-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, IfwZzIggBQ9uDAo09qxYWUE6O4UKOvPapNiauYawTM634nJ1QSnM3GzYVTiLcw0s qW/qGVgcp8sMWR3apjA7cw== 0000036340-94-000005.txt : 19940331 0000036340-94-000005.hdr.sgml : 19940331 ACCESSION NUMBER: 0000036340-94-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940328 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000036340 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 362852290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-13425 FILM NUMBER: 94518165 BUSINESS ADDRESS: STREET 1: 27 WEST MAIN ST STE 101 CITY: FREEPORT STATE: IL ZIP: 61032 BUSINESS PHONE: 8152333671 FORMER COMPANY: FORMER CONFORMED NAME: FIRST FREEPORT CORP DATE OF NAME CHANGE: 19840710 10-K 1 1993 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 Form 10-K Annual Report Pursuant to Section 13 or 15(d) of The Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993, Commission File Number 0-13425 PREMIER FINANCIAL SERVICES, INC. (Exact name of registrant as specified in its Charter) Delaware 36-2852290 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 27 W. Main Street 61032 Freeport, Illinois (Zip Code) (Address of Principal executive offices) Registrant's telephone number, including area code (815) 233-3671 Securities registered pursuant to Section 12(g) of the Act: Common Stock, $5.00 par value Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No 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 the definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. Aggregate market value of voting stock held by non-affiliates of the registrant as of February 28, 1994, based upon the average bid and asked price at this date: $33,450,627.00 At February 28, 1994, the registrant had outstanding 2,163,107 shares of its common stock, $5.00 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1993 Annual Report to Shareholders are incorporated by reference into Part II of the Form 10-K. Portions of the Proxy Statement for Registrant's 1994 Annual Meeting of Shareholders to be held April 26, 1994 has been incorporated by reference into Part III of the Form 10-K. No. of Pages Sequentially Numbered: 27 Exhibit Index is on Page 26 Part I Item 1. Business Premier Financial Services, Inc. (the "Company") is a registered bank holding company organized in 1976 under Delaware law. The operations of the Company and its subsidiaries consist primarily of those financial activities, including trust and investment services, common to the commercial banking industry. Unless the context otherwise requires, the term "Company" as used herein includes the Company and its subsidiaries on a consolidated basis. Substantially all of the operating revenue and net income of the Company is attributable to its subsidiary banks. The primary function of the Company is to coordinate the banking policies and operations of its subsidiaries in order to improve and expand their services and effect economies in their operations by joint efforts in certain areas such as auditing, training, marketing, and business development. The Company also provides operational and data processing services for its subsidiaries. All services and counsel to subsidiaries are provided on a fee basis, with fees based upon fair market value. The Company's banking subsidiaries include First Bank North ("FBN"), First Bank South ("FBS"), First National Bank of Northbrook ("FNBN") and First Security Bank of Cary Grove ("FSBCG"). Although chartered as commercial banks, the offices of the banks serve as general sales offices providing a full array of financial services and products to individuals, businesses, local governmental units and institutional customers throughout northern Illinois. Banking services include those generally associated with the commercial banking industry such as demand, savings and time deposits, loans to commercial, agricultural and individual customers, cash management, electronic funds transfers and other services tailored for the client. The Company has banking offices located in Freeport, Stockton, Warren, Mt. Carroll, Dixon, Rockford, Polo, Sterling, Northbrook, Riverwoods and Cary, Illinois. Premier Trust Services, Inc., ("PTS") a wholly owned subsidiary of FBN, provides a full line of fiduciary and investment services throughout the Company's general market area. Premier Insurance Services, Inc., also a wholly owned subsidiary of FBN, is a full line casualty and life insurance agency. Premier Operating Systems, Inc., ("POS") a direct subsidiary of the Company, provides data processing and operational services to the Company and its subsidiaries. Competition Active competition exists in all principal areas where the Company and its subsidiaries are engaged, not only with commercial banking organizations, but also with savings and loan associations, finance companies, mortgage companies, credit unions, brokerage houses and other providers of financial services. The Company has seen the level of competition and number of competitors in its markets increase in recent years and expects a continuation of these aggressively competitive market conditions. To gain a competitive market advantage, the Company relies on a strategic marketing plan that is employed throughout the Company, reaching every level of its sales force. The marketing plan includes the identification of target markets and customers so that the Company's resources, both financial and manpower, can be utilized where the greatest opportunities for gaining market share exist. The differentiation between the Company's approach to providing products and services to its customers and that of the competition is in the individualized attention that the Company devotes to the needs of its customers. This focus on fulfilling customer's financial needs generally results in long-term customer relationships. Banking deposits are well balanced, with a large customer base and no dominant accounts in any category. The Company's loan portfolio is also characterized by a large customer base, balanced between loans to individuals, commercial and agricultural customers, with no dominant relationships. There is no readily available source of information which delineates the market for financial services, including services offered by non-bank competitors, in the company's market area. Regulation and Supervision Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by references to the particular statutes and regulations. Any significant change in applicable law or regulation may have an effect on the business and prospects of the Company and its subsidiaries. The Company is registered under and is subject to the provisions of the Bank Holding Company Act, and is regulated by the Federal Reserve Board. Under the Bank Holding Company Act the Company is required to file annual reports and such additional information as the Federal Reserve Board may require and is subject to examination by the Federal Reserve Board. The Federal Reserve Board has jurisdiction to regulate all aspects of the Company's business. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before merging with or consolidating into another bank holding company, acquiring substantially all the assets of any bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank. Bank holding companies are also prohibited from acquiring shares of any bank located outside the state in which the operations of the holding company's banking subsidiaries are principally conducted unless such an acquisition is specifically authorized by statute of the state of the bank whose shares are to be acquired. The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, 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 services to banks and their subsidiaries. The Company, however, may engage in certain businesses determined by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Bank Holding Company Act does not place territorial restrictions on the activities of bank holding companies or their nonbank subsidiaries. The Company is also subject to the Illinois Bank Holding Company Act of 1957, as amended (the "Illinois Act"). Effective December 1, 1990, certain provisions of the Illinois Act were amended to permit Illinois banks and bank holding companies to acquire or be acquired by banks and bank holding companies located in any state having a reciprocal law. The approval of the Commissioner of Banks and Trusts Companies of Illinois is required to complete such an interstate acquisition in Illinois. The Illinois Act also permits intrastate acquisition throughout Illinois by Illinois bank holding companies. The passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") resulted in significant changes in the enforcement powers of federal banking agencies, and more significantly, the manner in which the thrift industry is regulated. While FIRREA's primary purpose is to address public concern over the financial crisis of the thrift industry through the imposition of strict reforms on that industry, FIRREA grants bank holding companies more expansive rights of entry into "the savings institution" market through the acquisition of both healthy and failed savings institutions. Under the provisions of FIRREA, a banking holding company can expand its geographic market or increase its concentration in an existing market by acquiring a savings institution, but the bank holding company cannot expand its product market by acquiring a savings institution. FIRREA authorizes the Federal Reserve Board to approve applications under Section 4(c)(8) of the Act for bank holding companies to acquire savings associations, under certain conditions, regardless of the associations' financial condition. Previously, under the provisions of the Garn-St. Germain Depository Institutions Act of 1983 and subsequent Federal Reserve Board interpretations, bank holding companies could generally acquire only failing thrifts. Under FIRREA, they realize a significant expansion of authority. Furthermore, bank holding companies may acquire thrifts without regard to certain restrictions on interstate banking, as long as the thrift is operated as a separate subsidiary. FIRREA also allows a bank holding company to merge an acquired savings association with the bank holding company's subsidiary bank, if the bank continues to pay insurance assessments to the Savings Association Insurance Fund for the deposits acquired from the savings association and if, among other conditions, the merger complies with current state law. On September 5, 1989, the Federal Reserve Board promulgated a final rule amending Regulation Y to allow bank holding companies to acquire savings associations. On December 19, 1991, The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted into law. In addition to providing for the recapitalization of the Bank Insurance Fund (the"BIF"), FDICIA contains, among other things: (i) truth-in savings legislation that requires financial institutions to disclose terms, conditions, fees and yields on deposit accounts in a uniform manner; (ii) provisions that impose strict audit requirements and expand the role of the independent auditors of financial institutions; (iii) provisions that require regulatory agencies to examine financial institutions more frequently than was required in the past; (iv) provisions that limit the powers of state-chartered banks to those of national banks unless the state-chartered bank meets minimum capital requirements and the FDIC finds that the activity to be engaged in by the state-chartered banks poses no significant risk to the BIF; (v) provisions that require the expedited resolution of problem financial institutions; (vi) provisions that require regulatory agencies to develop a method for financial institutions to provide information concerning the estimated fair market value of assets and liabilities as supplemental disclosures to the financial statements filed with the regulatory agencies; (vii)provisions that require regulators to consider adopting capital requirements that account for interest rate risk; and (viii) provisions that require the regulatory agencies to adopt regulations that facilitate cross-industry transactions, and (ix) provide for the acquisition of banks by thrift institutions. While regulations implementing many of the provisions of FDICIA have been issued by the federal banking agencies, regulations implementing certain significant FDICIA requirements (including requirements for establishment of operational and managerial standards to promote bank safety and soundness and modification of regulatory capital standards to account for interest rate risk) have not yet been issued in final form. Consequently, it is not possible at this time to determine the full impact FDICIA will have on the Company and its operations. It is expected, however, that FDICIA is likely to result in, among other things, increased regulatory compliance costs and a greater emphasis on capital. The Company's Subsidiaries FBN and FBS are State chartered, Federal Reserve member banks. They are, therefore, subject to regulation and an annual examination by the Illinois Commissioner of Banks and Trust Companies and by the Board of Governors of the Federal Reserve Bank. FNBN is a nationally chartered bank and is under the supervision of and subject to the examination by the Comptroller of the Currency. All national banks are members of the Federal Reserve System and subject to applicable provisions of the Federal Reserve Act and to regular examination by the Federal Reserve Bank of their district. FSBCG is a State chartered non-member bank and is subject to regulation and an annual examination by the Illinois Commissioner of Banks and Trust Companies and by the Federal Deposit Insurance Corporation. All of the Company's banks are insured by the Federal Deposit Insurance Corporation and each bank is consequently subject to the provisions of the Federal Deposit Insurance Act. The examinations by the various regulatory authorities are designed for the protection of bank depositors and not for bank or holding company stockholders. The federal and state laws and regulations generally applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the nature and amount of and collateral for loans, minimum capital requirements and the number of banking offices and activities which may be performed at such offices. Subsidiary banks of a bank holding company are subject to certain restrictions under the Federal Reserve Act and the Federal Deposit Insurance Act on loans and extensions of credit to the bank holding company or to its other subsidiaries, investments in the stock or other securities of the bank holding company or its other subsidiaries, or advances to any borrower collateralized by such stock or other securities. All banks located in Illinois have traditionally been restricted as to the number and geographic location of branches which they may establish. Illinois law was amended in June, 1993, to eliminate all such branching restrictions. Accordingly, banks located in Illinois are now permitted to establish branches anywhere in Illinois without regard to the location of other banks' main offices or the number of branches previously maintained by the bank establishing the branch. Capital Requirements In December 1992, the Federal Reserve Board's final rules for risk- based capital guidelines became effective. These guidelines establish risk-based capital ratios based upon the allocation of assets and specified off-balance sheet commitments into four risk-weighted categories. The guidelines require all bank holding companies and banks to maintain a Tier 1 capital to risk weighted asset ratio of 4% and a total capital to risk weighted asset ratio of 8.00%. In addition to the risk-based capital guidelines, the Federal Reserve Board has adopted the use of a leverage ratio as an additional tool to evaluate the capital adequacy of banks and bank holding companies. The leverage ratio is defined to be a company's "Tier 1" capital divided by its adjusted total assets. The Company and its banking subsidiaries meet or exceed these guidelines as currently defined. Monetary Policy and Economic Conditions The earnings of commercial banks and bank holding companies are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board influences conditions in the money and capital markets, which affect interest rates and growth in bank credit and deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to in the future. Also, assessments from the Bank Insurance Fund, which insures commercial bank deposits, will continue to impact future earnings of the company. Employees As of December 31, 1993, the Company and its subsidiaries had a total of 253 full-time and 65 part-time employees. Item 2. Properties The Company owns a two story office building at 27 West Main Street, Freeport, Illinois which has a total of 13,900 square feet and approximately 5.5 acres of land located at the northeast corner of Lake-Cook Road and Corporate Drive in Riverwoods, Illinois. The land in Riverwoods, Illinois was acquired in 1992 for possible future use as a branch site or denovo bank location. FBN conducts its operations from its offices located in Freeport, Stockton, Rockford, Warren and Mount Carroll, Illinois. Its main office is located at 101 West Stephenson Street, Freeport, Illinois and includes approximately 26,400 square feet. In addition, two other office buildings are attached to the bank's main office by a parking deck. One is occupied by the Commercial Division. The other serves as a drive in facility and operations center. All three buildings including the underlying land, are owned by the Bank. FBN also operates a remote banking facility located approximately 1.5 miles southwest of the Bank's main office in a shopping center. The underlying land is leased by FBN from an unaffiliated party through 1995, and the Bank has an option to renew through 2000. The annual rental payment for the remaining two years is $6,000. FBN conducts its operations in Mount Carroll from its quarters located at 102 E. Market Street, Mount Carroll, Illinois and its drive-in facility located at 315 N. Clay Street (Highway 78), Mount Carroll, Illinois. The main bank building, containing approximately 12,000 square feet, is owned by the bank as is the underlying land. FBN occupies the main floor and most of the basement, with total square footage of approximately 9,000 square feet. The second floor, containing approximately 3,400 square feet, is rented to various professional organizations. The drive-in facility is located approximately one block east of the main office. It houses the drive- in and walk-up facilities as well as a small lobby in a building containing approximately 1,200 square feet. The drive-in facility as well as the underlying land is owned by FBN. FBN conducts its operations in Stockton from its quarters located at 133 W. Front Street, Stockton, Illinois. The office at Stockton includes drive-in facilities and is approximately 8,000 square feet. The building, underlying land and an adjoining 9,000 square foot parking lot are owned by FBN. FBN's office in Warren is located at 135 Main Street, Warren, Illinois. The building, which contains approximately 9,000 square feet is owned and occupied by the bank. The building also houses its wholly owned insurance subsidiary, Premier Insurance Services, Inc. FBN's office in Rockford is located at 2470 Eastrock Drive, Rockford, Illinois. Both the building which contains approximately 2660 square feet and underlying land are leased from an unaffiliated party through June 1994, with an option to renew annually. The Company has not exercised its option to renew in 1994 and is exploring alternatives for relocating its office. FBS conducts its operations from its offices located in Dixon, Polo, and Sterling, Illinois. Its main office is located at 102 Galena Avenue, Dixon, Illinois. The building, which contains approximately 15,000 square feet, is owned and occupied by the bank. The land underlying the building, as well as an adjoining parking lot, are also owned by the bank. FBS conducts its operations in Polo from its quarters located at 101 W. Mason St., Polo, Illinois. Drive-In and Walk-up facilities are part of the building. The building contains approximately 17,000 square feet, and is owned by the bank as is the underlying land. FBS occupies the first floor and the majority of the basement, with total square footage of about 10,000 square feet. The remainder of the basement and the second floor, which contain the remaining 7,000 square feet, are rented to various professional and/or retail organizations. FBS conducts its operations in Sterling from its quarters located at 3014 E. Lincolnway, Sterling, Illinois. Drive-in and Walk-up facilities are part of the building. The building contains approximately 6,800 square feet. Both the building, which is occupied solely by the bank, and the underlying land are owned by FBS. FNBN owns the land and building on which its main office and adjacent drive-through facility are located at 1300 Meadow Road, Northbrook, Illinois. The two story, colonial building and drive- through facility are located on 30,318 square feet of land. The main building consists of 8,035 square feet. This property also includes a satellite parking area with 29 parking spaces. FNBN also owns the land and building located at 2755 West Dundee Road, Northbrook, Illinois, which houses a full-service branch facility. The building consists of 4,913 square feet and is located on 22,500 square feet of land. FNBN leases 16,739 square feet for its Riverwoods branch at Milwaukee and Deerfield Road. FNBN also operates a private banking office located in the corporate headquarters of the Sears Consumer Financial Corporation in Riverwoods, Illinois. The Company is in the process of closing the office. FSBCG conducts its business in Cary from its main office located at Route 45 Highway 14. The main bank building containing approximately 3,500 square feet is owned by the bank as well as the 4 lane drive-through and the underlying land. In addition, there is a parking lot which contains 26,000 square feet of land. FSBCG owns a second banking center located at 3114 Northwest Highway, Cary, Illinois. The building consists of 1,856 square feet, three drive-through lanes and is located on 145,953 square feet. FSBCG is also committed to lease office space at 740-A Industrial Drive, Cary, Illinois through October 31, 1994. The Company does not plan to renew the lease. The Bank had planned to use the space for its operations functions prior to consolidating their back office areas with FNBN. Premier Operating Systems, Inc. conducts the majority of it operations from a two story office building at 110 West Stephenson Street, Freeport, Illinois which has a total of 13,000 square feet. The building and underlying land is owned by Premier Operating Systems, Inc. Item 3. Legal Proceedings Neither the Company nor its subsidiaries are a party to any material legal proceedings, other than routine litigation incidental to the business of the banks as of December 31, 1993. Item 4. Submission of Matters to a Vote of Security Holders No matters, through the solicitation of proxies or otherwise, have been submitted to a vote of security holders for the quarter ended December 31, 1993. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters The approximate number of Holders of Common Stock as of 12/31/93 was as follows: Title of Class No. of Record Holders Common Stock 658 ($5 Par Value) Other information required by this item is incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1993, which is included as an exhibit to this report. Item 6. Selected Financial Data Incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1993, which is included as an exhibit to this report. On July 16, 1993, the Company acquired 100% of the common stock of First Northbrook Bancorp, Inc. The acquisition was accounted for as a purchase transaction; accordingly, the assets and liabilities of First Northbrook Bancorp, Inc. were recorded at fair market value on the acquisition date and the results of operations have been included in the consolidated statements of earnings since July 16, 1993. The business combination materially affected the comparability of the information shown on page 26, "Five Year Summary of Selected Data" of the Registrant's Annual Report to its shareholders for the year ended December 31, 1993. For a discussion regarding the business combination see footnote #12 on pages 16 and 17 of Registrant's Annual Report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations Incorporated by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1993, which is included as an exhibit to this report. Submitted herewith is the following supplementary financial information of the registrant for each of the last five years (Unless otherwise stated): Distribution of Assets, Liabilities and Stockholders' Equity Interest Rates and Interest Differential Changes in Interest Margin for each of the last two years Investment Portfolio Maturities of Investments, December 31, 1993 Loan Portfolio Loan Maturities and Sensitivity to Changes in Interest Rates, December 31, 1993 Risk Elements in the Loan Portfolio Summary of Loan Loss Experience Deposits Time Certificates and Other Time Deposits of $100,000 or more as of December 31, 1993 Return on Equity and Assets Short Term Borrowings Item 8. Financial Statements and Supplementary Data The following consolidated financial statements of the Company, which are included in the annual report of the registrant to its stockholders for the year ended December 31, 1993, are submitted herewith as an exhibit, and are incorporated by reference: 1. Consolidated Balance Sheets, December 31, 1993 and 1992 2. Consolidated Statements of Earnings, for the three years ended December 31, 1993 3. Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1993 4. Consolidated Statements of Cash Flows for the three years ended December 31, 1993 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report Item 9. Disagreement on Accounting and Financial Disclosure Not Applicable DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's consolidated average daily condensed balance sheet for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 ASSETS: Cash & Non-interest bearing deposits $ 14,026 $ 16,457 $ 15,129 $ 17,162 $30,003 Interest Bearing Deposits 4,684 1,701 1,114 880 1,677 Taxable Investment Securities 119,229 119,804 114,281 95,691 102,323 Non-Taxable Investment Securities 8,087 20,102 26,200 24,374 37,038 Total Investment Securities 127,316 139,906 140,481 120,065 139,361 Trading Account Assets --- 386 773 2,017 --- Federal Funds Sold 13,095 9,390 1,704 656 4,706 Loans (Net) 162,537 169,711 182,975 219,684 273,951 All Other Assets 17,100 17,827 16,755 17,450 32,101 TOTAL ASSETS $338,758 $355,378 $358,931 $377,914 $481,799 LIABILITIES & STOCKHOLDERS EQUITY: Non-Interest Bearing Deposits $ 39,197 $ 36,437 $ 36,118 $ 38,402 $ 66,895 Interest Bearing Deposits 259,978 275,436 244,253 259,271 335,510 Total Deposits 299,175 311,873 280,371 297,673 402,405 Short Term Borrowings 12,713 12,469 49,544 47,556 24,014 Long Term Debt 1,119 4,532 826 --- --- All Other Liabilities & Reserves 4,312 3,500 2,861 2,844 10,785 Stockholders' Equity 21,439 23,004 25,329 29,841 44,595 TOTAL LIABILITIES & EQUITY $338,758 $355,378 $358,931 $377,914 $481,799 INTEREST RATES AND INTEREST DIFFERENTIAL PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's interest earned or paid, as well as the average yield or average rate paid on each of the major interest earning assets and interest bearing liabilities for each of the last five years (dollar figures are in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Interest Earned: Interest Bearing Deposits Interest Earned $ 398 $ 144 $ 94 $ 68 $ 104 Average Yield 8.50% 8.47% 8.43% 7.73% 6.20% Taxable Investment Securities Interest Earned 9,928 10,234 9,387 6,691 6,077 Average Yield 8.33% 8.54% 8.21% 6.99% 5.94% Non-Taxable Investment Securities (taxable equivalent) (1) Interest Earned 792 1,961 2,593 2,418 3,080 Average Yield 9.79% 9.76% 9.89% 9.92% 8.32% Trading Account Assets Interest Earned --- 31 58 151 --- Average Yield --- 8.03% 7.50% 7.49% --- Federal Funds Sold Interest Earned 1,193 768 88 25 133 Average Yield 9.11% 8.18% 5.16% 3.81% 2.83% Loans (Excluding Unearned Discount & Non Accrual Loans) (taxable equivalent) (1) Interest & Fees Earned (2) 18,517 19,226 19,357 19,860 22,262 Average Yield (3) 11.34% 11.21% 10.56% 9.06% 8.13% Interest Paid: Interest Bearing Deposits Interest Paid 17,636 18,464 14,358 11,559 11,461 Average Effective Rate Paid 6.78% 6.70% 5.87% 4.46% 3.42% Borrowed Funds Interest Paid 1,359 968 2,921 1,800 1,289 Average Effective Rate Paid 10.69% 7.76% 5.89% 3.79% 5.37% Long Term Debt Interest Paid 118 465 88 --- --- Average Effective Rate Paid 10.50% 10.26% 10.65% --- --- Margin Between Rates Earned and Rates Paid: All Interest Earnings Assets (taxable equivalent) Interest & Fees Earned 30,828 32,364 31,577 29,213 31,656 Average Yield 10.00% 10.02% 9.65% 8.52% 7.55% All Interest Bearing Liabilities Interest Paid 19,113 19,898 17,367 13,359 12,750 Average Effective Rate Paid 6.98% 6.80% 5.89% 4.35% 3.55% Net Interest Earned 11,715 12,466 14,210 15,854 18,906 Net Yield 3.77% 3.86% 4.34% 4.62% 4.43% (1) Yields on tax exempt securities and loans are full tax equivalent yields at 34%. (2) Includes fees of $247, $255, $548, $568 and $718 for 1989 through 1993 respectively. (3) There were no material out-of-period adjustments or foreign activities for any reportable period. CHANGES IN INTEREST MARGIN PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's dollar amount of change in interest earned on each major interest earning assets and the dollar amount of change in interest paid on each major interest bearing liabilities, as well as the portion of such changes attributable to changes in rate and changes in volume for each of the last two years (Dollar figures in thousands): Increase (Decrease) 1992 over 1991 1993 over 1992 Rate Volume Rate Volume Changes in Interest Earned: Interest Bearing Deposits $ (8) $ (18) (16) 52 Taxable Investment Securities (1,287) (1,409) (1,055) 441 Non-taxable Investment Securities (taxable equivalent) 8 (183) (438) 1,100 Trading Account Assets --- 93 --- (151) Fed Funds Sold (19) (44) (8) 116 Loans (net) (2,982) 3,485 (2,185) 4,587 Total $(4,288) $1,924 $ (3,702) 6,145 Changes in Interest Paid: Interest Bearing Deposits $(3,633) $ 834 (3,051) 2,953 Short Term Borrowings (1,008) (113) 581 (1,092) Long Term Debt --- (88) --- --- Total $(4,641) 633 (2,470) 1,861 Changes in Interest Margin $ 353 $1,291 $ (1,232) $4,284 Changes attributable to rate/volume, i.e., changes in the interest margin which occurred because of a combination rate/volume change and cannot be attributed solely to a rate change or a volume change, are apportioned between rate and volume as follows: 1. Percentage rate increases (decreases) in rate and in volume were calculated for each major interest earning asset and interest bearing liability based upon their year-to-year change. 2. The percentage rate changes in rate and in volume were then allocated proportionately in relationship to 100%. 3. The proportionate allocations were applied to the total rate/volume change. INVESTMENT PORTFOLIO PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities for each of the last five years (dollar figures in thousands): 1989 1990 1991 1992 1993 U.S. Treasury and U.S. Agency Securities $104,252 $114,485 $ 89,825 $ 77,897 $140,725 Obligations of States and Political Subdivisions 16,151 26,145 25,258 24,358 36,693 Other Securities 16,308 16,425 10,308 3,580 3,068 Total $136,711 $157,055 $125,391 $105,835 $180,486 The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury, U.S. Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities as of December 31, 1993 by maturity and also sets forth the weighted average yield for each range of maturities. Obligations of U.S. Treasury States and Weighted and U.S. Agency Political Other Average Book Value: Securities Subdivision Securities Yield One Year or Less $ 26,650 $ 5,543 $ 274 4.87% After One Year to Five Years 94,916 23,967 284 6.55% After Five Years to Ten Years 5,671 6,238 --- 9.20% Over Ten Years 13,488 945 2,510 10.17% Total $ 140,725 $ 36,693 $ 3,068 6.76% (1) Weighted Average Yields were calculated as follows: 1. The weighted average yield for each category in the portfolio was calculated based upon the maturity distribution shown in the table above. 2. The yields determined in step 1 were weighted in relation to the total investments in each maturity range shown in the table above. (2) Yields on tax exempt securities are full tax equivalent yields at a 34% rate. (3) At December 31, 1993 the Company did not own any Obligation of a State or Political Subdivision or Other Security which was greater than 10% of its total equity capital. LOAN PORTFOLIO PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's Loan Portfolio by major category for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Commercial & Financial Loans $ 56,773 $ 56,043 $ 83,777 $ 88,341 $121,514 Agricultural Loans 25,308 38,738 32,428 45,924 40,972 Real Estate - Residential Mortgage Loans 54,112 56,980 66,256 54,728 103,234 Real Estate - Other 12,551 10,130 18,289 16,904 35,832 Loans to Individuals 16,004 16,185 13,364 13,268 29,728 Other Loans 30 1,857 859 980 625 164,778 179,933 214,973 220,145 331,905 Less: Unearned Discount 200 223 231 182 518 Allowance for Possible Loan Losses 3,477 3,160 3,202 2,713 4,369 Net Loans $161,101 $176,550 $211,540 $217,250 $327,018 The following tables set forth the registrant's loan maturity distribution for certain major categories of loans as of December 31, 1993 (dollar figures in thousands). AMOUNT DUE IN 1 Year or Less 1-5 Years After 5 Years Commercial & Financial Loans $ 66,089 $ 51,875 $ 3,550 Agricultural Loans 18,176 17,583 5,213 Real Estate - Other Loans 15,964 16,973 2,895 Total $ 100,229 $ 86,431 $ 11,658 As of December 31, 1993 loans totaling $67,715,000, which are due after one year have predetermined interest rates, while $30,374,000 of loans due after one year have floating interest rates. RISK ELEMENTS IN THE LOAN PORTFOLIO PREMIER FINANCIAL SERVICES, INC. The Company's financial statements are prepared on the accrual basis of accounting, and substantially all of the loans currently accruing interest are accruing at the rate contractually agreed upon when the loan was negotiated. When in the judgement of management the timely receipt of interest payments on a loan is doubtful, it is the Company's policy to cease the accrual of interest thereon and to recognize income on a cash basis when payments are received, unless there is adequate collateral or other substantial basis for continued accrual of interest. An exception is made in the case of consumer installment and charge card loans; such loans are not placed on a cash basis and all interest accrued thereon is charged against income at the time a loan is charged off. At the time a loan is placed in non-accrual status all interest accrued in the current year but not yet collected is reversed against current interest income. Troubled debt restructurings (renegotiated loans) are loans on which interest is being accrued at less than the original contractual rate of interest because of the inability of the borrower to service the obligation under the original terms of the agreement. Income is accrued at the renegotiated rate so long as the borrower is current under the revised terms and conditions of the agreement. Other Real Estate is real estate, sales contracts, and other assets acquired because of the inability of the borrower to serve the obligation of a previous loan collateralized by such assets. The following table sets forth the registrant's non-accrual, past due, and renegotiated loans, and other Real Estate for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Non-accrual Loans $ 1,908 $ 156 $ 3,683 $ 2,915 $ 5,791 Loans Past Due 90 days or More 1,074 946 501 152 5,151 Renegotiated Loans 1,115 372 314 288 523 Other Real Estate 350 210 48 153 1,749 Total $ 4,447 $ 1,684 $ 4,546 $ 3,508 $13,214 In addition to the non-performing loans shown above the registrant from time-to-time has certain loans which although not currently non-performing are potential problem loans. Potential problem loans are those for which there are serious doubts as to the ability of the borrowers to comply with present loan repayment terms. As of December 31, 1993 loans considered potential problem loans were not material. The registrant had no foreign loans outstanding in any of the reported periods. The following table sets forth interest information for certain non- performing loans for the year ended December 31, 1993 (dollar figures in thousands): Non-Accrual Loans Renegotiated Loans Balance December 31, 1993 $ 5,791 $ 523 Gross interest income that would have been recorded if the loans had been current in accordance with their original terms 471 57 Amount of interest included in net earnings. 55 47 SUMMARY OF LOAN LOSS EXPERIENCE PREMIER FINANCIAL SERVICES, INC. The Company and its subsidiary banks have historically evaluated the adequacy of their Allowance for Possible Loan Losses on an overall basis, and the resulting provision charged to expense has similarly been determined in relation to management's evaluation of the entire loan portfolio. In determining the adequacy of its Allowance for Possible Loan Losses, management considers such factors as the size, composition and quality of the loan portfolio, historical loss experience, current loan losses, current potential risks, economic conditions, and other risks inherent in the loan portfolio. Because the Company has historically evaluated its Allowance for Loan Losses on an overall basis, the Allowance has not been allocated by category. The allocation shown in the table below, encompassing the major segments of the loan portfolio judged most informative by management, represents only an estimate for each category of loans based upon historical loss experience and management's judgement of amounts deemed reasonable to provide for the possibility of losses being incurred within each category. Approximately 24% remain unallocated as a general valuation reserve for the entire portfolio to cover unexpected variations from historical experience in individual categories. The following table sets forth the registrant's loan loss experience for each of the last five years (dollar figures in thousands): Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/93: Loans-year End (Gross) $162,486 $139,066 $29,728 $ 625 --- $331,905 Average Loans (Gross) 148,376 107,254 21,498 800 --- 277,928 Allowance for Loan Losses (Beginning of Year) 1,062 853 77 21 700 2,713 Allowance from Acquired Entities 750 750 500 --- 351 2,351 Loans Charged Off 1,845 546 129 --- --- 2,520 Recoveries - Loans Previously Charged Off 138 --- 67 --- --- 205 Net Loan Losses (Recoveries) 1,707 546 62 --- --- 2,315 Operating Expense Provision 1,000 550 70 --- --- 1,620 Allowance For Loan Losses (Year End) 1,105 1,607 585 21 1,051 4,369 Ratios: Loans in Category to Total Loans 48.96% 41.90% 8.96% .18% --- 100% Net Loan Losses (Recoveries) to Average Loans 1.15% .51% .29% --- --- .83% Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/92: Loans-year End (Gross) $ 134,265 $ 71,632 $ 13,268 $ 980 $ --- $220,145 Average Loans (Gross) 129,764 77,851 13,976 1,041 --- 222,632 Allowance for Loan Losses (Beginning of Year) 1,553 832 97 21 700 3,203 Loans Charged Off 925 9 124 --- --- 1,058 Recoveries - Loans Previously Charged Off 159 30 54 --- --- 243 Net Loan Losses (Recoveries) 766 (21) 70 --- --- 815 Operating Expense Provision 275 --- 50 --- --- 325 Allowance For Loan Losses (Year End) 1,062 853 77 21 700 2,713 Ratios: Loans in Category to Total Loans 60.99% 32.54% 6.03% .44% --- 100% Net Loan Losses (Recoveries) to Average Loans .59% (.03%) .50% --- --- .37% Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/91: Loans-year End (Gross) $ 116,205 $ 84,545 $ 13,364 $ 859 $ --- $214,973 Average Loans (Gross) 101,545 69,453 13,873 1,500 --- 186,371 Allowance for Loan Losses (Beginning of Year) 1,394 837 208 21 700 3,160 Loans Charged Off 337 36 165 --- --- 538 Recoveries - Loans Previously Charged Off 496 31 54 --- --- 581 Net Loan Losses (Recoveries) (159) 5 111 --- --- (43) Operating Expense Provision --- --- --- --- --- --- Allowance For Loan Losses (Year End) 1,553 832 97 21 700 3,203 Ratios: Loans in Category to Total Loans 54.06% 39.32% 6.22% .40% --- 100% Net Loan Losses (Recoveries) to Average Loans (.16%) .01% .80% --- --- (.02%) Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/90: Loans-year End (Gross) $ 94,781 $ 67,110 $ 16,185 $ 1,857 $ --- $179,933 Average Loans (Gross) 88,431 66,887 15,789 2,204 --- 173,311 Allowance for Loan Losses (Beginning of Year) 1,647 824 285 21 700 3,477 Loans Charged Off 712 58 120 --- --- 890 Recoveries - Loans Previously Charged Off 459 71 43 --- --- 573 Net Loan Losses (Recoveries) 253 (13) 77 --- --- 317 Operating Expense Provision --- --- --- --- --- --- Allowance For Loan Losses (Year End) 1,394 837 208 21 700 3,160 Ratios: Loans in Category to Total Loans 52.68% 37.30% 9.00% 1.02% --- 100% Net Loan Losses (Recoveries) to Average Loans .29% (.02%) .49% --- --- .18% Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/89: Loans-year End (Gross) $ 82,081 $ 66,663 $ 16,004 $ 30 $ --- $164,778 Average Loans (Gross) 81,908 66,273 20,184 2,311 --- 166,054 Allowance for Loan Losses (Beginning of Year) 1,181 830 301 21 700 3,033 Loans Charged Off 95 124 80 --- --- 299 Recoveries - Loans Previously Charged Off 561 118 64 --- --- 743 Net Loan Losses (Recoveries) (466) 6 16 --- --- (444) Operating Expense Provision --- --- --- --- --- --- Allowance For Loan Losses (Year End) 1,647 824 285 21 700 3,477 Ratios: Loans in Category to Total Loans 49.81% 40.46% 9.71% .02% --- 100% Net Loan Losses (Recoveries) to Average Loans (.57%) .01% .08% --- --- (0.27%) DEPOSITS PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's average daily deposits for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Demand Deposits (Non- Interest Bearing) $ 39,197 $ 36,437 $ 36,119 $ 38,402 $66,895 Demand Deposits (Interest Bearing) 34,977 32,948 38,194 44,772 57,937 Savings Deposits 75,155 71,821 67,456 73,684 95,351 Time Deposits 149,846 170,667 138,603 140,815 182,222 Deposits in Foreign Bank Offices None None None None None TOTAL DEPOSITS $299,175 $311,873 $280,372 $297,673 $402,405 The following table sets forth the average rate paid on interest bearing deposits by major category for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Demand Deposits (Interest Bearing) 5.00% 5.26% 4.83% 3.67% 2.41% Savings Deposits 6.26% 5.45% 4.89% 3.52% 2.74% Time Deposits 7.47% 7.50% 6.65% 5.20% 4.09% TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE PREMIER FINANCIAL SERVICES, INC. The following table sets for the registrant's maturity distribution for all time deposits of $100,000 or more as of December 31, 1993 (in thousands): Maturity Amount Outstanding 3 months or less $ 9,583 3 through 6 months 9,936 6 through 12 months 4,970 Over 12 months 6,353 TOTAL $ 30,842 RETURN ON EQUITY AND ASSETS PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's return on average assets, return on average equity, dividend payout ratio, and average equity to average asset ratio for each of the last five years: Year Ended December 31 1989 1990 1991 1992 1993 Return on Average Assets .69% .81% 1.01% 1.15% .83% Return of Average Common Equity 10.92% 12.53% 14.29% 14.58% 10.80% Return on Average Equity 10.92% 12.53% 14.29% 14.58% 8.99% Dividend Payout Ratio 17.09% 16.32% 16.75% 19.73% 29.27% Average Equity to Average Asset Ratio 6.33% 6.47% 7.06% 7.90% 9.26% SHORT TERM BORROWINGS PREMIER FINANCIAL SERVICES, INC. The following table sets forth a summary of the registrant's short- term borrowings for each of the last five years (dollar figures in thousands): Year Ended December 31 1989 1990 1991 1992 1993 Balance at End of Period: Federal Funds Purchased $ 1,562 $ 4,272 $ 14,241 $ 4,272 $ --- Securities Sold Under Repurchase Agreements 2,757 50,534 43,688 14,854 20,571 Notes Payable to Banks 3,300 1,030 260 1,880 12,410 Other 2,500 2,000 --- --- --- TOTAL $ 10,119 $ 57,836 $ 58,189 $21,006 $32,981 Weighted Average Interest Rate at the end of Period: Federal Funds Purchased 8.26% 7.68% 4.75% 3.53% --- Securities Sold Under Repurchase Agreements 7.15% 7.19% 4.53% 3.79% 2.76% Notes Payable to Banks 10.00% 10.00% 6.50% 6.00% 6.00% Other 7.00% 6.50% --- --- --- Highest Amount Outstanding at Any Month-End: Federal Funds Purchased $ 3,368 $ 7,072 $ 14,241 $16,614 $18,535 Securities Sold Under Repurchase Agreements 3,082 50,534 47,033 45,557 23,952 Notes Payable to Banks 8,550 3,300 1,115 1,880 17,500 Other 2,500 2,380 2,000 --- --- Average Outstanding During the Year: Federal Funds Purchased $ 1,759 $ 2,737 $ 6,305 $10,715 8,534 Securities Sold Under Repurchase Agreements 2,221 8,187 42,320 36,073 15,480 Notes Payable to Banks 8,476 1,370 760 768 7,362 Other 103 176 160 --- --- Weighted Average Interest Rate During the Year: Federal Funds Purchased 9.11% 8.00% 5.78% 3.93% 3.30% Securities Sold Under Repurchase Agreements 7.38% 7.31% 5.87% 3.74% 3.58% Notes Payable to Banks 11.18% 10.17% 8.63% 6.12% 6.14% Other 7.00% 6.75% 6.40% --- --- PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to the Registrant's Proxy Statement dated March 25, 1994 in connection with its annual meeting to be held on April 28, 1994. Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the Registrant's Proxy Statement dated March 25, 1994 on page 20 under the Section "Compliance with Section 16 (a) of the Exchange Act" and is incorporated herein by reference in this Annual Report on Form 10-K. Item 11. Executive Compensation Incorporated herein by reference to the Registrant's Proxy Statement dated March 25, 1994, in connection with its annual meeting to be held on April 28, 1994. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Registrant's Proxy Statement dated March 25, 1994, in connection with its annual meeting to be held on April 28, 1994. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Registrant's Proxy Statement dated March 25, 1994 in connection with its annual meeting to be held on April 28, 1994. PART IV Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K 1. The following documents are filed as a part of this report: A. Consolidated Financial Statements of the Company which are included in the annual report of the registrant to its stock- holders for the year ended December 31, 1993 as follows: 1. Consolidated Balance Sheets, December 31, 1993 and 1992 2. Consolidated Statements of Earnings, for the three years ended December 31, 1993. 3. Consolidated Statements of Cash Flows, for the three years ended December 31, 1993. 4. Consolidated Statements of Changes in Stockholders' Equity, for the three years ended December 31, 1993. 5. Independent Auditors' Report 6. Notes to Consolidated Financial Statements B. Financial Statement Schedules as follows: Schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they are not required under the related instructions or the required information as set forth in the financial statements and related notes. C. Exhibits as follows: 13. Premier Financial Services, Inc. Annual Report for 1993. 21. Subsidiaries of the Registrant. 22. Published report regarding matters submitted to vote of security holders. See previous filing submitted on March 21, 1994. 23. Consents of Experts and Counsel. 99. Premier Financial Services, Inc. Stock and Savings Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1993. 2. Reports on Form 8-K The registrant has not filed a report on Form 8-K, during the quarter ended December 31, 1993. SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Premier Financial Services, Inc. Richard L. Geach By: Richard L. Geach, President Chief Executive Officer and Director Date: March 24, 1994 Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated. D. L. Murray Donald E. Bitz By: D. L. Murray, Executive Vice President Chief Financial Officer and Director Date: March 24, 1994 Date: March 24, 1994 R. Gerald Fox Charles M. Luecke Date: March 24, 1994 Date: March 24, 1994 Joseph C. Piland H. Barry Musgrove Date: March 24, 1994 Date: March 24, 1994 H. L. Fenton E. G. Maris Date: March 24, 1994 Date: March 24, 1994 EX-13 2 ANNUAL REPORT 1993 TO SHAREHOLDERS TO OUR STOCKHOLDERS: Premier Financial Services, Inc. made a major strategic move in 1993 by merging with First Northbrook Bancorp, Inc. In making the move, we became a much larger Company (by about 70%) doing business in some new and exciting markets; McHenry, Lake and Cook counties. For many months before we made our final decision to acquire First Northbrook, your Board of Directors evaluated every possible aspect of the transaction. For example, we were aware that immediately after the merger our level of non-performing assets would increase significantly. As past history indicates, we're prepared to deal with that situation aggressively and successfully. The systems have been in place for years, and improved asset quality is one of our top priorities for 1994. We also knew that a transaction this size comes with a number of challenges; pressure on earnings, major systems changes, geographic dispersion, etc. For every challenge we identified, however, there were major opportunities. We've taken a significant step forward in diversifying our market areas while providing tremendous new sales opportunities. We've already experienced considerable success in this area, particularly in Trust and other non-banking services. Naturally, a merger of this size will take several years to fully assimilate. Training, product development and maximizing available economies are a few of the issues at hand. We're fortunate in having a fine group of officers and employees in our new market areas who are committed to distinguishing Premier in the marketplace by providing high quality, professionally delivered financial services. As we progress over the next several years, we plan on continuing to differentiate Premier from our competition through product choice, quality delivery and an uncompromising zeal towards customer service. We remain committed to serving our customer's needs by providing them with a full line of financial choices including investments, annuities, mutual funds, transaction accounts, loans, fiduciary services, insurance and others. Our focus on the total customer relationship is what makes Premier special, and different from those who concentrate on selling only their own products. The banking industry also continues to undergo massive change. Regulatory issues notwithstanding, our industry is restructuring in response to what our customers want and have a right to expect. Our decision to define our business as "financial services" rather than "banking" allows us to be more responsive to customer needs. We intend to continue being the best in those services we offer. Your continued support is much appreciated. Our financial performance in 1993 was not up to the standards we've set for Premier. We encourage you to read "Management's Discussion and Analysis of Financial Condition" contained in this report. It details the major reasons for our lackluster 1993, and should give you a sense of where we're headed. Please be assured we'll continue to strive for the superior performance you deserve. Cordially, Richard L. Geach President, & Chief Executive Officer David L. Murray Executive Vice President & Chief Financial Officer
Consolidated Balance Sheets December 31, 1993 and 1992 1993 1992 - ---------------------------------------------------------------------------------------------------------- Assets Cash & non-interest bearing deposits (note 2) $26,151,048 $18,680,160 Interest bearing deposits 20,227,486 1,010,440 Federal funds sold 9,977,000 2,190,000 - ---------------------------------------------------------------------------------------------------------- Cash and cash equivalents 56,355,534 21,880,600 - ---------------------------------------------------------------------------------------------------------- Investment securities (note 3) approximate market value: 1993 - $ 41,572,000 1992 - $ 29,718,000 39,787,245 28,314,011 Securities available for sale (note 3) approximate market value: 1993 - $141,744,000 1992 - $ 78,758,000 140,699,066 77,520,998 Loans (note 4) 331,905,335 220,144,987 Less: Unearned discount ( 517,932) ( 182,295) Allowance for possible loan losses ( 4,369,290) ( 2,712,863) - ---------------------------------------------------------------------------------------------------------- Net loans 327,018,113 217,249,829 - ---------------------------------------------------------------------------------------------------------- Bank premises & equipment (note 5) 15,153,969 11,640,584 Excess cost over fair value of net assets acquired 23,193,016 3,009,951 Accrued interest receivable 5,070,332 3,696,238 Other assets 3,385,935 712,199 - ---------------------------------------------------------------------------------------------------------- Total assets $610,663,210 $364,024,410 - ---------------------------------------------------------------------------------------------------------- Liabilities & stockholders' equity Non-interest bearing deposits 104,976,862 49,979,533 Interest bearing deposits 413,042,081 258,913,579 - ---------------------------------------------------------------------------------------------------------- Deposits 518,018,943 308,893,112 - ---------------------------------------------------------------------------------------------------------- Short-term borrowings (note 6) 12,410,000 6,152,000 Securities sold under agreements to repurchase (note 6) 20,571,658 14,854,410 Accrued taxes & other expenses 3,667,295 2,086,362 Other liabilities 579,275 300,880 - ---------------------------------------------------------------------------------------------------------- Liabilities 555,247,171 332,286,764 - ---------------------------------------------------------------------------------------------------------- Stockholders' equity (notes 8 and 12) Preferred stock - $1 par value, 1,000,000 shares authorized: Series A perpetual, $1,000 stated value, 8.25%, 7,000 shares authorized, 5,000 shares issued and outstanding; 5,000,000 - Series B convertible, $1,000 stated value, 7.50%, 7,250 shares authorized, 5,950 shares issued and outstanding; 5,950,000 - Series C perpetual, $1,000 stated value, 7.00%, 1,950 shares authorized, issued and outstanding; 1,950,000 - Series D perpetual, $1,000 stated value, 9.00%, 3,300 shares authorized, issued and outstanding; 3,300,000 - Common stock- $5.00 par value No. of Shares 1993 1992 Authorized 2,500,000 2,500,000 Issued 2,172,863 1,993,146 Outstanding 2,163,107 1,927,536 10,864,315 9,965,730 Surplus 16,134,180 12,533,290 Retained earnings 12,426,322 9,989,149 Less: Treasury stock, (9,756 shares at cost, 1993 and 65,610 shares at cost, 1992) ( 208,778) ( 750,523) - ---------------------------------------------------------------------------------------------------------- Stockholders' equity 55,416,039 31,737,646 Commitments & contingencies (note 10) - ---------------------------------------------------------------------------------------------------------- Total liabilities & stockholders' equity 610,663,210 364,024,410 - ---------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings - ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1993, 1992 and 1991 Interest income 1993 1992 1991 Interest & fees on loans $22,235,746 $19,821,679 $19,295,440 Interest & dividends on investment securities: Taxable 6,077,449 6,691,118 9,386,565 Exempt from federal income tax 1,891,854 1,596,176 1,711,685 Other interest income 236,540 244,232 240,477 - ----------------------------------------------------------------------------------------------------------------------------------- Interest income 30,441,589 28,353,205 30,634,167 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense Interest on deposits 11,461,443 11,558,533 14,357,631 Interest on short-term borrowings 1,289,326 1,800,075 2,920,529 Interest on long-term debt - - 88,142 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense 12,750,769 13,358,608 17,366,302 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 17,690,820 14,994,597 13,267,865 Provision for possible loan losses (note 4) 1,620,000 325,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 16,070,820 14,669,597 13,267,865 - ----------------------------------------------------------------------------------------------------------------------------------- Other income Trust fees 2,161,597 1,855,838 1,852,063 Service charges on deposits 1,466,387 934,461 798,246 Net gains on loans sold to secondary market 886,231 649,707 107,082 Investment securities gains, net (note 3) 136,391 358,038 398,189 Other operating income 1,342,701 976,597 760,437 - ----------------------------------------------------------------------------------------------------------------------------------- Other income 5,993,307 4,774,641 3,916,017 - ----------------------------------------------------------------------------------------------------------------------------------- Other expenses Salaries 6,814,448 5,996,881 5,888,896 Pension, profit sharing, & other employee benefits (note 7) 825,066 803,954 872,887 Net occupancy of bank premises 1,523,649 1,117,690 1,022,333 Furniture & equipment 1,064,031 882,818 854,227 Federal deposit insurance premiums 918,447 650,656 611,783 Amortization of excess cost over fair value of net assets acquired 833,838 194,197 194,197 Other 4,493,368 3,462,725 2,818,730 - ----------------------------------------------------------------------------------------------------------------------------------- Other expenses 16,472,847 13,108,921 12,263,053 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 5,591,280 6,335,317 4,920,829 Applicable income taxes (note 9) 1,580,070 1,983,202 1,302,434 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings $4,011,210 $4,352,115 $3,618,395 =================================================================================================================================== Earnings per share (note 8) (On weighted average outstanding common shares of 2,081,699 in 1993, 1,951,929 in 1992 and 1,892,442 in 1991) $1.64 $2.23 $1.91 =================================================================================================================================== See accompanying notes to consolidated financial statements
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1993, 1992 and 1991 1993 1992 1991 ------ ------ ------ Cash flows from operating activities: Net earnings $4,011,210 $4,352,115 $3,618,395 Adjustments to reconcile net earnings to net cash from operating activities: Amortization net, related to: Investment securities 1,239,194 110,677 95,608 Excess of cost over net assets acquired 833,838 194,197 194,197 Other 178,029 ( 36,348) 39,497 Depreciation 1,076,355 893,735 859,316 Provision for possible loan losses 1,620,000 325,000 - Gain on sale related to: Investment securities ( 136,391) ( 358,038) ( 398,189) Loans sold to secondary market ( 886,231) ( 649,707) ( 107,082) Loans originated for sale ( 58,485,000) (62,810,000) ( 16,555,000) Loans sold to secondary market 58,485,000 62,810,000 16,555,000 Deferred income tax (benefit) expense 151,000 ( 38,443) ( 24,206) Change in: Securities available for sale ( 64,108,609) - - Trading account assets - 500,000 1,311,687 Accrued interest receivable ( 1,374,094) 682,283 1,070,925 Other assets ( 4,850,293) 143,885 ( 69,614) Accrued taxes & other expenses 1,580,933 14,135 ( 187,154) Other liabilities 127,395 ( 185,852) 152,746 - ---------------------------------------------------------------------------------------------- Net cash from operating activities ( 60,537,664) 5,947,639 6,556,126 - ---------------------------------------------------------------------------------------------- Cash flows from investing activities: Cash portion of acquisition, net of cash and cash equivalents acquired ( 2,390,348) - - Purchase of investment securities ( 20,141,426) (78,440,053) ( 36,092,212) Proceeds from: Maturities of investment securities 5,038,965 49,218,292 9,401,160 Sales of investment securities 3,456,965 49,024,966 58,657,720 Net increase in loans (110,655,210) ( 5,348,240) ( 34,923,147) Purchase of bank premises & equipment ( 4,614,612) ( 4,949,619) ( 543,457) Other - net 212,699 161,690 - ---------------------------------------------------------------------------------------------- Net cash from investing activities (129,305,666) 9,718,045 ( 3,338,246) - ---------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in: Deposits 209,125,831 22,113,588 ( 4,611,421) Securities sold under agreements to repurchase 5,717,248 (28,833,142) ( 6,846,929) Short term borrowings 6,258,000 ( 8,349,000) 7,199,000 Repayments of long-term debt - - ( 1,119,264) Purchase of treasury stock ( 208,778) - ( 458,268) Reissuance of treasury stock - - 881,432 Exercised stock options - 74,901 - Issuance of Series A preferred stock 5,000,000 - - Cash dividends paid ( 1,574,037) ( 831,206) ( 541,369) - ---------------------------------------------------------------------------------------------- Net cash from financing activities 224,318,264 (15,824,859) ( 5,496,819) - ---------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents 34,474,934 ( 159,175) ( 2,278,939) Cash and cash equivalents, beginning of year 21,880,600 22,039,775 24,318,714 - ---------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $56,355,534 $21,880,600 $22,039,775 - ---------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid during the year for: Interest $12,885,202 $13,663,283 $17,874,269 Income taxes 1,980,000 1,836,881 1,321,656 Investment securities transferred to securities available for sale - 77,520,998 - Purchase of Bank Subsidiaries Fair value of assets acquired 248,018,274 - - Cash paid ( 16,325,000) - - Common and preferred stock issued ( 16,450,000) - - Excess cost over fair value of assets acquired 21,007,210 - - Fair value of liabilities assumed 236,250,484 - - See accompanying notes to consolidated financial statements.
Consolidated Statements of Changes in Stockholders' Equity Years ended December 31, 1993, 1992, and 1991 ESOP Shares Preferred Commom Retained Treasury Purchased Stock Stock Surplus Earnings Stock With Debt Tot - ------------------------------------------------------------------------------------------------------------------------------------ Balance January 1, 1991 $ - $8,646,535 $10,316,087 $6,852,711 ( $1,173,687) ( $413,011) $24,2 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 3,618,395 3,6 Cash dividends-$.32/share ( 541,369) ( 5 5% stock dividend (note 8) 404,225 444,648 ( 848,873) Employee stock ownership plan debt reduction (note 6) 200,312 2 Treasury stock reissuance (74,761 shares) 881,432 8 Treasury stock purchase (34,490 shares) ( 458,268) ( 4 - ------------------------------------------------------------------------------------------------------------------------------------ Balance December 31,1991 - 9,050,760 10,760,735 9,080,864 ( 750,523) ( 212,699) 27,9 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 4,352,115 4,3 Cash dividends-$.44/share ( 831,206) ( 8 10% stock dividend (note 8) 870,875 1,741,749 ( 2,612,624) Employee stock ownership plan debt reduction (note 6) 212,699 2 Exercised stock options (8,819 shares) 44,095 30,806 - ------------------------------------------------------------------------------------------------------------------------------------ Balance December 31,1992 - 9,965,730 12,533,290 9,989,149 ( 750,523) - 31,7 - ------------------------------------------------------------------------------------------------------------------------------------ Net earnings 4,011,210 4,0 Cash dividends common stock $.48/share ( 981,755) ( 9 Cash dividends preferred stock ( 592,282) ( 5 Issuance of Series A perpetual pref. shares 5,000,000 5, Issuance of shares in acquisition (note 12): Common shares 898,585 3,600,890 4,4 Series B convertible preferred shares 5,950,000 5,9 Series C perpetual preferred shares 1,950,000 1,9 Series D perpetual preferred shares 3,300,000 3,3 Treasury stock reissuance (65,610 shares) 750,523 7 Treasury stock purchase (9,756 shares) ( 208,778) ( 2 - ------------------------------------------------------------------------------------------------------------------------------------ Balance December 31, 1993 $16,200,000 $10,864,315 $16,134,180 $12,426,322 ( $208,778) - $55, - ------------------------------------------------------------------------------------------------------------------------------------ See accompanying notes to consolidated financial statements.
Independent Auditors' Report The Board of Directors Premier Financial Services, Inc. We have audited the accompanying consolidated balance sheets of Premier Financial Services, Inc. and subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993. These consolidated 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 Premier Financial Services, Inc. and subsidiaries at December 31, 1993 and 1992, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1993 in conformity with generally accepted accounting principles. KPMG Peat Marwick Chicago, Illinois January 28, 1994 Notes to Consolidated Financial Statements 1. Significant accounting policies The accompanying consolidated financial statements conform to generally accepted accounting principles and to general practices within the banking industry. The following is a description of significant accounting policies. Principles of consolidation The accompanying consolidated financial statements include the accounts of Premier Financial Services, Inc. (the Company) and its subsidiaries. All significant intercompany balances and transactions have been eliminated in consolidation. Investment securities Investment securities are stated at cost adjusted for amortization of premiums and accretion of discounts on the level yield method over the life of the security. The adjusted cost of specific securities sold is used to compute gains or losses on security transactions. Management has the intent and ability to hold these investment securities to maturity. Securities available for sale Securities which management believes could be sold prior to maturity in order to manage interest rate, prepayment, or liquidity risk are classified as "securities available for sale" and are carried at the lower of aggregate amortized cost or market value. Accordingly, no valuation allowances were required at December 31, 1993 and 1992. The adjusted cost of specific securities sold is used to compute gains or losses on security transactions. Trading account assets Assets purchased for trading purposes are held in the trading account portfolio at market value. Net profits or losses on trading activity are included in other income or other expense in the accompanying consolidated statements of earnings. There were no trading account assets at December 31, 1993 and 1992. Loans Loans are stated at face value less unearned discounts. Interest income on loans not discounted is computed on the principal balance outstanding. Interest income on discounted loans is computed on a basis which results in an approximate level rate of return over the term of the loan. Accrual of interest is discontinued on a loan when management believes that the borrower's financial condition is such that collection of interest is doubtful. Allowance for possible loan losses The allowance for possible loan losses is increased by provisions charged to expense and recoveries on loans previously charged off, and reduced by loans charged off in the period. The allowance is based on past loan loss experience, management's evaluation of the loan portfolio considering current economic conditions and such other factors, which, in management's best judgment, deserve current recognition in estimating loan losses. Regulatory examiners may require the Company to recognize additions to the allowances based upon their judgments about information available to them at the time of their examination. Bank premises and equipment Bank premises and equipment are stated at cost, less accumulated depreciation and amortization. Depreciation expense is computed on a straight line basis over the estimated useful life of each asset. Rates of depreciation are based on the following: building 40 years and equipment 3-15 years. Cost of major additions and improvements are capitalized. Expenditures for maintenance and repairs are reflected as expense when incurred. Interest rate swaps Interest rate swap agreements are used to assist in the Company's asset/liability management process. The net settlement on interest rate swaps used in asset/liability management is recorded as an adjustment to interest expense. Excess cost over fair value of net assets acquired The excess cost over fair value of net assets acquired is being amortized over 25 years for acquisitions prior to 1985, and over 15 years for acquisitions subsequent to that date using the straight line method. Income taxes The Company and its subsidiaries file consolidated federal and state income tax returns. Effective January 1, 1993 the Company adopted SFAS No. 109, "Accounting for Income Taxes." Prior to this date, the Company followed APB Opinion No. 11. Statement 109 requires a change from the deferred method of accounting for income taxes under APB Opinion No. 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method of Statement 109, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. The adoption of SFAS No. 109 had an immaterial impact on the financial statements of the Company. Pursuant to the deferred method under APB Opinion 11, which was applied in 1992 and prior years, deferred income taxes are recognized for income and expense items that are reported in different years for financial reporting purposes and income tax purposes using the tax rate applicable for the year of the calculation. Under the deferred method, deferred taxes are not adjusted for subsequent changes in tax rates. Pension Plan The projected unit credit method is utilized for measuring net periodic pension cost over the employee's service life. The Company's funding policy is to contribute annually an amount calculated under the unit credit actuarial method. Earnings per share Earnings per share is computed by dividing net income (less preferred stock dividends) by the total of the average number of common shares outstanding and the additional dilutive effect of stock options outstanding during the respective period. The dilutive effect of stock options is computed using the average market price of the Company's common stock for the period. 2. Cash and noninterest bearing deposits Cash and noninterest bearing deposits includes reserve balances that the Company's subsidiary banks are required to maintain with the Federal Reserve Bank of Chicago. These required reserves are based principally on deposits outstanding. The average reserves required for the years ended December 31, 1993 and 1992 were $1,055,000 and $1,207,000. 3. Investment securities and securities available for sale The amortized cost and approximate market value of investment securities at December 31, 1993 and 1992 are as follows (in thousands):
1993 1992 Gross Gross Approximate Gross Gross Approxi Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Marke Cost Gains Losses Value Cost Gains Losses Valu U.S. Government and federal agency obligations $26 $ - $ - $26 $376 $3 $ - $ Obligations of states & political subdivisions 36,693 1,778 (6) 38,465 24,358 1,371 - 25 Other securities 3,068 13 - 3,081 3,580 35 (5) 3 $ 39,787 $ 1,791 $ (6) $ 41,572 $28,314 $1,409 $(5) $29
The carrying value and approximate market value of securities available for sale at December 31, 1993 and 1992 are as follows (in thousands):
1993 1992 Gross Gross Gross Gross Carrying Unrealized Unrealized Market Carrying Unrealized Unrealized Market Value Gains Losses Value Value Gains Losses Value U.S. Treasury obligations $ 73,384 $ 511 $ (24) $ 73,871 $36,912 $ 751 - 37,663 U.S. Government agencies 53,853 441 (55) 54,239 35,439 388 (29) 35,798 Mortgage-backed securities 13,462 183 (11) 13,634 5,170 134 (7) 5,297 $ 140,699 $ 1,135 $ (90) $141,744 $77,521 $1,273 (36) $78,758
The amortized cost and market value of investment securities as of December 31, 1993 and 1992 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1993 1992 Approximate Approximate Amortized Market Amortized Market Cost Value Cost Value Due in one year or less $ 5,817 $ 5,895 $ 3,296 $ 3,371 Due after one year through five years 24,251 24,932 12,056 12,582 Due after five years through ten years 6,238 7,074 10,653 11,461 Due after 10 years 3,455 3,645 2,283 2,278 Mortgage-backed securities 26 26 26 26 $39,787 $41,572 $28,314 $29,718
The carrying value and market value of securities available for sale as of December 31, 1993 and 1992 by contractual maturity are shown below. Expected maturities may differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1993 1992 Approximate Approximate Carrying Market Carrying Market Value Value Value Value Due in one year or less $26,650 $26,918 $13,511 $13,739 Due after one year through five years 94,916 95,528 58,740 59,621 Due after five years through ten years 5,671 5,663 100 101 Mortgage-backed securities 13,462 13,635 5,170 5,297 $140,699 $141,744 $77,521 $78,758
Proceeds from sales of investments securities and securities available for sale during 1993 were $4,457,000. Gross gains of $141,000 and gross losses of $5,000 were realized on those sales. During 1992, proceeds from sales of investment securities were $49,025,000. Gross gains of $386,000 and gross losses of $28,000 were realized on those sales. During 1991, proceeds from sales of investment securities were $58,658,000. Gross gains of $416,000 and gross losses of $18,000 were realized on those sales. On December 31, 1993 securities with a carrying value of approximately $106,625,000 were pledged to secure funds and trust deposits and for other purposes as required or permitted by law. 4. Loans The following is a summary of loans by major classifications as of December 31, 1993 and 1992 (in thousands): 1993 1992 Commercial and financial loans $ 121,514 $ 88,341 Agricultural loans 40,972 45,924 Real estate-residential 103,234 54,728 Real estate-commercial 35,832 16,904 Loans to individuals 29,728 13,268 Other loans 625 980 $ 331,905 $220,145 The Company serviced loans for others totaling $81,939,000, $63,688,000 and $18,725,000 as of December 31, 1993, 1992 and 1991, respectively. A summary of changes in the allowance for possible loan losses for the three years ended December 31 is as follows (in thousands):
1993 1992 1991 Balance beginning of year $ 2,713 $3,203 $3,160 Allowance from acquired entity 2,351 - - Recoveries 205 243 581 Provision charged to operating expense 1,620 325 - 6,889 3,771 3,741 Less:loans charged off 2,520 1,058 538 Balance end of year $4,369 $2,713 $3,203
The Company's subsidiary banks make loans to their executive officers, directors, principal holders of the Company's equity securities and to associates of such persons. At December 31, 1993 and 1992, such loans aggregated $3,174,000 and $2,675,000, respectively. These loans were made in the ordinary course of business on the same terms and conditions, including interest rates and collateral, as those prevailing at the time for comparable transactions with other customers and do not involve more than a normal risk. The following is a summary of activity with respect to such loans for the latest fiscal year (in thousands): Balance, January 1, 1993 $2,675 New loans 1,204 Repayments 705 Balance, December 31, 1993 $3,174 As of December 31, 1993 and 1992, the outstanding balance of nonaccrual loans was approximately $5,791,000 and $2,915,000 respectively. Had interest on such loans been accrued, interest and fees on loans in the accompanying consolidated statements of earnings would have been greater by approximately $416,000 and $339,000 in 1993 and 1992, respectively. 5. Bank premises and equipment Bank premises and equipment are recorded at cost less accumulated depreciation as follows (in thousands): 1993 1992 Land, buildings and improvements $17,866 $14,289 Furniture, fixtures and equipment 5,328 5,273 23,194 19,562 Less accumulated depreciation 8,040 7,922 $15,154 $11,640 6. Short-term borrowings and securities sold under agreements to repurchase Following is a summary of short-term borrowings at December 31, 1993 and 1992 (in thousands): 1993 1992 Federal funds purchased $ - $4,272 Note payable to bank 12,410 1,880 $12,410 $6,152 The note payable to bank totaling $12,410,000 is on a demand basis with interest at prime (6.00% at December 31, 1993) and is secured by the Company's common stock holdings in its subsidiaries. The note payable is a draw on a $20 million revolving credit which matures in July, 1994. The note agreement contains certain restrictive covenants. The Company was in compliance with such covenants at December 31, 1993. At December 31, 1993 there were no material amounts of assets at risk with any one customer under agreements to repurchase securities sold. At December 31, 1993 and 1992 securities sold under agreements to repurchase are summarized as follows (in thousands): Weighted average Collateral Repurchase interest Collateral Market 1993 liability rate Book Value Value Within 30 days $165 2.97% $403 $407 30 - 90 days 3,040 3.41% 4,672 4,736 After 90 days 1,200 3.57% 1,216 1,213 Demand 16,166 2.57% 20,808 21,267 $20,571 2.76% $27,099 $27,623 Weighted average Collateral Repurchase interest Collateral Market 1992 liability rate Book Value Value Within 30 days $4,346 3.16% $4,392 $4,391 30 - 90 days 1,452 3.30% 1,543 1,548 After 90 days 3,650 5.70% 3,768 3,904 Demand 5,406 3.16% 8,706 8,799 $14,854 3.79% $18,406 $18,642 7. Employee benefit plans The Company has a defined benefit pension plan covering substantially all of its employees. The benefits are based on years of service and the employee's compensation during the highest 25 years of compensation. The Company's policy is to fund pension cost as accrued. Assumptions used in accounting for the pension plans as of December 31, 1993 and 1992 were as follows: 1993 1992 Discount rates 7.00% 7.25% Rates of increase in compensation level 4.00% 4.00% Expected long-term rates of return on assets 8.50% 8.50% The following table sets forth the plan's funded status and amounts recognized in the Company's consolidated balance sheets at December 31, 1993 and 1992 (in thousands):
1993 1992 Actuarial present value of benefit obligations: Accumulated benefit obligation $3,102 $2,750 Vested benefit obligation 2,959 $2,636 Projected benefit obligation for service rendered to date 4,062 $3,573 Plan assets at fair value, primarily listed stocks & US Bonds 3,446 3,329 Plan assets in deficiency of projected benefit obligation (616) (244) Unrecognized net gain from past experience different from that assumed and effects of changes in assumptions 960 768 Unrecognized prior service cost (7) (9) Unrecognized net assets at beginning of year being recognized over 15 years (404) (461) Prepaid (accrued) pension cost included in other assets $(67) $ 54
Net pension cost for 1993, 1992 and 1991 included the following components (in thousands):
1993 1992 1991 Service cost-benefits earned during the period $166 $160 $123 Interest cost on projected benefit obligation 255 245 217 Actual return on plan assets (231) (214) (254) Net amortization and deferral (70) (65) (32) Net periodic pension expense $120 $126 $54
The Company has a savings and stock plan for officers and employees. Company contributions to the plan are discretionary. The plan includes provisions for employee contributions which are considered tax-deferred under Section 401(k) of the Internal Revenue Code. The total expense was $217,661 for 1993, $329,592 for 1992, and $300,000 for 1991. The Company has a nonqualified stock option plan for key employees. Options may be exercised at market price on grant date at the rate of 20% of granted shares at the end of each year in the succeeding five- year period after the grant date. During 1993, options for an additional 14,526 shares at $21.50 per share were granted. At December 31, 1993, 8,819 of the options had been exercised. At December 31, 1993, there were no shares available for additional options. The following is a summary of options granted, net of forfeitures: Grant Share Options Price Expiration Year Granted per Share Date 1988 34,376 $7.46 July 28, 1998 1989 46,080 9.48 June 22, 1999 1990 19,202 8.23 Dec. 20, 2000 1991 13,154 13.64 Dec. 20, 2001 1992 - - - 1993 14,526 21.50 Sept. 28, 2003 In 1990 a Performance Unit Plan was adopted under which the Company may grant up to an aggregate of 200,000 units to key employees. The value of a unit is established at the date of grant and each succeeding anniversary date by a formula based upon the five-year weighted average earnings per share, or an amount determined by the Board of Directors. Distributions under the Plan, if any, are based on the change in value from the date of grant to the fifth anniversary of the grant. Units vest at 20% per year, with distributions paid in cash on the earlier of the fifth anniversary of the grant or termination of employment for any reason other than discharge for cause. At December 31, 1993, an aggregate of 18,542 units net of forfeitures had been granted under the Plan, while 181,458 units remain available for grant. No distributions have been made under the Plan. At December 31, 1993 the Company did not have any post retirement benefit plans. 8. Stockholders' equity On January 23, 1992, a 10% stock dividend was declared payable March 31, 1992, to shareholders of record February 28, 1992. As a result of the dividend, common stock was increased by $870,875, surplus was increased by $1,741,749 and retained earnings was decreased by $2,612,624. Average shares outstanding and all per share amounts included in the 1992 and 1991 consolidated financial statements and notes are based on the increased numbers of shares giving retroactive effect to the stock dividend. The amount of dividends payable by the Company on its common stock is limited by the provisions of its term loan and revolving credit agreement. Dividends are not to exceed in the aggregate for all such dividends paid after December 31, 1988, 33% of earnings in the year of payment of such dividends. However, any dividends which would have been permissible to be paid after December 31, 1988, but were not paid, may be paid in future years. At December 31, 1993, the Company had $2,450,000 of retained earnings available for the payment of dividends. State banking regulations restrict the amount of dividends that a bank may pay to stockholders. The regulations provide that dividends are limited to the balance of retained earnings, subject to capital adequacy requirements, plus an additional amount equal to its net earnings in 1994 through the date of any declaration of dividends. 9. Income Taxes As discussed in note 1, the Company adopted Statement 109 as of January 1, 1993. The cumulative effect of this change in accounting for income taxes was immaterial. Prior years' financial statements have not been restated to apply the provisions of Statement 109. The components of total tax expense (benefit) are as follows (in thousands): 1993 1992 1991 Current federal $1,472 $2,022 $1,326 Deferred federal 108 (39) (24) Total income tax expense $1,580 $1,983 $1,302 The amounts of income taxes computed at the statutory federal income tax rate of 34% are reconciled to income taxes reflected above, as follows (in thousands):
1993 1992 1991 Tax expense at statutory rate $1,901 $2,154 $1,673 Tax-exempt interest, net of premium amortization (592) (502) (529) Amortization of excess cost over net assets acquired 284 66 66 Capitalized acquisition costs 39 76 - Other, net (52) 189 92 Total income tax expense $1,580 $1,983 $1,302
The sources of timing differences resulting in deferred income taxes determined under APB Opinion No. 11 and the tax effect of each for the years ended December 31, 1992 and 1991 were as follows (in thousands): 1992 1991 Provision for possible loan and other real estate owned losses $39 $17 Accounting method differences and changes (7) (31) Depreciation 23 (25) Deferred loan fees 12 15 Security accretion (47) - Accrued software conversion costs (60) - Other, net 1 - Total deferred tax benefit $(39) $(24) The tax effects of existing temporary differences that give rise to significant portions of the deferred tax liabilities and deferred tax assets as of December 31, 1993 are as follows (in thousands): Deferred tax liabilities: Security accretion $78 Tax depreciation in excess of book depreciation 329 Difference between tax and book basis of assets acquired 2,288 Total gross deferred tax liabilities $2,695 Deferred tax assets: Alternative minimum tax credit carry forward $634 Net operating loss carryforwards 1,488 Provision for other real estate owned 208 Provision for loan losses 1,048 Deferred loan fees 154 Other 108 Total gross deferred tax assets $3,640 Less: Valuation allowance (1,000) Net deferred tax assets 2,640 Net deferred tax liability $ 55 Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1993 will be allocated as follows: Income tax benefit reported in consolidated statement of earnings $ 940 Excess cost over fair value of net assets acquired 60 $1,000 At December 31, 1993, the Company has a net operating loss carryforward for federal income tax purposes of approximately $611,000. The loss is subject to separate return year limitations, and is available to offset future federal taxable income of only the related acquired entities, if any, through 2007. The Company also has alternative minimum tax credit carryforwards of approximately $634,000 which are available to reduce future federal regular income taxes of only the related acquired entities, if any, over an indefinite period. The Company has net operating loss carryforwards for state purposes of approximately $26,000,000 which expire beginning in 1988 through 2006. 10. Financial instruments with off-balance sheet risk and contingencies The company utilizes various financial instruments with off-balance sheet risk to meet the financing needs of its customers, to generate profits and to reduce its own exposure to fluctuations in interest rates. These financial instruments, many of which are so-called "off- balance sheet" transactions, involve to varying degrees, credit and interest rate risk in excess of the amount recognized as either an asset or liability in the consolidated balance sheets. Credit risk is the possibility that a loss may occur because a party to a transaction failed to perform according to the terms of the contract. Interest rate risk is the possibility that future changes in market interest rates will cause a financial instrument to be less valuable or more onerous. The Company controls the credit risk arising from these instruments through its credit approval process and through the use of risk control limits and monitoring procedures. The Company uses the same credit policies when entering into financial instruments with off-balance sheet risk as it does for on-balance sheet instruments. At December 31, 1993 and 1992, such commitments and off-balance sheet financial instruments are as follows (in thousands). 1993 1992 Letters of credit $5,394 $1,502 Lines of credit and other loan commitments 70,300 31,672 Interest rate swaps - 2,000 $75,694 $35,174 Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. 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. 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 total commitment amounts do not necessarily represent future cash requirements. Interest rate swap transactions generally involve the exchange of fixed- and floating-rate payment obligations without the exchange of the underlying principal amounts. The Company minimizes its exposure to interest rate risk inherent in interest rate swaps by entering into offsetting swap positions or other instruments that essentially counterbalance each other. There are various claims pending against the Company and its subsidiaries arising in the normal course of business. Management believes, based upon the opinion of counsel, that liabilities arising from these proceedings, if any, will not be material to the Company's financial position. 11. Disclosures about fair value of financial instruments Provided below is the information required by Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." These amounts represent estimates of fair values at a point in time. Significant estimates regarding economic conditions, loss experience, risk characteristics associated with particular financial instruments and other factors were used for the purposes of this disclosure. These estimates are subjective in nature and involve matters of judgment. Therefore, they cannot be determined with precision. Changes in the assumptions could have a material impact on the amounts estimated. The estimated fair values disclosed do not reflect the value of assets and liabilities that are not considered financial instruments. In addition, the value of long-term relationships with depositors (core deposit intangibles) and other customers (trust customers) are not reflected. The value of these items is significant. Because of the wide range of valuation techniques and the numerous estimates which must be made, it may be difficult to make reasonable comparisons of the Company's fair value information to that of other financial institutions. It is important that the many uncertainties discussed above be considered when using the estimated fair value disclosures and to realize that because of these uncertainties, the aggregate fair value amount should in no way be construed as representative of the underlying value of the Company. Cash and cash equivalents Cash and cash equivalents are by definition short-term and do not present any unanticipated credit issues. Therefore, the carrying amount is a reasonable estimate of fair value. Investment securities and securities available for sale The estimated fair values of investment securities and securities available for sale are provided in Footnote 3 to the financial statements. These are based on quoted market prices, when available. If a quoted market price is not available, fair value is estimated using quoted market prices for similar securities. Loans The carrying amount (total outstanding excluding unearned income) and estimated fair value of loans outstanding at December 31, 1993 are $331.4 million and $343.7 million, respectively. In order to determine the fair values for loans the loan portfolio was categorized based on loan type such as commercial, real estate, agricultural, individual and nonperforming. Each loan category was further segmented into fixed and adjustable rate interest terms. For performing variable rate loans with no significant credit concerns and frequent repricing, estimated fair values are based on carrying values. The fair values of other performing loans, except residential real estate and credit card loans, are estimated using discounted cash flow analyses. The discount rates used in these analyses are based on origination rates for similar loans of comparable credit quality. For performing residential real estate loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. For credit card loans, cash flows and maturities are estimated based on contractual interest rates and historical experience and are discounted using secondary market rates adjusted for differences in servicing and credit costs. The estimate does not include the value that relates to estimated cash flows from new loans generated from existing card holders over the remaining life of the portfolio. Fair value for significant nonperforming loans is based on recent external appraisals. If appraisals are not available, estimated cash flows are discounted using a rate commensurate with the risk associated with the estimated cash flows. Assumptions regarding credit risk, cash flows and discount rates are judgmentally determined using available market information and specific borrower information. Deposit liabilities The carrying amount and estimated fair value of deposits outstanding at December 31, 1993 are $518.0 million and $518.6 million, respectively. Under SFAS 107, the fair value of deposits with no stated maturity is equal to the amount payable upon demand. Therefore, the fair value estimates for these products do not reflect the benefits that Premier receives from the low-cost, long-term funding they provide. These benefits are significant. The estimated fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings Short-term borrowings reprice frequently and therefore the carrying amount is a reasonable estimate of fair value. Securities sold under agreements to repurchase The fair value of securities sold under agreements to repurchase is estimated using the rates currently offered for securities sold under agreements to repurchase with similar remaining maturities. Both the carrying values and estimated fair values of Premier's securities sold under agreements to repurchase as of December 31, 1993 were $20.6 million. Commitments to extend credit and letters of credit Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, and compensating balance and other covenants or requirements. Loan commitments generally have fixed expiration dates, are variable rate and contain termination and other clauses which provide for relief from funding in the event that there is significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of Premier's commitments to lend and letters of credit are competitive with others in the various markets in which Premier operates. The carrying amounts are reasonable estimates of the fair values of these financial instruments. Carrying amounts are comprised of the unamortized fee income and, where necessary, reserves for any expected credit losses from these financial instruments. 12. Acquisition On July 16, 1993, the Company acquired 100% of the common stock of First Northbrook Bancorp, Inc., Northbrook, Illinois for a total purchase price of $32,775,000. As a result of the merger Premier indirectly acquired 100% of the stock of First National Bank of Northbrook, Northbrook, Illinois and First Security Bank of Cary Grove, Cary, Illinois. The acquisition was accounted for as a purchase transaction. The aggregate of cash and shares exchanged for First Northbrook Bancorp, Inc. was as follows:
Premier Series B - Convertible Preferred Stock (5,950 shares) $5,950,000 Premier Series C - Noncumulative Perpetual Preferred Stock (1,950 shares) 1,950,000 Premier Series D - Noncumulative Perpetual Preferred Stock (3,300 shares) 3,300,000 Premier Common Stock (245,327 shares) 5,250,000 Cash (loan from third party lender) 16,325,000 Total Purchase Price $32,775,000
In addition, the Company issued $5,000,000 of new Series A cumulative perpetual preferred stock. The proceeds were used to retire First Northbrook Bancorp, Inc.'s perpetual preferred stock in the amount of $2,000,000 and reduce acquisition debt. A summary of the features of each series of preferred shares follows: Series A - Redeemable after three years at option of the Company at par value. Stock has cumulative dividend feature and is non-voting. Dividend rate of 8.25% changes to the higher of 8.25% or the Prime rate plus 1% after July 16, 1996, 8.25% or the Prime rate plus .25% after July 16, 1998, and 8.25% or the Prime rate plus .50% after July 16, 2000. Series B - Non-voting, convertible to common stock at $28.50 per share. Conversion price adjusted for cumulative stock dividends and splits. Regulatory approval required before conversion of shares. Dividend rate of 7.50% increases to 8.00% after July 16, 1996. Series C - Non-voting, redeemable by the Company at any time at par value with regulatory approval. Dividend rate of 7.00% increases .25% each year after July 16, 1996 to a maximum of 9.00%. Series D - Non-voting. Convertible at any time up to $1,300,000 into Series B shares at par, subject to availability of sufficient authorized common shares. Dividend rate of 9.00%. The unaudited pro forma results of operations which follow (in thousands) assume the acquisition had occurred at the beginning of each period presented. In addition to combining the historical results of operations of the two companies, the pro forma calculations include adjustments for the purchase accounting adjustments related to the acquisition and interest on borrowed funds. Year ended December 31, 1993 Net interest income $21,902 Earnings before income taxes 3,565 Net earnings $2,462 Primary earnings per common share $ .53 Year ended December 31, 1992 Net interest income $23,023 Earnings before income taxes 5,453 Net earnings $3,816 Primary earnings per common share $1.15 The pro forma results of operations are not necessarily indicative of the actual results of operations that would have occurred had the purchase actually been made at the beginning of the respective periods or of results which may occur in the future. 13. Condensed financial information (Parent Company only) The following is a summary of condensed financial information for the Parent Company only (in thousands):
Condensed balance sheets December 31, 1993 1992 Assets Investments in subsidiaries $64,472 $29,297 Cash & interest bearing deposits 19 10 Premises and equipment 4,694 4,735 Other assets 313 584 Total assets $69,498 $34,626 Liabilities and stockholders' equity Short-term borrowings $12,410 $ 1,880 Other liabilities 1,672 1,008 Total liabilities 14,082 2,888 Stockholder's equity 55,416 31,738 Total liabilities and stockholders' equity $69,498 $34,626
Condensed statement of earnings For the years ended December 31, 1993 1992 1991 Income: Dividends from subsidiaries $8,250 $3,650 $3,000 Other 2,706 1,269 1,211 Total income 10,956 4,919 4,211 Expenses: Interest 452 47 154 Salaries 2,263 1,346 1,329 Other 1,135 1,015 776 Total expenses 3,850 2,408 2,259 Earnings before income tax benefit and equity in undistributed earnings of subsidiaries 7,106 2,511 1,952 Income tax benefit 272 61 135 Earnings before equity in undistributed earnings of subsidiaries 7,378 2,572 2,087 Equity in undistributed earnings of subsidiaries ( 3,367) 1,780 1,531 Net earnings $ 4,011 $4,352 $3,618 Earnings per share $ 1.64 $ 2.23 $ 1.91
Condensed statements of cash flows For the years ended December 31, 1993 1992 1991 Operating activities: Net cash provided by operating activities $ 7,649 $2,859 $2,386 Investing activities: Additional paid in capital to subsidiaries (5,950) (243) (137) Cash paid for acquisition of subsidiaries (16,325) - - Purchase of bank premises and equipment ( 47) (4,361) (59) Net cash used by investing activities (22,322) (4,604) (196) Financing activities: Increase (decrease) in short-term debt 10,530 1,620 (770) Reduction in long-term debt - - (1,119) Purchase of treasury stock ( 209) - (458) Reissuance of treasury stock - - 881 Dividends paid ( 1,574) (831) (541) Other 935 931 (153) Issuance of stock 5,000 - - Net cash provided (used) by financing activities 14,682 1,720 (2,160) Increase (decrease) in cash $ 9 $(25) $ 30 Cash paid (received) for Interest $ 290 $ 43 $187 Income taxes ( 273) (550) (81)
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction On July 16, 1993 the Company acquired 100% of the common stock of First Northbrook Bancorp, Inc. ("Northbrook") for a total purchase price of $32,775,000. As a result of the merger Premier indirectly acquired 100% of the stock of First National Bank of Northbrook, Northbrook, Illinois and First Security Bank of Cary-Grove, Cary, Illinois. The acquisition was accounted for as a purchase transaction; accordingly, the assets and liabilities of Northbrook were recorded at fair market value on the acquisition date and the results of operations have been included in the consolidated statements of net earnings since July 16, 1993. The discussion presented below provides an analysis of the Company's financial condition and results of operations and is intended to cover significant factors affecting the Company's overall performance for the past three years. It is designed to provide shareholders with a more comprehensive review of the operating results and financial condition than could be obtained from an examination of the financial statements alone, and should be read in conjunction with the consolidated financial statements, accompanying notes and other financial information presented in the 1993 Annual report to shareholders. Results of Operations Net earnings available to common shareholders for 1993 totaled $3.4 million, (net earnings less preferred dividends) or $1.64 per common share, compared with $4.4 million, or $2.23 per share, in 1992. In 1991, net income was $3.6 million or $1.91 per share. Earnings in 1993 were sharply reduced by 1) a loan loss provision of $1.3 million relating to one customer relationship, 2) $.9 million in nonrecurring merger related expenses, and 3) $.3 million of expenses associated with other real estate. Taken together, these items decreased after tax earnings per share by $.80. Premier's 1993 return on average common equity was 10.80%, compared with 14.58% in 1992 and 14.29% in 1991. Net Interest Income Tax equivalent net interest income for 1993 was $18.8 million, as compared to $15.9 million in 1992 and $14.2 million in 1991. The increase in 1993 was primarily from earning assets added through the Northbrook acquisition. Average earning assets totaled $423.4 million in 1993 versus $342.9 million in 1992. Improvements in net interest income in 1992 and 1991 occurred as a result of a modest growth in earning assets coupled with an increase in higher yielding assets (i.e. loans) in the Company's asset mix. Loans represented 64.7% of earning assets in 1993 as compared to 65.1% in 1992 and 56.9% in 1991. Our net interest margin was 4.43% in 1993 as compared to 4.62% in 1992 and 4.34% in 1991. The decrease in net interest margin from 1992 to 1993 was primarily the result of squeezed spreads due to lower interest rates. During 1993, our tax equivalent yield on average earning assets was 1.08% less than in 1992. At the same time however, our average cost of funds declined by only .89%. An analysis of our change in net interest margin from 1991 to 1992 reveals an opposite pattern, with asset yield decreasing by 1.13% while cost of funds declined by 1.41%. The increase in nonperforming loans experienced during the fourth quarter of 1993 did not materially effect our interest margin last year. At year end nonaccrual loans plus other real estate totaled $7.5 million or 1.78% of earning assets. If these levels of nonearning assets persist throughout 1994, it will be difficult to maintain the net interest margin at 1993 levels. Interest Rate Risk Management Movements in general market interest rates are a key element in changes in net interest margin. The impact on earnings of changes in interest rates, known as interest rate risk, must be measured and managed to avoid unacceptable levels of risk. Premier uses simulation modeling to analyze the effect of changes in interest rates on net interest income and to manage interest rate risk. First, the balance sheet is evaluated by examining potential repricing. The difference between the amount of interest earning assets maturing or repricing within a specific time period and the amount of interest-bearing liabilities maturing or repricing within that same time period is defined as the "interest sensitivity gap". Unfortunately, gap analysis implicitly assumes that all assets and liabilities reprice by the same magnitude in the event of a change in market interest rates. Premier's interest sensitivity gap as of December 31, 1993, which shows the Company was asset sensitive over a one year horizon ( i.e. more assets than liabilities would reprice), was as follows: Volumes Subject to Repricing ($ in thousands) within within within over 90 days 180 days 1 year 1 year Loans (net of unearned income, excluding overdrafts and non- accrual loans).............. $173,047 $13,945 $28,671 $ 96,340 Investment securities ....... 46,303 4,774 26,686 122,328 Other earning assets ........ 9,977 - - - Total earning assets ...... 229,327 18,719 55,357 218,668 Interest-bearing deposits ... 101,883 37,472 39,109 240,533 Short-term borrowings ....... 32,650 132 200 - Total interest-bearing liabilities ............... 134,533 37,604 39,309 240,533 Asset (liability) gap ..... 94,794 (18,885) 16,048 (21,865) Cumulative asset (liability) gap .......... 94,794 75,909 91,957 70,092 Using the interest sensitivity gap as a base, the Company simulates interest rate risk under a variety of interest and repricing scenarios. Essentially, management tests assumptions regarding market behavior to changes in rates and makes adjustments, where appropriate, to maintain an acceptable level of interest rate risk. At year end Premier's asset/liability mix was sufficiently balanced so that the effect of anticipated rate movements in either direction would have been minimal. Provision for Possible Loan Losses The amount of the provision for possible loan losses is based on periodic (but no less than quarterly) evaluations by management. In these evaluations, we consider numerous factors including, but not limited to, current economic conditions, loan portfolio composition, prior loan loss experience, and an estimation of potential losses. Our provision for loan losses in 1993 totaled $1.6 million as compared to $325,000 in 1992. Approximately $1.3 million of the 1993 provision was to cover anticipated losses on a commercial real estate development operating in Chapter 11 Bankruptcy Reorganization. Under the Chapter 11 Plan, rents collected from the property's tenants were to be passed through to the various creditors of the project. When the pass-through of funds was unexplainably stopped, the property fell into default prompting foreclosure by other creditors. In our view, the foreclosure action seriously impairs our collection expectations and alters the value of our collateral. Under the circumstances, we elected to recognize the deterioration of this credit by providing for the full loss. However, we will vigorously pursue all courses of action available to protect our interests and recover amounts owed us. At December 31, 1993 the allowance for possible loan losses stood at $4.4 million, or 1.32% of gross loans compared to $2.7 million, or 1.23% of gross loans at year end 1992. Although we believe that the present level of the allowance for loan losses is a conservative assessment of the risk inherent in our loan portfolio, there can be no assurance that significant provisions for losses will not be required in the future based on factors such as deterioration of market conditions, major changes in borrowers' financial conditions, delinquencies and defaults. (See "Asset Quality.") Future provisions will continue to be determined in relation to overall asset quality as well as other factors mentioned previously. Noninterest Income Noninterest income, exclusive of investment security gains, increased by 32.6% to $5.9 million in 1993 from $4.4 million in 1992. This improvement followed a 25.5% increase in 1992 over 1991. Our ability to generate revenue from fee based services and products has been a major contributor to noninterest income growth. We anticipate that fee income will continue to be a stable income source that is not volatile in relation to interest rates. Trust fees, which represent Premier's largest fee-based source of income, increased by 16.5% to $2.2 million in 1993, from $1.9 million in both 1992 and 1991. Trust fees are derived from providing fiduciary, investment management, custodial and related services to corporate and personal clients. As of December 31, 1993, managed assets were approximately $.5 billion. We are looking forward to the expansion of trust services in our new market areas and anticipate continued fee growth in 1994. Service charges on deposit accounts rose 56.9%, to $1.5 million in 1993 from $934,000 in 1992 following a 17.1% increase over 1991. The growth in 1993 was primarily related to the substantial increase in deposits during the second half of 1993 resulting from the acquisition. The increase in 1992 from 1991 was primarily due to repricing aimed at defraying the increased levy by the FDIC for deposit insurance. Another significant source of noninterest income over the past two years has been premiums recognized on sales of residential mortgage loans to the secondary market. The low interest rate environment during both 1993 and 1992 led to a dramatic increase in loan refinancing. As a result, net gains from the sale of approximately $58.5 million in 1993 and $63 million in 1992 of residential mortgage loans added $585,000 and $429,000 of after-tax earnings for the years 1993 and 1992, respectively. In 1991 gains on sale of loans totaled $71,000 net of tax. Refinancing at the pace we've experienced in 1992 and 1993 cannot be expected to continue, particularly as rates begin to rise. Since Premier retains the servicing rights to loans sold on the secondary market, however, we anticipate that servicing fees will offset some of the lost revenue. Net investment security gains were $136,000 in 1993 compared to $358,000 in 1992 and $398,000 in 1991. As conditions change over time, the overall interest rate risk, liquidity demands and potential return on the investment security portfolio will change. Securities may be sold in order to manage interest rate risk, optimize overall investment returns, respond to changes in the credit risk of a particular security, or meet liquidity needs. Other operating income increased $366,000 from 1992 to 1993, following an increase of $216,000 the previous year. The increase in other operating income was primarily driven by fees from annuity sales and mortgage loan servicing fees, which provided 27.5% of the annual increase in 1993 and 35.2% in 1992. Also included in other operating income are fees from mutual fund sales, stock purchases and sales, personal and commercial insurance sales, letter of credit fees, safe deposit box rental fees and financial planning fees. We intend to continue our efforts to expand fee income by developing new customer relationships throughout our market area. NonInterest Expense Total noninterest expenses increased by 25.7% in 1993 and 6.9% in 1992. Salaries and benefits, the largest category of non-interest expense, increased $839,000 to $7.6 million in 1993 from $6.8 million in both 1992 and 1991. The 1993 increase in salary and benefits is due to the Northbrook acquisition. Full-time equivalent employees increased from 220 at December 31, 1992, to 285.5 at December 31, 1993. One-time acquisition related severance payments totaling approximately $147,000 were paid in 1993. Beginning in 1993, all employers were required to adopt Financial Accounting Standards Board Statement No. 106 regarding accounting for post-retirement benefits, other than pension plans. This Statement requires recognition of an employer's expected cost of providing post- retired benefits to retirees on an accrual basis similar to the treatment afforded pension plans. Post-retirement benefits generally include costs such as health care, health and life insurance and all other benefits that are provided to retired employees. Premier's current health benefit plans do not provide benefits to retirees. Accordingly, Premier's health plans in their present form required no charge to earnings. On June 30, 1993, the Financial Accounting Standards Board issued an exposure draft of a Proposed Statement of Financial Accounting Standards, "Accounting for Stock-Based Compensation." The proposed statement would establish new accounting and reporting standards for stock options and other forms of stock-based employee compensation and would supersede APB Opinion 25, "Accounting for Stock Issued to Employees." Currently, the issuance of stock options does not result in recognition of compensation costs by the employer upon the award of stock options. The proposed statement, if issued in its current form, would require disclosures of the pro forma effects of stock option plans on net income and earnings per share and, after December 31, 1996, compensation costs related to option awards and increase in the market value of the shares underlying the options would have to be recognized by employers at the time of grant of the option and on an on-going basis. Combined net occupancy and furniture and fixture expense increased $587,000 and $124,000 in 1993 and 1992, respectively. The increase in 1993 relates to the six new office locations acquired in Northbrook, Riverwoods and Cary, Illinois. The 1992 increase related primarily to costs associated with a new facility housing centralized operational functions in Freeport, Illinois and opening a full-service branch in Rockford, Illinois. Premier is currently in the process of closing a limited service branch located inside an office building in Northbrook, Illinois. In addition, the Company is exploring alternatives for relocating its Rockford Branch Office. In 1993, Premier's subsidiary banks paid $918,000 for federal deposit (FDIC) insurance as compared to $651,000 in 1992 and $612,000 in 1991. This expense rises as deposits grow or the assessment rate changes. The 1993 increase is attributable to an increase in deposits from the Northbrook acquisition, whereas the 1992 increase relates to higher assessment rates. Based upon the risk-related premium system which correlates the assessment rate in part to a bank's risk-based capital levels, an effective assessment rate of approximately $.24 per $100 of assessable liabilities for the bank subsidiaries is anticipated in 1994. Net amortization of intangible assets was $834,000 in 1993, compared to $194,000 in both 1992 and 1991. The increase in 1993 expense relates to the additional amortization expense from the excess cost over fair value of net assets acquired in 1993. This excess cost resulting from the Northbrook acquisition totaled approximately $21 million and will be amortized over 15 years. Other operating expenses increased by slightly over $1 million, or 29.76% in 1993. Approximately $750,000 represented merger-related expenses including write-off of duplicate computer equipment, software fees, data processing conversion fees and legal/professional fees. Without these one-time items, other operating expenses would have increased by about $ 275,000 during the year. We expect to begin realizing cost savings from the data processing conversion and consolidation of Company-wide functions beginning in 1994. Income Taxes Taxes on earnings decreased to $1.6 million in 1993 from $2.0 million in 1992 following an increase of $700,000 from $1.3 million in 1991. The decrease in the 1993 provision for income taxes was due to lower pre-tax income. In February 1992, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 109, "Accounting for Income Taxes." Statement 109 requires a change from the deferred method under APB Opinion 11 to the asset and liability method of accounting for income taxes. Under the asset and liability method, deferred income taxes are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Under Statement 109, the effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Premier adopted Statement 109 in January 1993 and implementation had an immaterial effect on results of operations and financial position. We perform a detailed analysis of our deferred tax position on a quarterly basis. It includes scheduling both taxable and deductible temporary differences in accordance with their respective reversal periods, projecting future taxable income and reviewing available tax planning strategies. At December 31, 1993, Premier had deferred tax liabilities of $2.7 million and deferred tax assets of $3.6 million. A valuation allowance of $1.0 million has been provided for deferred tax assets. As a result, net deferred tax liabilities recorded in the consolidated financial statements are $55 thousand. Financial Condition At year end 1993, Premier had total assets of $610.7 million, which represented a 67.8% increase from December 31, 1992. The growth was primarily attributable to the Northbrook acquisition and provides us with an exciting, more diversified market. The customer base we now serve has increased significantly, presenting both challenges and opportunities. This dramatic change in our balance sheet, as well as changes in major balance sheet components, will continue to impact Premier for the foreseeable future. At December 31, 1993, securities held for investment (i.e. "held to maturity") increased to $39.8 million from $28.3 million in 1992. Securities "available for sale" totaled $140.7 million in 1993, as compared to $77.5 million in 1992 with net unrealized appreciation of $1.1 million and $1.2 million, respectively. The Financial Accounting Standards Board has issued FAS No. 115 entitled "Accounting for Certain Investments in Debt and Equity Securities" and is effective for fiscal years beginning after December 15, 1993. Securities "held for sale" will be reported at fair market value with unrealized gains and losses excluded from earnings and reported in a separate valuation account, net of related tax effects, in stockholders' equity. Adoption of this standard by Premier in 1994 could substantially increase the volatility of Premier's capital levels. We anticipate the classification of "securities held for sale" will be similar to our "securities available for sale" at December 31, 1993. Total loans were $331.9 million at December 31, 1993 an increase of $111.8 million over 1992. The growth was primarily due to the Northbrook acquisition and was concentrated in residential mortgages (which increased $48.5 million) and in commercial loans (which increased $33.1 million). Premier's loan portfolio continues to be characterized by a large customer base, balanced between loans to individuals, commercial and agricultural customers. Approximately 40.0% of our loans represent credit granted to consumers in the form of residential mortgages and a variety of other products such as credit cards, student loans and other open and closed-end consumer financing. Loans to commercial borrowers represent approximately 47.4% of the total loan portfolio. The remaining 12.6% is agricultural related. Preserving loan quality and diversifying the loan portfolio both geographically and by industry continue to be key objectives for Premier. Asset Quality Nonperforming assets consist of loans 90 days past due, loans on which interest is no longer accrued, restructured loans for which the interest rate or other terms have been renegotiated and real estate collateral acquired for loans in default. At year end, nonperforming assets were $13.2 million, or 2.16% of total assets, up from $3.5 million, or .96% of total assets at December 31, 1992. There are two major reasons for the increase. As a result of the Northbrook acquisition, approximately $7.5 million in new, nonperforming loans were added to the Company's loan portfolio. During its investigation of Northbrook prior to the acquisition, the Company identified these loans as well as the underlying reasons for nonperformance. In many cases, nonperformance was a result of inappropriate structuring and/or lack of current information as opposed to financial weakness. Although several large credits exhibit serious risk, management feels the allowance for possible loan losses is sufficient to provide for currently identified exposure. The remaining increase in non- performing assets (approximately $2.2 million) is attributable to a small number of credits exhibiting financial stress. As is the case with the newly added nonperforming assets, we feel that our allowance for possible loan losses is appropriately recognizes the risk inherent in our loan portfolio. Premier intends to continue devoting the resources necessary to bring nonperforming assets within levels consistent with the Company's historical standards of quality. Although aggressive collection actions may result in increased costs such as legal fees, expenses associated with temporarily holding other real estate for sale and miscellaneous collection costs, we believe aggressive collection is appropriate. In June 1993, the FASB issued SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS 114 states that impaired loans will be recorded at the present value of future principal and interest expected to be collected using the loan's contractual interest rate adjusted for deferred fees and unamortized premium/discounts. SFAS No. 114 is effective for financial statements for fiscal years beginning after December 15, 1994. The Company will adopt SFAS No. 114 on January 1, 1995. Based on the Company's current loan portfolio, this policy when implemented is not expected to have a material impact on the financial condition of the Company. Net charge-offs (recoveries) as a percentage of average loans for 1991 through 1993 were (.02%), .36% and .83%, respectively. Approximately $1.3 million or 54.6% of the 1993 net charge-offs represented a single customer relationship. Additional information regarding this credit as discussed under "provision for loan losses." Sources of Funds Premier's primary source of funds is deposits, which totaled $518.0 million at December 31, 1993. Total deposit growth of $209.1 million during 1993, which occurred primarily because of the Northbrook acquisition, included $55.0 million in noninterest bearing deposits. Noninterest bearing deposits as a percentage of total deposits increased to 20.3% in 1993, from 16.1% in 1992. Premier continues to see a shift from time deposits to nonbanking investment products. Management believes this shift in time deposits, as evidenced by the continuing decline of banking's share of the financial services market, is attributable to low levels of interest rates in general, a perceived decline in the value of deposit insurance, and customers reluctance to commit funds for a defined period of time. Premier offers nonbanking investment products and services which provide fee income and satisfies customer preferences. Liquidity Premier defines liquidity as having funds available to meet cash flow requirements. Effective management of balance sheet liquidity is necessary to fund growth in earning assets, to pay liabilities, to satisfy depositors' withdrawal requirements and to accommodate changes in balance sheet mix. Premier has three major sources for meeting liquidity requirements: 1) primary and secondary market deposits, 2) its investment portfolio, and 3) lines of credit from unaffiliated banks. An ongoing analysis of liquidity is performed at the subsidiary and Holding Company levels. Liquid assets are compared to the potential needs for funds to determine if the Company has sufficient coverage should any significant negative events occur. Management maintains a primary and total liquidity position that provides 100% coverage relative to the anticipated likelihood of potential events taking place. At year end, our liquidity coverage exceeded this position. Preferred Stock and Debt Service Requirements Prior to July 1993, Premier had no significant commitments for debt servicing nor dividends on preferred stock. Concurrent with the Northbrook acquisition, the Company's commitments in this regard changed substantially. On December 31, 1992, short-term borrowings included $ 1.9 million in notes payable to an unaffiliated bank. No preferred stock was outstanding. As of December 31, 1993, bank debt totaled $12.4 million, and $16.2 million in preferred stock was outstanding. It is estimated that during 1994, cash requirements for interest on the debt, projected dividends on common stock, and dividends on preferred stock will approximate $3.1 million. The Company has two sources of cash to meet these requirements: 1) dividends from subsidiary banks and 2) additional borrowing. Based upon current projections, management believes that earnings generated by the Company's subsidiary banks will be more than sufficient to support the required dividend and interest payments. Capital Total equity capital increased by $23.7 million to $55.4 million at December 31, 1993, from $31.7 million at December 31, 1992. As a result of the acquisition, $5.0 million of common stock and $16.2 million of preferred stock were issued. The remaining increase was due to the increase in retained earnings. The Federal Reserve Board currently specifies three capital measurements under the risk-based capital guidelines: 1) "Tier 1 Capital" (i.e., common stockholders' equity less goodwill to risk- adjusted assets), 2) "Total Risk-Based Capital" (i.e., Tier 1 Capital plus the lesser of 1.25% of risk-adjusted assets or the allowance for possible loan losses to risk-adjusted assets), and 3) "Tier 1 Leverage Ratio" (i.e., common stockholders' equity less goodwill to total assets less goodwill). Bank holding companies are required to maintain minimum risk-based capital ratios of 4% for "Tier 1," 8% for "Total Risk Based Capital," and a "Leverage Ratio" of 4% or greater. At December 31, 1993 Premier had a "Tier 1" ratio of 8.98%, well above the Regulatory minimum. Our "Total Risk-Based Capital Ratio" was 10.20%, and our "Leverage Ratio" was 5.49%, also considerably better than required. In addition, all of the banking subsidiaries met the definition of "well-capitalized" under the FDIC's risk related premium system at December 31, 1993. Overview With the addition of First Northbrook in 1993, our Company has a decidedly different look. We are much larger, with a significantly more complex balance sheet. Many of the financial challenges we experienced in 1993 were a direct result of the merger. We anticipate meeting those challenges aggressively and with positive results. PREMIER FINANCIAL SERVICES, INC. is a registered bank holding company. Premier was established under Delaware Law on December 31, 1976. The operations of Premier and its subsidiaries consist primarily of financial activities common to the commercial banking industry, as well as trust and investment services, data processing and electronic banking services and insurance. Services are extended to individuals, businesses, local government units and institutional customers throughout Northern Illinois. As of December 31, 1993, Premier's banking offices and nonbanking affiliations were as follows: First Bank/Freeport First Bank/Dixon First Bank/Mt. Carroll First Bank/Polo First Bank/Stockton First Bank/Sterling First Security Bank of Cary-Grove First Bank/Rockford First National Bank of Northbrook First Bank/Warren Premier Trust Services, Inc. Premier Insurance Services, Premier Operating Systems, Inc. Stock information Our common stock is traded on the over-the-counter market and is listed on NASDAQ under the symbol PREM. A two-year record, by quarter, of high and low bid prices, as well as cash dividends declared, is as follows:
1993 1992 Cash Cash Quarter High Low Dividends Quarter High Low Dividends 1st 22.00 19.50 .12 1st 15.75 13.00 .11 2nd 21.75 18.50 .12 2nd 18.00 15.00 .11 3rd 23.00 19.00 .12 3rd 20.50 16.50 .11 4th 23.50 21.25 .12 4th 25.00 19.00 .11 Total .48 Total .44 A stock dividend was declared and paid as follows: 1992 Declaration date January 23, 1992 Record date February 28, 1992 Payable date March 31, 1992 Distributed dividend rate 10% 10K notice The Annual Report to the Securities and Exchange Commission, Form 10-K, may be obtained by shareholders free of charge upon written request to the Secretary of the Corporation, Premier Financial Services, Inc., 27 West Main St., Suite 101, Freeport, IL 61032.
Five Year Summary of Selected Financial Data Earnings 1993 1992 1991 1990 1989 Interest income $30,441,589 $28,353,205 $30,634,167 $31,598,122 $30,558,157 Interest expense 12,750,769 13,358,608 17,366,302 19,898,067 19,112,397 Net interest income 17,690,820 14,994,597 13,267,865 11,700,055 11,445,760 Provision for possible loan losses 1,620,000 325,000 - - - Earnings before income taxes 5,591,280 6,335,317 4,920,829 3,819,099 3,417,739 Net earnings 4,011,210 4,352,115 3,618,395 2,882,105 2,342,239 Net earnings available to common shareholders 3,418,928 4,352,115 3,618,395 2,882,105 2,342,239 Per share statistics - Common 1993 1992* 1991* 1990* 1989* Net earnings $1.64 $2.23 $1.91 $1.47 $1.17 Cash dividend declared .48 .44 .32 .24 .20 Book Value 18.13 16.47 14.56 12.90 11.39 1993 1992 1991 1990 1989 Common shares outstanding - year end 2,163,107 1,927,536 1,918,717 1,878,446 1,985,585 1993 1992 1991 1990 1989 Rate earned on beginning stockholders' equity 12.64% 15.58% 14.93% 12.75% 11.60% Financial position - year end 1993 1992 1991 1990 1989 Investment securities $39,787,245 $28,314,011 $125,390,853 $157,054,940 $136,710,845 Securities available for sale 140,699,066 77,520,998 - - - Loans, net 327,018,113 217,249,829 211,540,534 176,549,802 161,101,792 Allowance for possible loan losses 4,369,290 2,712,863 3,202,509 3,159,714 3,476,574 Excess cost over fair value of net assets acquired 23,193,016 3,009,951 3,204,148 3,399,302 3,593,499 Noninterest bearing deposits 104,976,862 49,979,533 40,304,642 44,142,877 41,622,572 Interest bearing deposits 413,042,081 258,913,579 246,474,882 247,248,068 264,810,725 Total deposits 518,018,943 308,893,112 286,779,524 291,390,945 306,433,297 Short-term borrowings 12,410,000 6,152,000 14,501,000 7,302,000 7,362,000 Securities sold under agreements to repurchase 20,571,658 14,854,410 43,687,552 50,534,481 2,756,581 Long-term debt - - - 1,119,264 6,119,264 Stockholders' equity 55,416,039 31,737,646 27,929,137 24,228,635 22,606,385 Total assets 610,663,210 364,024,410 375,494,615 377,431,653 348,587,775
* Per share statistics have been adjusted to reflect 5% stock dividends to shareholders of record February 28, 1989, February 28, 1990, February 28, 1991 and a 10% stock dividend to stockholders of record February 28, 1992.
Board of Directors Directors Principal Occupation Principal Business Donald E. Bitz Retired Chairman of the Board Insurance Company & Chief Executive Officer Economy Fire & Casualty Co. H.L. Fenton Retired Chairman of the Board & Chief Executive Officer R. Gerald Fox President & Chief Executive Publisher of financial boooks Officer F.I.A. Financial books and periodicals Publishing Company Richard L. Geach President & Chief Executive Officer Charles M. Luecke President, Luecke Jewelers, Inc. Retail Jeweler Edward G. Maris Vice President-Finance, Secretary Raw steel production and & Treasurer, Northwestern Steel finished steel/wire products and Wire Company David L. Murray Executive Vice President & Chief Financial Officer H. Barry Musgrove President, Frantz Manufacturer of overhead Manufacturing Company doors and ant-friction products Dr. Joseph C. Piland Educational Consultant & Retired President, Highland Community College
EX-21 3 SUBSIDIARIES OF COMPANY Exhibit 21 Subsidiaries of Company Listed below is a list of the Company's subsidiaries and the state or jurisdiction of their incorporation as of December 31, 1993. The Company is incorporated in the State of Delaware. First Bank North Illinois state banking laws First Bank South Illinois state banking laws First National Bank of Northbrook National banking laws First Security Bank of Cary Grove Illinois state banking laws Premier Acquisition Company State of Delaware Premier Trust Services, Inc. State of Illinois Premier Insurance Services, Inc. State of Illinois Premier Operating Systems, Inc. State of Illinois EX-23 4 CONSENTS OF EXPERTS Exhibit 23 CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS We consent to incorporation by reference in the Registration Statement on Form S-8 of Premier Financial Services, Inc. (Company) of our report dated January 28, 1994, relating to the consolidated balance sheets of the Company as of December 31, 1993 and 1992 and the related consolidated statements of earnings, changes in stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 1993, which report appears in the December 31, 1993 annual report on Form 10-K of the Company. KPMG Peat Marwick Chicago, Illinois March 25,1994 EX-99 5 11-K EXHIBIT 99 SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 11-K ANNUAL REPORT Pursuant to Section 15 (d) of the Securities Exchange Act of 1934 For the Fiscal Year Ended December 31, 1993 PREMIER FINANCIAL SERVICES, INC. EMPLOYEE SAVINGS AND STOCK PLAN AND TRUST (Full title of the Plan) PREMIER FINANCIAL SERVICES, INC. 27 WEST MAIN STREET FREEPORT, IL 61032 (Name of issuer of the Securities held pursuant to the Plan and the address of principal executive offices, including Zip Code) Required Information Financial Statements. The following financial statements are filed as part of this report: (a) Financial Statements of the Plan which are included in the annual report of the Plan to its Participants for the year ended December 31, 1993 as follows: Independent Auditors' Report Statements of Net Assets Available for Plan Benefits December 31, 1993 and 1992 Statements of Changes in Net Assets Available for Plan Benefits for the two years ended December 31, 1993 Notes to Financial Statements Schedule I - Reportable Transactions for the year ended December 31, 1993 Schedule II - Allocation of Net Assets Available for Plan Benefits December 31, 1993 and 1992 Schedule III - Allocation of Changes in Net Assets for Plan Benefits for the two years ended December 31, 1993 SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the trustees have duly caused this annual report to be signed on its behalf by the undersigned hereunto duly authorized. Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust March 24, 1994 By: David L. Murray David L. Murray, Executive Vice President, Chief Financial Officer and Director Appendix Pursuant to paragraph 232.311 (c) of Regulation S-T, Premier Financial Services, Inc. is submitting on paper under cover of Form SE the financial statements of the Plan which are included in the annual report of the Plan to its participants for the year ended December 31, 1993. -----END PRIVACY-ENHANCED MESSAGE-----