15,885
Federal funds sold ............. 41,537 0 0 0
Loans .......................... 98,099 36,862 175,892 120,995
-------- --------- -------- --------
156,824 128,261 254,131 136,880
Cumulative ........................ 156,824 285,085 539,216 676,096
Rate sensitive liabilities:
Current:
Savings ......................... 152,128 0 0 0
Time deposits ................... 81,684 101,965 55,649 3
Other deposits and liabilities .. 157,279 7,915 6,026 925
-------- -------- -------- --------
391,091 109,880 61,675 928
Cumulative ......................... 391,091 500,971 562,646 563,574
"GAP":
Amount:
Current ........................ (234,267) 18,381 192,456 135,952
Cumulative ..................... (215,886) (23,430) 112,522
Percentage of total rate sensitive
assets:
Current ........................ (149.38)% 14.33% 75.73% 99.32%
Cumulative ..................... (75.73)% (4.35)% 16.64%
Included in "Less Than 90 Days" rate sensitive liabilities is $152,128,000 of
savings deposits which are more core deposit in nature and historically were not
classified as rate sensitive. 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.
The Company manages its GAP position by taking into account actual prepayment
experience on its installment and mortgage loan portfolios.
At December 31, 1995 the securities portfolio included $2,498,000 in gross
unrealized gains and $603,000 in gross unrealized losses on securities intended
to be held to maturity. Such amounts are not expected to have a material effect
on future earnings, beyond the usual amortization of acquisition premium or
discount, because securities are intended to be held to maturity. Available for
sale securities included $71,000 of gross unrealized gains and $221,000 of gross
unrealized losses and are not expected to have a material effect on future
earnings.
Capital Adequacy
In 1995 stockholders' equity increased by $4,768,000 to $66,425,000. The amounts
comprising this net increase were an addition for net earnings of $8,211,000
with decreases for dividends paid to stockholders of $3,344,000 and a $99,000
change in unrealized losses on securities available for sale. At December 31,
1995 stockholders' equity represented 8.86% of total assets compared to the year
earlier position of 8.90%.
Under rules adopted by all the federal bank regulatory agencies, financial
institutions are subject to "risk based" capital measurements. These regulations
establish minimum levels for "Tier 1 Capital", "Total Capital" and the "Leverage
Ratio". The following table presents the Company's actual Tier 1, Total Capital
and Leverage Ratio at December 31, 1995. For comparison purposes, the minimal
required amounts and ratios are also reported.
Tier 1:
Amount, actual ....................................... $56,203
Amount, minimum required ............................. 18,566
Ratio, actual ........................................ 12.11%
Ratio, minimum required .............................. 4.00
Total capital:
Amount, actual ....................................... $60,134
Amount, minimum required ............................. 37,132
Ratio, actual ........................................ 12.96%
Ratio, minimum required .............................. 8.00
Leverage ratio:
Actual ............................................... 7.56
Minimum required ..................................... 3.00
Effects of Inflation
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 than normal. The Company
generally is able to offset the higher cost of funds predominant in periods of
higher inflation with increased yields on loans and investments. When inflation
rates drop, and interest rates follow that pattern, the Company's cost of funds
and interest earned on assets are likely to be reduced proportionately.
Assets such as bank 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
FASB issued Statement 122 regarding accounting for mortgage servicing rights is
effective for years beginning after December 15, 1995. Retained mortgage
servicing rights for loans sold in the secondary markets after December 31, 1995
are to be valued and capitalized. The Company does not expect Statement 122 to
have a material impact on the financial statements.
Item 8. Financial Statements and Supplementary Data.
Financial Statements
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
- --------------------------------------------------------------------------------
FINANCIAL STATEMENTS
Consolidated balance sheets
Consolidated statements of income
Consolidated statements of changes in stockholders' equity
Consolidated statements of cash flows
Notes to consolidated financial statements
Supplementary data
- --------------------------------------------------------------------------------
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Stockholders
First National Bancorp, Inc.
and Subsidiaries
Joliet, Illinois
We have audited the accompanying consolidated balance sheets of First National
Bancorp, Inc. and Subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in stockholders' equity, and cash
flows for the years ended December 31, 1995, 1994 and 1993. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits 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 audits provide a reasonable basis for our opinion.
In our opinion, the 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, 1995 and 1994, and the results
of their operations and their cash flows for the years ended December 31, 1995,
1994 and 1993, in conformity with generally accepted accounting principles.
/s/ McGladrey & Pullen, LLP
---------------------------
Joliet, Illinois
January 26, 1996
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 1995 and 1994
(In Thousands)
ASSETS 1995 1994
- --------------------------------------------------------------------------------
Cash and due from banks .................................. $ 42,979 $ 42,832
Interest-bearing deposits in other financial
institutions 0 4,198
Securities available for sale ............................ 17,337 0
Securities held to maturity .............................. 185,374 189,874
-------- --------
202,711 189,874
-------- --------
Federal funds sold ....................................... 41,537 0
Loans:
Commercial ............................................ 79,967 91,120
Agricultural .......................................... 8,815 8,485
Real estate, mortgage ................................. 210,631 184,795
Consumer .............................................. 134,344 141,611
-------- --------
433,757 426,011
Less unearned discount ................................ (1,909) (4,011)
-------- --------
431,848 422,000
Less allowance for loan losses ........................ (3,931) (3,082)
-------- --------
427,917 418,918
-------- --------
Premises and equipment, net .............................. 15,579 14,660
Accrued interest and other assets ........................ 7,687 9,510
Intangibles, net ......................................... 11,580 12,650
-------- --------
Total Assets ............................... $749,990 $692,642
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits:
Demand, non-interest bearing ....................... $114,035 $108,177
NOW accounts ....................................... 58,027 51,944
Money market accounts .............................. 41,646 43,796
Savings ............................................ 152,128 151,558
Time deposits, $100,000 and over ................... 34,781 25,552
Other time deposits ................................ 204,520 175,135
-------- --------
Total Deposits ............................. 605,137 556,162
Short-term borrowings ................................. 64,771 59,614
Long-term debt ........................................ 7,701 8,326
Accrued interest and other liabilities ................ 5,956 6,883
-------- --------
Total Liabilities .......................... 683,565 630,985
-------- --------
Commitments and Contingent Liabilities
Stockholders' Equity
Preferred stock, no par value, authorized 1,000,000
shares; none issued
Common stock, par value $10; authorized 2,750,000
shares; issued 1,215,902 shares .................... 12,159 12,159
Additional paid-in capital ............................ 8,846 8,846
Retained earnings ..................................... 45,519 40,652
Unrealized loss on securities available for sale, net . (99)
-------- --------
Total Stockholders' Equity ................. 66,425 61,657
-------- --------
Total Liabilities and Stockholders' Equity . $749,990 $692,642
======== ========
See Notes to Consolidated Financial Statements.
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 31, 1995, 1994 and 1993
(In Thousands Except
for Earnings Per Share)
1995 1994 1993
- --------------------------------------------------------------------------------
Interest Income:
Interest and fees on loans $ 38,027 $ 30,585 $ 26,615
Interest on securities:
Taxable 9,428 8,177 8,524
Tax-exempt 2,307 2,535 2,669
------------------------------
11,735 10,712 11,193
------------------------------
Interest on federal funds sold 2,800 559 1,258
Interest on deposits in other financial
institutions 3 214 801
------------------------------
Total Interest Income 52,565 42,070 39,867
------------------------------
Interest Expense:
Interest on deposits 18,222 12,974 12,676
Interest on short-term borrowings 4,210 2,624 1,956
Interest on long-term debt 682 160 139
------------------------------
Total Interest Expense 23,114 15,758 14,771
------------------------------
Net Interest Income 29,451 26,312 25,096
Provision for loan losses 1,191 830 687
------------------------------
Net Interest Income After
Provision for Loan Losses 28,260 25,482 24,409
------------------------------
Other Income:
Trust department and farm management income 832 833 796
Service fees 2,884 2,365 2,125
Gain on sale of securities 309 336
Other 1,099 640 513
------------------------------
Total Other Income 5,124 3,838 3,770
------------------------------
Other Expenses:
Salaries and employee benefits 10,372 9,157 8,863
Occupancy expense 1,548 1,387 1,269
Data processing 945 818 799
Equipment expense 1,356 1,002 988
Other expenses 7,198 6,176 5,811
-----------------------------
Total Other Expenses 21,419 18,540 17,730
-----------------------------
Income Before Income Taxes 11,965 10,780 10,449
Applicable Income Taxes 3,754 3,273 3,083
-----------------------------
Net Income $ 8,211 $ 7,507 $ 7,366
=============================
Earnings Per Common Share $ 6.75 $ 6.17 $ 6.06
=============================
See Notes to Consoldiated Financial Statements.
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS' EQUITY
Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
-------------------------------------------------------------------------
Unrealized
(Loss) on
Common Stock Additional Securities
--------------------- Paid-In Retained Available
Shares Par Value Capital Earnings For Sale Total
-------- ------------ ------------- ------------ ---------- -----------
Balance, December 31, 1992 ....................... 869 $ 8,689 $ 12,350 $ 32,079 $ 0 $ 53,118
Net income .................................... 0 0 0 7,366 0 7,366
Cash dividends declared $2.50
per share .................................. 0 0 0 (3,042) 0 (3,042)
------------------------------------------------------------------------
Balance, December 31, 1993 ....................... 869 $ 8,689 $ 12,350 $ 36,403 $ 0 $ 57,442
Net income .................................... 0 0 0 7,507 0 7,507
Stock split of two additional
shares for each five shares
previously held, fractional
shares paid in cash ........................ 347 3,470 (3,504) 0 0 (34)
Cash dividends declared $1.43
per share prior to stock split
and $1.25 subsequent to stock
split ...................................... 0 0 0 (3,258) 0 (3,258)
------------------------------------------------------------------------
Balance, December 31, 1994 ....................... 1,216 $ 12,159 $ 8,846 $ 40,652 $ 0 $ 61,657
Net income .................................... 0 0 0 8,211 0 8,211
Cash dividends declared $2.75
per share .................................. 0 0 0 (3,344) 0 (3,344)
Net change in unrealized
(loss) on securities available
for sale ................................... 0 0 0 0 (99) (99)
------------------------------------------------------------------------
Balance, December 31, 1995 ....................... 1,216 $ 12,159 $ 8,846 $ 45,519 $ (99) $ 66,425
========================================================================
See Notes to Consoldiated Financial Statements.
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 1995, 1994 and 1993
(In Thousands)
1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income ....................................................... $ 8,211 $ 7,507 $ 7,366
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation .................................................. 1,288 984 856
Provision for loan losses ..................................... 1,191 830 687
Provision for deferred income taxes ........................... (190) (214) (227)
Amortization of bond premiums, net of accretion ............... 195 327 350
Amortization of intangibles ................................... 1,070 553 469
(Gain) on sale of securities .................................. (309) (336)
(Increase) decrease in accrued interest and
other assets ................................................ 2,946 (2,033) 1,137
Increase (decrease) in accrued interest and
other liabilities ........................................... (686) 675 868
---------------------------------------
Net Cash Provided by Operating
Activities ........................................ 13,716 8,629 11,170
---------------------------------------
Cash Flows From Investing Activities
Interest bearing deposits in other financial
institutions, net ............................................. 4,198 4,455 4,604
Proceeds from maturities of securities held to maturity .......... 58,051 66,469 58,961
Proceeds from sale of securities ................................. 11,533
Purchase of securities held to maturity .......................... (70,924) (48,971) (90,602)
Federal funds sold and securities purchased
under agreements to resell, net ............................... (41,537) 39,114 20,500
Loans made to customers, net of principal
collections ................................................... (11,313) (52,331) (38,504)
Purchase of Plano Bancshares, Inc. net of cash
acquired and debentures issued ................................ (4,644)
Proceeds from sale of equipment .................................. 15
Purchase of premises and equipment ............................... (2,207) (1,822) (1,794)
----------------------------------------
Net Cash Provided by (Used in) Investing
Activities ........................................ (63,732) 2,285 (35,302)
----------------------------------------
Cash Flows From Financing Activities
Net increase (decrease) in time deposits ......................... 38,614 26,056 (11,268)
Net increase (decrease) in all other deposit accounts ............ 10,361 (10,663) 24,894
Proceeds from securities sold under agreements
to repurchase ................................................. 160,229 104,906 120,830
Payments on securities sold under agreements
to repurchase ................................................. (150,038) (125,270) (100,333)
Other short-term borrowings, net ................................. (5,034) 1,941 96
Proceeds from long-term debt ..................................... 3,800
Principal paid on long-term debt ................................. (625) (250) (1,625)
Cash paid in lieu of fractional shares ........................... (34)
Dividends paid ................................................... (3,344) (3,258) (3,042)
----------------------------------------
Net Cash Provided by (Used in) Financing
Activities ........................................ 50,163 (2,772) 29,552
----------------------------------------
Net Increase in Cash and Due from Banks ............... 147 8,142 5,420
Cash and Due From Banks
Beginning ........................................................ 42,832 34,690 29,270
----------------------------------------
Ending ........................................................... $ 42,979 $ 42,832 $ 34,690
========================================
See Notes to Consoldiated Financial Statements.
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
Years Ended December 31, 1995, 1994 and 1993
1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Supplemental Disclosures of Cash Flow Information
Cash payments for:
Interest paid to depositors $ 17,136 $ 12,754 $ 12,960
Interest paid on borrowings 4,660 2,775 2,097
Income taxes 4,091 3,503 3,276
Supplemental Schedule of Noncash Investing and
Financing Activities
Transfer of securities held to maturity to
securities available for sale 17,487
Unrealized loss on securities available for sale, net of
deferred income taxes of $51 99
Other real estate acquired in settlement of loans 1,123 384
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
=============
See Notes to Consolidated Financial Statements.
FIRST NATIONAL BANCORP, INC.
AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
(Table Amounts in Thousands Except for Earnings Per Share)
- --------------------------------------------------------------------------------
Note 1. Nature of Business and Significant Accounting Policies
First National Bancorp, Inc. 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.
The following summarizes the significant accounting policies used in the
preparation of the accompanying consolidated financial statements.
Basis of financial statement presentation: The accounting and reporting policies
of the Company conform to generally accepted accounting principles and general
practices within the financial services industry. In preparing the financial
statements, management is required to make estimates and assumptions that affect
the reported amounts of assets and liabilities as of the date of the balance
sheet and revenues and expenses for the year. Actual results could differ from
those estimates.
Principles of consolidation: The consolidated financial statements include the
accounts of First National Bancorp, Inc. and its wholly-owned subsidiaries,
First National Bank of Joliet, Southwest Suburban Bank, Bank of Lockport and
Plano Bancshares, Inc.. All material intercompany items and transactions have
been eliminated in consolidation.
Securities and accounting change: The Company elected to adopt the provisions of
FASB Statement No. 115, Accounting for Certain Investments in Debt and Equity
Securities as of January 1, 1994. Statement 115 requires that management
determine the appropriate classification of securities at the date of adoption,
and thereafter at the date securities are acquired, and that the appropriateness
of such classification be reassessed at each statement of financial condition
date. The three classifications to be considered are securities held to
maturity, securities available for sale and trading securities. All the
Company's securities have been either classified as 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 tax effect. Realized gains or losses, determined on the basis of the
cost of specific securities sold, are included in income.
Prior to the adoption of Statement 115, investment securities were stated at
cost, adjusted for amortization of premiums and accretion of discounts, computed
by the interest method over their contractual lives. The adoption of Statement
115 did not have an effect on the financial statements.
Loans and allowance for loan losses: Loans are reported at their unpaid
principal amount, reduced by unearned discount and an 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 (or deferred expense when costs exceed fees) recognized over the term of
the related loan as an adjustment to the yield.
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 information available to make its
evaluation, future adjustments to the allowance may be necessary if there are
significant changes in economic conditions.
On January 1, 1995, the Company adopted FASB Statement No 114, Accounting by
Creditors for Impairment of a Loan as amended by Statement No. 118, Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosures.
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 of those loans is to be based on the fair
value of the collateral. These statements also require certain disclosures about
impaired loans and the allowance for loan losses and interest income recognized
on those loans. The effect of adopting these statements was not material.
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.
Depreciation: Premises and equipment are stated at cost less accumulated
depreciation computed 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 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. The Company reviews its intangible assets annually to
determine potential impairment by comparing the carrying value of the goodwill
with the anticipated future cash flows of the related banks.
Pension Plan: 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.
Income taxes: Consolidated federal income tax returns are filed by the Company
and its subsidiaries.
Deferred taxes are provided on a liability method whereby deferred tax assets
are recognized for deductible temporary differences and operating loss and tax
credit carryforwards and deferred tax liabilities are recognized for taxable
temporary differences. Temporary differences are the differences between the
reported amounts of assets and liabilities and their tax bases. Deferred tax
assets are reduced by a valuation allowance when, in the opinion of management,
it is more likely than not that some portion or all of the deferred tax assets
will not be realized. Deferred tax assets and liabilities are adjusted for the
effects of changes in tax laws and rates on the date of enactment.
Earnings per share: Earnings per share are calculated on the basis of the
weighted average number of shares outstanding giving retroactive effect for the
stock split in 1994. Prior year per share information has also been restated.
Presentation of cash flows: Cash flows from interest-bearing deposits in other
financial institutions, loans, federal funds sold, short-term borrowings with
the U.S. Treasury and all customer deposit accounts are shown net.
Fair value of financial instruments: FASB Statement No. 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 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,
could 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
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, deposits in other financial institutions and
federal funds sold: The carrying amounts reported in the consolidated
balance sheet for cash and due from banks, deposits in other financial
institutions 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. The carrying amount of
accrued interest receivable approximates its fair value.
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. The carrying amount of accrued
interest receivable approximates its fair value.
Deposit liabilities: The fair values disclosed for non-interest bearing demand
deposits equal their carrying amounts which represents the amount payable on
demand. The carrying amounts for savings, NOW accounts and variable-rate
deposits approximate their fair values at the reporting date. Fair values for
fixed-rate 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 monthly maturities on time deposits. The carrying
amount of accrued interest payable approximates its fair value.
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 value of loan commitments
and letters of credit is equivalent to their recorded carrying value of
zero.
Accounting for mortgage servicing rights: Financial Accounting Standards Board
Statement No. 122, Accounting for Mortgage Servicing Rights, (FASB 122) requires
banks to recognize as separate assets rights to service mortgage loans for
others, however those servicing rights are acquired. If the Company acquires
mortgage servicing rights through either the purchase or origination of mortgage
loans and sells or securitizes those loans with servicing rights retained, the
Company should allocate the total cost of the mortgage loans to mortgage
servicing rights and the loans (without the mortgage servicing rights) based on
their relative fair values. The mortgage servicing rights should be amortized in
proportion to and over the period of estimated net servicing income.
The Company will be required to adopt FASB 122 for the fiscal year ending
December 31, 1996. The Company believes the adoption of FASB 122 will not have a
material effect on the financial statements.
Reclassifications: Certain amounts included in the consolidated balance sheet at
December 31, 1994 have been retroactively reclassified to conform to the
presentations adopted for December 31, 1995.
Note 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 $7,574,000.
The acquisition has been accounted for as a purchase with the results of
operations of Plano Bancshares, Inc. since October 31, 1994 are included in the
consolidated financial statements. Unaudited proforma consolidated financial
operations for the years ended December 31, 1994 and 1993 as though Plano
Bancshares, Inc. had been acquired as of January 1, 1993 follow:
1994 1993
- --------------------------------------------------------------------------------
Net interest income ................. $ 27,878 $ 26,737
Net income .......................... 7,125 7,203
Earnings per common share ........... 5.86 5.92
The above amounts reflect adjustments for amortization and depreciation on
revalued purchased assets, interest expense on long-term debt and income taxes.
Note 3. Intangibles
Intangibles consist of goodwill, net of accumulated amortization, of $8,125,000
and $8,748,000 as of December 31, 1995 and 1994, respectively and core deposit
intangible, net of accumulated amortization, of $3,455,000 and $3,902,000 as of
December 31, 1995 and 1994, respectively.
Note 4. Securities
The amortized cost and fair values of securities available for sale and held to
maturity at December 31, 1995 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------
Available for Sale:
U.S. Treasury securities .................................. $ 12,638 $ 70 $ (65) $ 12,643
U.S. government agencies .................................. 4,549 1 (156) 4,394
Other ..................................................... 300 0 0 300
------------------------------------------
$ 17,487 $ 71 $ (221) $ 17,337
==========================================
Held to Maturity:
U.S. Treasury securities .................................. $ 40,968 $ 252 $ (144) $ 41,076
U.S. government agencies .................................. 106,661 896 (401) 107,156
Obligations of state and political
subdivisions ........................................... 37,745 1,350 (58) 39,037
------------------------------------------
$185,374 $ 2,498 $ (603) $187,269
==========================================
During December 1995, the Company made a one time transfer of certain securities
from held to maturity to available for sale, as allowed by FASB Statement 115.
The amortized cost and fair value of securities held to maturity at December 31,
1994 are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains (Losses) Value
------------------------------------------
U.S. Treasury securities .................................... $ 42,437 $ 9 $ (1,804) $ 40,642
U.S. government agencies .................................... 104,144 58 (3,729) 100,473
Obligations of state and political
subdivisions ............................................. 42,638 669 (871) 42,436
Corporate and other securities .............................. 655 1 (2) 654
------------------------------------------
$189,874 $ 737 $ (6,406) $184,205
==========================================
The amortized cost and fair value of securities as of December 31, 1995, by
earliest contractual maturity date, are shown below. Actual maturities may
differ from the maturities presented because borrowers may, or may not, exercise
the rights to call or prepay their obligations.
Available For Sale Held to Maturity
------------------ ------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
- -------------------------------------------------------------------------------------------------------
Due in one year or less ................................. $ 4,808 $ 4,777 $103,810 $104,160
Due after one year through
five years ........................................... 11,879 11,835 66,404 67,531
Due after five years through
ten years ............................................ 500 425 13,980 14,413
Due after ten years ..................................... 300 300 1,180 1,165
----------------------------------------
$ 17,487 $17,337 $185,374 $187,269
========================================
Securities with a carrying value of approximately $122,000,000 and $110,000,000
at December 31, 1995 and 1994, respectively, were pledged to secure public
deposits, securities sold under agreements to repurchase and for other purposes
required or permitted by law.
Securities called before their contractual maturity date resulted in gains of
$309,000 during the year ended December 31, 1995.
Note 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.
Loans on which the accrual of interest has been discontinued or reduced amounted
to $169,000 and $1,084,000 at December 31, 1995 and 1994, respectively. If
interest on non-accrual loans had been accrued, such income would have
approximated $10,000, $88,000 and $72,000 for 1995, 1994 and 1993, respectively.
There was no interest income received on nonaccrual loans during the year ended
December 31, 1994. There was $4,000 and $4,800 of interest income received on
non-accrual loans during the years ended December 31, 1995 and 1993,
respectively.
There were no impaired loans at December 31, 1995.
Changes in the allowance for loan losses were as follows:
1995 1994 1993
- ----------------------------------------------------------------------------
Balance, beginning of year ........................ $3,082 $2,722 $2,649
Addition with purchase of Plano
Bancshares, Inc............................... 0 303 0
Provision charged to operations ................ 1,191 830 687
Loans charged off .............................. (646) (950) (776)
Recoveries ..................................... 304 177 162
----------------------
Balance, end of year .............................. $3,931 $3,082 $2,722
======================
At December 31, 1995 and 1994, certain officers and directors, and companies in
which they have management or beneficial ownership, were indebted to the Banks
in the aggregate amount of $4,968,000 and $4,782,000, respectively. In the
opinion of management, these loans have similar terms to other customer loans.
An analysis of the aggregate changes in these loans during 1995 and 1994 is as
follows:
1995 1994
------- -------
Balance, beginning of year ............ $ 4,782 $ 4,630
Loans .............................. 4,901 5,924
Principal repayments ............... (4,715) (5,772)
------- -------
Balance, end of year .................. $ 4,968 $ 4,782
======= =======
Note 6. Premises and Equipment
Major classifications of these assets are summarized as follows:
December 31,
-------------------
1995 1994
- ------------------------------------------------------------------------------
Land and land improvement .............. $ 3,926 $ 3,668
Buildings .............................. 13,285 12,249
Equipment .............................. 8,111 7,198
-------------------
25,322 23,115
Accumulated depreciation ............... (9,743) (8,455)
-------------------
$ 15,579 $ 14,660
===================
Total depreciation expense for years ended December 31, 1995, 1994 and 1993 was
$1,288,000, $984,000 and $856,000, respectively.
Note 7. Employee Benefit Plans
The amount charged to expense for the Company's pension plan totaled $314,000,
$311,000 and $301,000 for the years ended December 31, 1995, 1994 and 1993,
respectively. The components of the pension cost charged to expense each year
consisted of the following:
1995 1994 1993
- --------------------------------------------------------------------------------
Service cost ...................................... $ 272 $ 240 $ 226
Interest cost on projected benefit obligation ..... 341 370 363
Actual (return) loss on plan assets ............... (621) 62 (478)
Net amortization and deferral ..................... 322 (361) 190
-------------------------
$ 314 $ 311 $ 301
========================
The following table sets forth the plan's funding status as of October 31, 1995
and 1994, and the amount recognized in the accompanying consolidated balance
sheets as of December 31, 1995 and 1994:
1995 1994
- -------------------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefits ................................. $ 3,135 $ 2,737
=====================
Accumulated benefits ............................ $ 3,217 $ 2,793
=====================
Projected benefits ................................. $ 5,138 $ 4,490
Plan assets at fair value .......................... 4,628 3,614
---------------------
Plan assets (less than) projected benefit obligation (510) (876)
Unrecognized net loss .............................. 1,165 1,131
Unrecognized prior service cost .................... (19) 265
Unrecognized net transition asset .................. (591) (623)
---------------------
Prepaid (accrued) pension asset (liability) ....... $ 45 $ (103)
=====================
Assumptions used by the Company in the determination of pension plan information
consisted of the following as of October 31, 1995 and 1994:
1995 1994
- --------------------------------------------------------------------------------
Discount rate ............................................ 7.5% 8.3%
Rate of increase in compensation level ................... 4.5 4.5
Expected long-term rate of return on plan assets ......... 8.0 8.0
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 $665,000 and $544,000 at October 31, 1995 and 1994,
respectively.
Additionally, the Company has a defined contribution 401(k) plan. Substantially
all the Banks' employees are covered under the plan. Participants make tax
deferred contributions. The Banks make matching contributions equal to 50% of
each participant's contribution up to the first 6% of compensation that is
deferred. Contributions by the Banks to the 401(k) plan for the years ended
December 31, 1995, 1994 and 1993 were $147,000, $121,000 and $108,000,
respectively.
Note 8. Income Tax Matters
Net deferred tax assets (liabilities) consist of the following components as of
December 31, 1995 and 1994:
1995 1994
- --------------------------------------------------------------------------------
Deferred tax assets:
Securities available for sale .......... $ 51 $ 0
Allowance for loan losses .............. 1,503 1,112
Deferred loan fees ..................... 88 481
Other .................................. 184 220
-------------------
1,826 1,813
-------------------
Deferred tax liabilities:
Premises and equipment ................. 1,278 1,263
Intangibles ............................ 1,197 1,407
Other .................................. 82 115
-------------------
2,557 2,785
-------------------
Net deferred tax (liabilities) ......... $ (731) $ (972)
===================
Net deferred tax liabilities of $731,000 and $972,000 at December 31, 1995 and
1994 are included in accrued interest and other liabilities. No valuation
allowance was considered necessary.
The components of income tax expense are as follows:
Year Ended December 31,
------------------------------
1995 1994 1993
- -----------------------------------------------------------------------------
Currently paid or payable:
Federal ............................ $ 3,622 $ 3,136 $ 3,017
State .............................. 322 351 293
Deferred .............................. (190) (214) (227)
------------------------------
$ 3,754 $ 3,273 $ 3,083
==============================
The income tax effect of the temporary differences on each of the years ended
December 31, 1995, 1994 and 1993 is as follows:
1995 1994 1993
- -----------------------------------------------------------------------------
Depreciation basis and methods ................. $ 15 $ (65) $ 74
Interest and loan fee income ................... 393 (29) (64)
Provision for loan losses ...................... (391) (239) (234)
Intangible amortization ........................ (210) 0 0
Other items, net ............................... 3 119 (3)
-----------------------
$ (190) $ (214) $ (227)
=======================
The reconciliation of the statutory income tax to income taxes included in the
consolidated statements of income for the years ended December 31, 1995, 1994
and 1993 is as follows:
1995 1994 1993
----------------------- ----------------------- ----------------------
Amount % Amount % Amount %
- ------------------------------------------------------------------------------------------------------------------------------------
Income tax at statutory rate ............. $ 4,188 35.0% $ 3,773 35.0% $ 3,553 34.0%
Increase (decrease) resulting
from:
State income taxes net of
federal income tax
benefit ............................ 199 1.7 239 2.2 193 1.8
Tax-exempt income ..................... (828) (6.9) (891) (8.3) (908) (8.7)
Goodwill amortization ................. 195 1.6 173 1.6 159 1.5
Nondeductible interest
expense ............................ 84 0.7 72 0.7 70 0.7
Other items, net ...................... (84) (0.7) (93) (0.8) 16 0.2
----------------------------------------------------------------------------------
$ 3,754 31.4 $ 3,273 30.4 $ 3,083 29.5
==================================================================================
Note 9. Short-Term Borrowings
Short-term borrowings consisting of securities sold under agreements to
repurchase and U.S. Treasury note accounts are as follows at December 31 of each
year:
1995 1994 1993
- -------------------------------------------------------------------------
End of year:
Outstanding balance ................. $ 64,771 $ 59,614 $ 78,037
Weighted average interest rate 5.40% 5.31% 2.88%
During the year:
Average outstanding balance ......... 74,552 69,647 66,210
Maximum outstanding balance ......... 92,986 80,379 79,441
Weighted average interest rate 5.65% 3.77% 2.95%
Note 10. Long-Term Debt
The Company has a term note payable to another financial institution of
$3,425,000 which accrues interest at the London Interbank Offered Rate plus 175
basis points (7.703% at December 31, 1995) 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
$500,000 which accrues interest at the national prime interest rate (8.5% at
December 31, 1995) 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 October 1997, 1998 and 1999. The
debentures are unsecured.
Aggregate maturities of the note and debentures payable are due as follows:
Year Ending Notes Debentures
December 31, Payable Payable
- --------------------------------------------------------------------------------
1996 $ 750,000 $ 0
1997 750,000 1,259,000
1998 500,000 1,259,000
1999 1,925,000 1,258,000
---------- ----------
$3,925,000 $3,776,000
========== ==========
Note 11. Financial Instruments With Off-Balance-Sheet Risk
The Banks are a party 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, 1995 and 1994 is as follows:
1995 1994
- --------------------------------------------------------------------------------
Financial instruments whose contract
amount represents credit risk:
Firm loan commitments $ 81,272 $ 55,700
Standby letters of credit 16,000 14,956
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. Firm loan
commitments include approximately $12,900,000 and $9,800,000 of unused home
equity and credit card lines of credit as of December 31, 1995 and 1994,
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 written 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. The extent of collateral held for those commitments varies with the
average amount collateralized being 71% and 83% as of December 31, 1995 and
1994, respectively.
Note 12. Regulatory Restrictions
The Banks are required by law to maintain non-interest earning deposits with the
Federal Reserve Bank or correspondent banks. The average reserve balance for the
year ended December 31, 1995 was $1,786,000.
The Banks are also limited in the amount of dividends that can be paid without
prior approval of the banking regulatory agencies. In 1996, the Banks could pay
dividends to the Company of as much as $9,116,000 plus their net earnings in
1996, without obtaining prior approval of the bank regulatory agencies.
The Banks are subject to various regulatory capital requirements administered by
the federal banking agencies. Failure to meet minimum capital requirements can
initiate certain mandatory actions by regulators that, if undertaken, could have
a direct material effect on the Company's financial statements. Shown below is a
comparison of the Company's actual regulatory capital ratios as of December 31,
1995, with minimum requirements as defined by regulation for capital adequacy
purposes and to be considered "well capitalized" under the regulatory framework
for prompt corrective action.
Regulatory Requirements
------------------------
1995 Capital Well
Actual Adequacy Capitalized
--------------------------------------
Tier 1 risk-based capital 12.11% 4% 6%
Total risk-based capital 12.96 8 10
Leverage ratio 7.56 3 5
Note 13. Fair Value of Financial Instruments and Interest Rate Risks
The estimated fair value of financial instruments is as follows:
1995 1994
------------------------- ------------------------
Carrying Carrying
Amount Fair Value Amount Fair Value
- ----------------------------------------------------------------------------------------------------------------------
Financial Assets
Cash and due from banks .............................. $ 42,979 $ 42,979 $ 42,832 $ 42,832
Interest bearing deposits in other
financial institutions ............................ 0 0 4,198 4,198
Securities available for sale ........................ 17,337 17,337 0 0
Securities held to maturity .......................... 185,374 187,269 189,874 184,205
Federal funds sold ................................... 41,537 41,537 0 0
Loans ................................................ 427,917 427,836 418,918 411,427
Accrued interest receivable .......................... 6,138 6,138 5,842 5,842
Financial Liabilities
Deposits ............................................. 605,137 606,203 556,162 555,719
Short-term borrowings ................................ 64,771 64,771 59,614 59,614
Long-term debt ....................................... 7,701 7,701 8,326 8,326
Accrued interest payable ............................. 3,379 3,379 2,061 2,061
Off-balance-sheet instruments, loan commitments and
standby letters of credit ............................ 0 0 0 0
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 necessary to minimize interest rate risk. However, borrowers
with fixed rate obligations are more likely to prepay in a rising rate
environment and less likely to repay in a falling 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 minimize 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.
Note 14. Condensed Parent Company Financial Information
The condensed financial statements of First National Bancorp, Inc. (parent
company only) are presented below:
Balance Sheets
Assets 1995 1994
- ------------------------------------------------------------------------
Cash ................................................ $ 291 $ 315
Investments in subsidiaries ......................... 74,124 69,971
Premises ............................................ 106 106
Other assets ........................................ 37 40
-----------------
Total assets ............................. $74,558 $70,432
-----------------
Liabilities and Stockholders' Equity
Liabilities:
Long-term debt ................................... $ 7,701 $ 8,326
Other liabilities ................................ 432 449
Stockholders' Equity ................................ 66,425 61,657
-----------------
Total liabilities and stockholders' equity $74,558 $70,432
=================
Statements of Income
Years Ended December 31,
-------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Dividends from subsidiaries ................. $4,649 $5,019 $6,876
Interest and other expenses ................. 1,126 394 176
------------------------
Income before income tax credits
and equity in undistributed net
income of subsidiaries ........ 3,523 4,625 6,700
Income tax credits .......................... (436) (92) (68)
------------------------
Income before equity in
undistributed net income of
subsidiaries .................. 3,959 4,717 6,768
Equity in undistributed net income of
subsidiaries ............................. 4,252 2,790 598
------------------------
Net income ....................... $8,211 $7,507 $7,366
========================
Statements of Cash Flows
Years Ended December 31,
-------------------------
1995 1994 1993
- ------------------------------------------------------------------------------------------------
Cash Flows From Operating Activities
Net income ................................................... $8,211 $7,507 $7,366
Adjustments to reconcile net income to
net cash provided by operating
activities:
Undistributed (earnings) of subsidiaries .................. (4,252) (2,790) (598)
Change in other assets and other
liabilities ............................................. (14) 9 0
--------------------------
Net cash provided by operating
activities ....................................... 3,945 4,726 6,768
--------------------------
Cash Flows From Investing Activities,
purchase of Plano Bancshares, Inc.,
net cash (used in) investing activities ...................... 0 (6,961) 0
--------------------------
Cash Flows From Financing Activities
Proceeds from long-term debt ................................. 0 3,800 0
Principal payments on long-term debt ......................... (625) (250) (1,625)
Cash dividends paid .......................................... (3,344) (3,258) (3,042)
Cash paid in lieu of fractional shares ....................... 0 (34) 0
--------------------------
Net cash provided by (used in)
financing activities ............................. (3,969) 258 (4,667)
---------------------------
Net increase (decrease) in cash ...................... (24) (1,977) 2,101
Cash:
Beginning .................................................... 315 2,292 191
---------------------------
Ending ....................................................... $ 291 $ 315 $2,292
===========================
Supplementary Data
Quarterly Financial Information 1995-1994 (Unaudited)
1995 1994
-------------------------------- ---------------------------------
In thousands except per share data 4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------
Net interest income $ 7,281 $ 7,390 $ 7,147 $ 7,633 $ 6,975 $ 6,490 $ 6,578 $ 6,269
Provision for losses 354 279 279 279 269 262 178 121
Total noninterest revenue 1,326 1,430 1,294 1,074 1,048 923 942 925
Total noninterest expense 6,734 4,871 5,111 4,703 6,292 4,279 4,068 3,901
-------------------------------------------------------------------
Income before income tax expense 1,519 3,670 3,051 3,725 1,462 2,872 3,274 3,172
Income tax expense 418 1,188 928 1,220 421 829 1,039 984
-------------------------------------------------------------------
Net income $ 1,101 $ 2,482 $ 2,123 $ 2,505 $ 1,041 $ 2,043 $ 2,235 $ 2,188
-------------------------------------------------------------------
Net income per common share $ 0.90 $ 2.04 $ 1.75 $ 2.06 $ 0.85 $ 1.68 $ 1.84 $ 1.80
-------------------------------------------------------------------
Average common shares and
equivalents outstanding 1,216 1,216 1,216 1,216 1,216 1,216 1,216 1,216
Income for the fourth quarter of 1995 and 1994 is less than the first three
quarters due to discretionary contributions, pension and other compensation
expenses.
Stock-Price Range, Dividends 1995-1994 (Unaudited)
1995 1994
-------------------------------- ---------------------------------
4th 3rd 2nd 1st 4th 3rd 2nd 1st
- -------------------------------------------------------------------------------------------------------
Common stock (1):
Price Range
High $ 77 $ 76 $ 73 $ 71 $ 64 $ 63 $ 60 $ 58
Low 76 73 71 69 63 60 58 57
Cash dividends declared per share 1.50 1.25 1.25 1.43
<FN>
(1) Adjusted to reflect 7 for 5 stock split in 1994.
</FN>
Interest differential
The following table sets forth the change in interest income and interest
expense attributable to rate and volume variances. These calculations have been
made on the basis that loan fees are not material and have been included and
that there are no out of period adjustments. The interest earned is assumed to
be on a tax equivalent basis using an income tax rate of 35%. Changes in income
due to volume have been calculated by multiplying the change in volume times the
average rate for the preceding year. The changes in income due to changes in
rate have been determined by multiplying current volume by the change in average
rate.
1995 Compared to 1994 1994 Compared to 1993
----------------------------- ---------------------------
Changes Due to: Changes Due to:
----------------------------- ---------------------------
Volume Rate Change Volume Rate Change
- ----------------------------------------------------------------------------------------------------------
Interest earned on:
Deposits in other financial institutions $ (212) $ 1 $ (211) $ (595) $ 8 $ (587)
Securities:
Taxable (8) 1,259 1,251 507 (854) (347)
Tax-exempt (281) (11) (292) (8) (194) (202)
Federal funds sold 1,239 1,002 2,241 (816) 117 (699)
Loans 4,533 2,909 7,442 5,952 (1,982) 3,970
-------------------------------------------------------------
Total interest income 5,271 5,160 10,431 5,040 (2,905) 2,135
-------------------------------------------------------------
Interest expense on:
Deposits
Demand 187 160 347 106 (188) (82)
Savings 32 62 94 182 (441) (259)
Time 2,252 2,555 4,807 366 273 639
Short-term borrowings 185 1,401 1,586 101 568 669
Long-term debt 410 112 522 32 (11) 21
-------------------------------------------------------------
Total interest expense 3,066 4,290 7,356 787 201 988
-------------------------------------------------------------
Net interest income $ 2,205 $ 870 $ 3,075 $ 4,253 $ (3,106) $ 1,147
============================================================
Securities
The following table shows the carrying value of the securities of the Company by
category at year end for the past three years.
1995 1994 1993
- --------------------------------------------------------------------------------------------------
U.S. Treasury securities ......................................... $ 53,611 $ 42,437 $ 62,677
U.S. government agencies ......................................... 111,055 104,144 86,502
Obligations of states and political subdivisions ................. 37,745 42,638 40,869
Corporate and other securities ................................... 300 655 824
-----------------------------
$202,711 $189,874 $190,872
=============================
At December 31, 1995, there were no concentrations of securities in any state or
local governmental unit.
Securities Maturities
The following table shows the relative maturities of securities available for
sale and held to maturity (at book value) held by the Company at December 31,
1995 and the weighted average interest rate for each range of maturities. The
yields on tax-exempt obligations are stated on a fully tax-equivalent basis,
assuming a federal income tax rate of 35%.
Available for Sale Held to Maturity
------------------------------------------ --------------------------------------------
Weighted Obligations Weighted
U.S. U.S. Average U.S. U.S. of State Average
Treasury Government Other Interest Treasury Government and Interest
Securities Agencies Securities Rate Securities Agencies Subdivision Rate
- ------------------------------------------------------------------------------------------------------------------------
Under 1 year ................. $ 4,286 $ 491 $ 0 4.90% $20,480 $ 77,612 $ 5,718 6.56%
1 to 5 years ................. 8,357 3,478 0 5.59 20,488 27,481 18,435 7.01
5 to 10 years ................ 0 425 0 3.49 0 488 13,492 8.50
Over 10 years ................ 0 0 300 6.00 0 1,080 100 6.86
------------------------------ -------------------------------
Total .................. $12,643 $4,394 $ 300 $40,968 $106,661 $37,745
============================== ===============================
Types of Loans
Set forth below are major categories of the Company's loan portfolio at December
31:
1995 1994 1993 1992 1991
- --------------------------------------------------------------------------------------------------
Commercial ................................. $ 79,967 $ 91,120 $ 82,942 $ 73,375 $ 62,029
Agricultural ............................... 8,815 8,485 6,907 6,319 6,184
Real estate, mortgage ...................... 210,631 184,795 126,208 110,852 126,829
Consumer ................................... 134,344 141,611 126,273 115,438 116,790
-------------------------------------------------
Total Gross* ............................... 433,757 426,011 342,330 305,984 311,832
Less:
Unearned discount ....................... (1,909) (4,011) (6,365) (7,525) (8,555)
Allowance for loan losses ............... (3,931) (3,082) (2,722) (2,649) (1,915)
-------------------------------------------------
Net loans .................................. $427,917 $418,918 $333,243 $295,810 $301,362
=================================================
Ratio of net loans to total assets ......... 57.06% 60.48% 52.75% 49.80% 54.43%
<FN>
* During 1995 the Company changed its method of classifying loans. The change
has been retroactively applied to this schedule.
</FN>
Loan Maturity and Rate Sensitivity
The following sets forth the maturity distribution and interest sensitivity of
commercial and agricultural loans at December 31, 1995.
One Year One to Over
Or Less Five Years Five Years Total
- --------------------------------------------------------------------------------------------------------
Commercial & Agricultural ................................. $ 67,377 $ 18,059 $ 3,346
==============================
Interest rate sensitivity:
Fixed rate ............................................. $ 25,299 $ 17,264 $ 3,346 $ 45,909
Floating with prime .................................... 42,078 795 0 42,873
------------------------------------------
$ 67,377 $ 18,059 $ 3,346 $ 88,782
==========================================
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 consumer loan allowance has increased due to
an increase of approximately $2,091,000 in credit card loans during 1995. The
allowance for loan losses is available to absorb losses in any particular
category of loans, notwithstanding management's allocation of the allowance.
1995 1994 1993 1992 1991
-------------- --------------- ------------- --------------- --------------
Loan Type Amount % Amount % Amount % Amount % Amount %
- --------------------------------------------------------------------------------------------------------
Commercial $ 871 18 $ 912 21 $ 610 24 $ 617 24 $ 339 20
Agriculture 150 2 186 2 69 2 67 2 29 2
Real estate, mortgage 1,645 49 1,029 43 946 37 891 36 634 41
Consumer 1,265 31 956 34 1,038 37 993 38 635 37
Unallocated 59 81 279
-----------------------------------------------------------------------------
Total $ 3,931 100 $ 3,083 100 $ 2,722 100 $ 2,649 100 $ 1,916 100
============================================================================
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.
1995 1994 1993 1992 1991
--------------------------------------------------------------
Allowance, beginning of year .................... $3,082 $2,722 $2,649 $1,915 $1,646
--------------------------------------------------------------
Loans charged off:
Commercial and agricultural ................... (60) (592) (398) (274) (43)
Real estate, mortgage ......................... 0 0 (105) 0 0
Consumer ...................................... (586) (358) (273) (352) (526)
--------------------------------------------------------------
Total loan charge offs ........................... (646) (950) (776) (626) (569)
--------------------------------------------------------------
Loan recoveries:
Commercial and agricultural ................... 145 21 15 54 21
Real estate, mortgage ......................... 10 0 0 0 0
Consumer ...................................... 149 156 147 153 136
--------------------------------------------------------------
Total loan recoveries ............................ 304 177 162 207 157
--------------------------------------------------------------
Net loans charged off ............................ (342) (773) (614) (419) (412)
--------------------------------------------------------------
Provision for loan losses ........................ 1,191 830 687 1,153 681
--------------------------------------------------------------
Other additions (1) .............................. 0 303 0 0 0
--------------------------------------------------------------
Allowance, end of year ........................... 3,931 3,082 2,722 2,649 1,915
==============================================================
Net loans charged off to average
loans outstanding ............................. 0.08% 0.21% 0.20% 0.14% 0.14%
Allowance for loan losses to ending
loans outstanding ............................. 0.91% 0.73% 0.81% 0.89% 0.63%
<FN>
(1) Represents increase with purchase of Plano Bancshares, Inc. in 1994.
</FN>
Deposits
The following table provides a breakdown by category of deposits of the
Company's subsidiary banks on an average balance basis for the five years ended
December 31:
1995 1994 1993 1992 1991
- ----------------------------------------------------------------------------
Noninterest bearing demand $ 99,178 $ 90,994 $ 83,401 $ 77,833 $ 70,941
Interest bearing demand .. 99,827 91,237 86,818 89,423 85,139
Savings .................. 153,661 152,383 145,815 140,863 111,032
Time ..................... 224,427 170,939 161,904 163,375 179,312
------------------------------------------------
Total deposits ........... $577,093 $505,553 $477,938 $471,494 $446,424
================================================
The following shows the maturity schedule and amounts for the Company's time
deposits of $100,000 or more at December 31, 1995.
Under 3 months $ 15,672
3 to 12 months 13,346
Over 12 months 5,763
--------
$ 34,781
========
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure Matters.
No disclosure on Form 8-K, of a change of accountants or disagreement on
accounting and financial disclosure matters, has occurred for the 24 months
prior to, or in months subsequent to, December 31, 1995.
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 4 through 8 of the Notice of Annual Meeting
of Stockholders and Proxy Statement is incorporated herein by reference.
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.
1. All schedules are 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.
2. 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.
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.
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.
11 Statement re: computation of per share earnings
20 Notice of Annual Shareholders Meeting of First National
Bancorp, Inc.
21 Subsidiaries of the Registrant
27 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the fourth quarter of 1995.
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 14th day of March, 1996.
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 14th day of March, 1996 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/ George H. Buck Director
- ------------------------------
/s/ Howard E. Reeves Director
- ------------------------------
/s/ Charles R. Peyla Director
- ------------------------------
/s/ Walter F. Nolan Director
- ------------------------------
/s/ Louis R. Peyla Director
- ------------------------------