-----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, aQlZh4M75KB+P+2BclPZi7i2Y+hqnKwLUBxZmiWHz8/DsSC41DShCaA9qGAZgGK8 XHLNnsHC0BdBKVnPVAseOw== 0000036340-95-000006.txt : 19950616 0000036340-95-000006.hdr.sgml : 19950616 ACCESSION NUMBER: 0000036340-95-000006 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 7 CONFORMED PERIOD OF REPORT: 19941231 FILED AS OF DATE: 19950323 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000036340 STANDARD INDUSTRIAL CLASSIFICATION: STATE COMMERCIAL BANKS [6022] IRS NUMBER: 362852290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13425 FILM NUMBER: 95522697 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 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, 1994, 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, 1995, based upon the average bid and asked price at this date: $40,573,736.00 At February 28, 1995, the registrant had outstanding 6,522,178 shares of its common stock, $5.00 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1994 Annual Report to Shareholders are incorporated by reference into Part II of the Form 10-K. Portions of the Proxy Statement for Registrant's 1995 Annual Meeting of Shareholders to be held April 27, 1995 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, DeKalb, 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. On September 29, 1994, the Reigle-Neal Interstate Banking and Branching Efficiency Act (the "Reigle- Neal Act") became law. The Act authorizes interstate acquisitions by bank holding companies, interstate mergers of banks, interstate bank branching and "agency banking" with affiliate banks in different states. There are several effective dates under the Reigle-Neal Act. Generally, interstate acquisitions and "agency banking" are permitted as of September 29, 1995, and interstate bank mergers and interstate branching are permitted as of June 1, 1997. However, states may "opt-in" or "opt-out" of the interstate merger and branching provisions before June 1, 1997. 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 or branch office with a 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 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; (viii) provisions that require the regulatory agencies to adopt regulations that facilitate cross-industry transactions, and (ix) provisions for 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 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. 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 minimum Tier 1 capital to risk weighted asset ratio of 4% and a total capital to risk weighted asset ratio of at least 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 the regulating capital 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, 1994, the Company and its subsidiaries had a total of 273 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, Mount Carroll, and DeKalb, 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 year is $6,000. FBN's office in Mount Carroll is located at 102 E. Market Street, Mount Carroll, Illinois, with a separate drive-in facility located at 315 N. Clay Street (Highway 78), in Mount Carroll. 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 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 Rockford office is located at 3957 Mulford Road, Rockford, Illinois. Both the building which contains approximately 1358 square feet and underlying land are leased from an unaffiliated party through May 1, 1999, with an option to renew annually. FBN's office in DeKalb is located at 301-9 East Lincoln Highway, DeKalb, Illinois. Both the building and underlying land are leased from an unaffiliated party through August 1995, with an option to renew annually. 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's office in Polo is 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's Sterling office is 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. 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 is the 4 lane drive-through and the underlying land. The adjoining parking lot contains 26,000 square feet of land. FSBCG owns a second banking center at 3114 Northwest Highway, Cary, Illinois. The building consists of 1,856 square feet, and three drive-through lanes situated on 145,953 square feet of land. Premier Operating Systems, Inc. conducts the majority of its operations from a 13,000 square foot, two story office building at 110 West Stephenson Street, Freeport, Illinois. 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, 1994. 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, 1994. 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 12/31/94 was as follows: Title of Class No. of Record Holders Common Stock 671 ($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, 1994, 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, 1994, 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. 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, 1994, 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, 1994 Loan Portfolio Loan Maturities and Sensitivity to Changes in Interest Rates, December 31, 1994 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 December31, 1994 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, 1994, are submitted herewith as an exhibit, and are incorporated by reference: 1. Consolidated Balance Sheets, December 31, 1994 and 1993 2. Consolidated Statements of Earnings, for the three years ended December 31, 1994 3. Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1994 4. Consolidated Statements of Cash Flows for the three years ended December 31, 1994 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosures None 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 1990 1991 1992 1993 1994 ASSETS: Cash & Non-interest bearing deposits $ 16,457 $ 15,129 $ 17,162 $30,003 $ 27,316 Interest Bearing Deposits 1,701 1,114 880 1,677 12,027 Taxable Investment Securities 119,804 114,281 95,691 102,323 185,110 Non-Taxable Investment Securities 20,102 26,200 24,374 37,038 40,498 Total Investment Securities 139,906 140,481 120,065 139,361 225,608 Trading Account Assets 386 773 2,017 --- --- Federal Funds Sold 9,390 1,704 656 4,706 3,737 Loans (Net) 169,711 182,975 219,684 273,951 287,825 All Other Assets 17,827 16,755 17,450 32,101 46,101 TOTAL ASSETS $355,378 $358,931 $377,914 $481,799 $602,614 LIABILITIES & STOCKHOLDERS EQUITY: Non-Interest Bearing Deposits $ 36,437 $ 36,118 $ 38,402 $ 66,895 $ 88,594 Interest Bearing Deposits 275,436 244,253 259,271 335,510 420,530 Total Deposits 311,873 280,371 297,673 402,405 509,124 Short Term Borrowings 12,469 49,544 47,556 24,014 33,033 Long Term Debt 4,532 826 --- --- --- All Other Liabilities & Reserves 3,500 2,861 2,844 10,785 4,619 Stockholders' Equity 23,004 25,329 29,841 44,595 55,838 TOTAL LIABILITIES & EQUITY $355,378 $358,931 $377,914 $481,799 $602,614 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 1990 1991 1992 1993 1994 Interest Earned: Interest Bearing Deposits Interest Earned $ 144 $ 94 $ 68 $ 104 $ 514 Average Yield 8.47% 8.43% 7.73% 6.20% 4.27% Taxable Investment Securities Interest Earned 10,234 9,387 6,691 6,077 9,929 Average Yield 8.54% 8.21% 6.99% 5.94% 5.36% Non-Taxable Investment Securities (taxable equivalent) (1) Interest Earned 1,961 2,593 2,418 3,080 3,965 Average Yield 9.76% 9.89% 9.92% 8.32% 9.79% Trading Account Assets Interest Earned 31 58 151 --- --- Average Yield 8.03% 7.50% 7.49% --- --- Federal Funds Sold Interest Earned 768 88 25 133 150 Average Yield 8.18% 5.16% 3.81% 2.83% 4.01% Loans (Excluding Unearned Discount & Non Accrual Loans) (taxable equivalent) (1) Interest & Fees Earned (2) 19,226 19,357 19,860 22,262 23,641 Average Yield (3) 11.21% 10.56% 9.06% 8.13% 8.21% Interest Paid: Interest Bearing Deposits Interest Paid 18,464 14,358 11,559 11,461 13,511 Average Effective Rate Paid 6.70% 5.87% 4.46% 3.42% 3.21% Borrowed Funds Interest Paid 968 2,921 1,800 1,289 1,619 Average Effective Rate Paid 7.76% 5.89% 3.79% 5.37% 4.90% Long Term Debt Interest Paid 465 88 --- --- --- Average Effective Rate Paid 10.26% 10.65% --- --- --- Margin Between Rates Earned and Rates Paid: All Interest Earnings Assets (taxable equivalent) Interest & Fees Earned 32,364 31,577 29,213 31,656 38,199 Average Yield 10.02% 9.65% 8.52% 7.55% 7.24% All Interest Bearing Liabilities Interest Paid 19,898 17,367 13,359 12,750 15,130 Average Effective Rate Paid 6.80% 5.89% 4.35% 3.55% 3.33% Net Interest Earned 12,466 14,210 15,854 18,906 23,069 Net Yield 3.86% 4.34% 4.62% 4.43% 4.32% (1) Yields on tax exempt securities and loans are full tax equivalent yields at 34%. (2) Includes fees of $255, $548, $568, $718 and $675 for 1990 through 1994 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) 1993 over 1992 1994 over 1993 Rate Volume Rate Volume Changes in Interest Earned: Interest Bearing Deposits $ (16) $ 52 (42) 452 Taxable Investment Securities (1,055) 441 (644) 4,496 Non-taxable Investment Securities (taxable equivalent) (438) 1,100 579 306 Trading Account Assets --- (151) --- --- Fed Funds Sold (8) 116 48 (31) Loans (net) (2,185) 4,587 224 1,155 Total $(3,702) $6,145 $ 165 6,378 Changes in Interest Paid: Interest Bearing Deposits $(3,051) $2,953 (735) 2,785 Short Term Borrowings 581 (1,092) (121) 451 Total $(2,470) 1,861 (856) 3,236 Changes in Interest Margin $(1,232) $4,284 $ 1,021 $3,142 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): 1990 1991 1992 1993 1994 U.S. Treasury and U.S. Agency Securities $114,485 $ 89,825 $ 77,897 $140,725 $203,956 Obligations of States and Political Subdivisions 26,145 25,258 24,358 36,693 40,513 Other Securities 16,425 10,308 3,580 3,068 4,009 Total $157,055 $125,391 $105,835 $180,486 $248,478 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, 1994 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 $ 85,341 $ 9,025 $ --- 6.17% After One Year to Five Years 75,434 21,739 18 6.98% After Five Years to Ten Years 8,729 5,949 --- 9.00% Over Ten Years 34,452 3800 3,991 8.74% Total $ 203,956 $ 40,513 $ 4,009 6.77% (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, 1994 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 1990 1991 1992 1993 1994 Commercial & Financial Loans $ 56,043 $ 83,777 $ 88,341 $121,514 $ 91,392 Agricultural Loans 38,738 32,428 45,924 40,972 31,564 Real Estate - Residential Mortgage Loans 56,980 66,256 54,728 103,234 86,105 Real Estate - Other 10,130 18,289 16,904 35,832 53,289 Loans to Individuals 16,185 13,364 13,268 29,728 22,056 Other Loans 1,857 859 980 625 394 179,933 214,973 220,145 331,905 284,800 Less: Unearned Discount 223 231 182 518 344 Allowance for Possible Loan Losses 3,160 3,202 2,713 4,369 3,688 Net Loans $176,550 $211,540 $217,250 $327,018 $280,768 The following tables set forth the registrant's loan maturity distribution for certain major categories of loans as of December 31, 1994 (dollar figures in thousands). AMOUNT DUE IN 1 Year or Less 1-5 Years After 5 Years Commercial & Financial Loans $ 77,301 $ 13,947 $ 144 Agricultural Loans 26,806 4,471 287 Real Estate - Other Loans 26,528 22,715 4,046 Total $ 130,635 $ 41,133 $ 4,477 As of December 31, 1994 loans totaling $45,274,000, which are due after one year have predetermined interest rates, while $336,000 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 1990 1991 1992 1993 1994 Non-accrual Loans $ 156 $ 3,683 $ 2,915 $ 5,791 $ 4,879 Loans Past Due 90 days or More 946 501 152 5,151 144 Renegotiated Loans 372 314 288 523 261 Other Real Estate 210 48 153 1,749 1,403 Total $ 1,684 $ 4,546 $ 3,508 $13,214 $6,687 The following table sets forth interest information for certain non- performing loans for the year ended December 31, 1994 (dollar figures in thousands): Non-Accrual Loans Renegotiated Loans Balance December 31, 1994 $ 4,879 $ 261 Gross interest income that would have been recorded if the loans had been current in accordance with their original terms 507 23 Amount of interest included in net earnings. 87 23 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 28% 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 12/31/94: Loans-year End (Gross) $ 122,956 $139,394 $ 22,056 $ 394 $ --- $284,800 Average Loans (Gross) 131,808 135,561 24,354 581 --- 292,304 Allowance for Loan Losses (Beginning of Year) 1,105 1,607 585 21 1,051 4,369 Loans Charged Off 1,081 73 370 --- --- 1,524 Recoveries - Loans Previously Charged Off 414 15 214 --- --- 643 Net Loan Losses (Recoveries) 667 58 156 --- --- 881 Operating Expense Provision 200 --- --- --- --- 200 Allowance For Loan Losses (Year End) 638 1,549 429 21 1,051 3,688 Ratios: Loans in Category to Total Loans 43.17% 48.95% 7.74% .14% --- 100% Net Loan Losses (Recoveries) to Average Loans .50% .04% .64% --- --- .30% 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% 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 1990 1991 1992 1993 1994 Demand Deposits (Non- Interest Bearing) $ 36,437 $ 36,119 $ 38,402 $66,895 $ 88,594 Demand Deposits (Interest Bearing) 32,948 38,194 44,772 57,937 93,788 Savings Deposits 71,821 67,456 73,684 95,351 154,188 Time Deposits 170,667 138,603 140,815 182,222 172,554 Deposits in Foreign Bank Offices None None None None None TOTAL DEPOSITS $311,873 $280,372 $297,673 $402,405 $509,124 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 1990 1991 1992 1993 1994 Demand Deposits (Interest Bearing) 5.26% 4.83% 3.67% 2.41% 2.37% Savings Deposits 5.45% 4.89% 3.52% 2.74% 2.99% Time Deposits 7.50% 6.65% 5.20% 4.09% 4.30% 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, 1994 (in thousands): Maturity Amount Outstanding 3 months or less $ 8,006 3 through 6 months 2,953 6 through 12 months 5,809 Over 12 months 4,097 TOTAL $ 20,865 RETURN ON EQUITY AND ASSETS PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's return on average assets, return on average common equity, 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 1990 1991 1992 1993 1994 Return on Average Assets .81% 1.01% 1.15% .83% .95% Return on Average Common Equity 12.53% 14.29% 14.58% 10.80% 11.11% Return on Average Equity 12.53% 14.29% 14.58% 8.99% 10.23% Dividend Payout Ratio 16.32% 16.75% 19.73% 29.27% 26.47% Average Equity to Average Asset Ratio 6.47% 7.06% 7.90% 9.26% 9.27% 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 1990 1991 1992 1993 1994 Balance at End of Period: Federal Funds Purchased $ 4,272 $ 14,241 $ 4,272 $ --- $ 13,975 Securities Sold Under Repurchase Agreements 50,534 43,688 14,854 20,571 16,086 Notes Payable to Banks 1,030 260 1,880 12,410 12,210 Other 2,000 --- --- --- --- TOTAL $ 57,836 $ 58,189 $21,006 $32,981 $ 42,271 Weighted Average Interest Rate at the end of Period: Federal Funds Purchased 7.68% 4.75% 3.53% --- 5.75% Securities Sold Under Repurchase Agreements 7.19% 4.53% 3.79% 2.76% 4.47% Notes Payable to Banks 10.00% 6.50% 6.00% 6.00% 8.00% Other 6.50% --- --- --- --- Highest Amount Outstanding at Any Month-End: Federal Funds Purchased $ 7,072 $ 14,241 $16,614 $18,535 $13,975 Securities Sold Under Repurchase Agreements 50,534 47,033 45,557 23,952 23,127 Notes Payable to Banks 3,300 1,115 1,880 17,500 14,555 Other 2,380 2,000 --- --- 1,000 Average Outstanding During the Year: Federal Funds Purchased $ 2,737 $ 6,305 $10,715 $ 8,534 $ 3,205 Securities Sold Under Repurchase Agreements 8,187 42,320 36,073 15,480 16,872 Notes Payable to Banks 1,370 760 768 7,362 12,755 Other 176 160 --- --- 201 Weighted Average Interest Rate During the Year: Federal Funds Purchased 8.00% 5.78% 3.93% 3.30% 4.90% Securities Sold Under Repurchase Agreements 7.31% 5.87% 3.74% 3.58% 3.26% Notes Payable to Banks 10.17% 8.63% 6.12% 6.14% 7.07% Other 6.75% 6.40% --- --- 3.98% PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995 in connection with its annual meeting to be held on April 27, 1995. 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 20, 1995 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 20, 1995, in connection with its annual meeting to be held on April 27, 1995. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995, in connection with its annual meeting to be held on April 27, 1995. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995 in connection with its annual meeting to be held on April 27, 1995. 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, 1994 as follows: 1. Consolidated Balance Sheets, December 31, 1994 and 1993 2. Consolidated Statements of Earnings, for the three years ended December 31, 1994. 3. Consolidated Statements of Cash Flows, for the three years ended December 31, 1994. 4. Consolidated Statements of Changes in Stockholders' Equity, for the three years ended December 31, 1994. 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 1994. 21. Subsidiaries of the Registrant. 22. Published report regarding matters submitted to vote of security holders. See previous filing submitted on March 13, 1995. 23. Consents of Experts and Counsel. 99a. Premier Financial Services, Inc. Stock and Savings Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1994. 99b. Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1994. 2. Reports on Form 8-K The registrant has not filed a report on Form 8-K, during the quarter ended December 31, 1994. 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 23, 1995 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 23, 1995 Date: March 23, 1995 R. Gerald Fox Charles M. Luecke Date: March 23, 1995 Date: March 23, 1995 Joseph C. Piland H. Barry Musgrove Date: March 23, 1995 Date: March 23, 1995 E. G. Maris Date: March 23, 1995 Appendix Pursuant to paragraph 232.311 (c) of Regulatin 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, 1994. EX-13 2 TO OUR STOCKHOLDERS: The Board of Directors, Officers, and Staff of Premier Financial Services, Inc. are pleased to present our 1994 Annual Report to you. The numbers shown in the report and discussed in the Analysis of Financial Condition and Results of Operations detail our financial performance. Among other measures of success, earnings per share improved by 23.6% over 1993; non-performing assets decreased from $13.2 million at year end 1993 to $7.1 million this year; and dividends on your common stock were increased by 28.6%, from $.14 to $.18 per share. Our primary commitment to you is to deliver superior financial performance on your behalf. The financial results we've experienced in 1994 are gratifying. From a longer term perspective, the progress we've made in digesting a major acquisition over the past year and a half adds an important potential for continued improvement. Premier is an emerging financial services company. As we move into 1995 and beyond, we intend to continue building Premier on the dynamics in the marketplace, dynamics which are rapidly redefining our industry. Regulatory pressures to preserve banking as a transaction oriented, niche industry are enormous. Customers, however, continue to prefer complete financial services, not fragmented products provided by various types of organizations. You'll notice that the first page of this report depicts a "pie" of financial services. Each piece of the pie is an important component in a complete financial relationship. The chart doesn't really show anything new. Most of these products and services have been around for years; but, it's been necessary to go to several different companies to get them. Now, most of them are available through any number of providers and all of them through Company's like ours. It's critical that each of them be considered, and then integrated into a complete financial portfolio. Premier has the expertise to deliver them all. The point is this; the successful, profitable financial services firm of the future must be equipped to guide its customers through a maze of financial choices by helping them with all of their financial needs. That's where Premier comes in, and that's what we do best. Premier is a FINANCIAL SERVICES COMPANY, and we can provide our customers with the whole "pie". We're proud of our staff, their skills and their commitment to accommodate our customers' financial needs. We also intend to continue looking for opportunities to diversify and expand Premier both geographically and in our existing market areas. In mid 1993, we took a major step in that direction by adding First National Bank of Northbrook and First Security Bank of Cary-Grove to our Company. In December, 1994, we added another vibrant market, DeKalb, by purchasing a branch office and customer base. We look forward to Premier's future. Competing in the financial services arena is both challenging and rewarding. Premier, we believe, is positioned to be an effective competitor. Thank you for your investment in our Company, and your support of our efforts. Cordially, Richard L. Geach President & Chief Executive Officer David L. Murray Executive Vice President & Chief Financial Officer
Consolidated Balance Sheets - ------------------------------------------------------------------------------------------------------------------------------ December 31, 1994, and 1993 1994 1993 - ------------------------------------------------------------------------------------------------------------------------------ Assets Cash & non-interest bearing deposits $31,186,418 $26,151,048 Interest bearing deposits 14,683,941 20,227,486 Federal funds sold - 9,977,000 - ------------------------------------------------------------------------------------------------------------------------------ Cash and cash equivalents 45,870,359 56,355,534 - ------------------------------------------------------------------------------------------------------------------------------ Investments held to maturity (approximate market value): December 31, 1994 - $40,516,000 December 31, 1993 - $41,572,000 40,513,480 39,787,245 Securities available for sale (approximate market value): December 31, 1994 - $207,965,000 December 31, 1993 - $141,744,000 207,964,644 140,699,066 Loans 284,799,933 331,905,335 Less: Unearned discount ( 343,902) ( 517,932) Allowance for possible loan losses ( 3,688,386) ( 4,369,290) - ------------------------------------------------------------------------------------------------------------------------------ Net loans 280,767,645 327,018,113 - ------------------------------------------------------------------------------------------------------------------------------ Bank premises & equipment 14,254,748 15,153,969 Excess cost over fair value of net assets acquired 21,600,583 23,193,016 Accrued interest receivable 5,835,006 5,070,332 Other assets 3,697,272 3,385,935 - ------------------------------------------------------------------------------------------------------------------------------ Total assets $620,503,737 $610,663,210 - ------------------------------------------------------------------------------------------------------------------------------ Liabilities & stockholders' equity Non-interest bearing deposits $86,018,604 $104,976,862 Interest bearing deposits 437,674,799 413,042,081 - ------------------------------------------------------------------------------------------------------------------------------ Deposits 523,693,403 518,018,943 - ------------------------------------------------------------------------------------------------------------------------------ Short-term borrowings 26,185,000 12,410,000 Securities sold under agreements to repurchase 16,085,872 20,571,658 Accrued taxes & other expenses 1,759,512 3,667,295 Other liabilities 303,118 579,275 - ------------------------------------------------------------------------------------------------------------------------------ Liabilities 568,026,905 555,247,171 - ------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 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 5,000,000 Series B convertible, $1,000 stated value, 7.50%, 7,250 shares authorized, 7,250 shares issued and outstanding at December 31, 1994, 5,950 shares issued and outstanding at December 31, 1993; 7,250,000 5,950,000 Series C perpetual, $1,000 stated value, 7.00%, 1,950 shares authorized, issued and outstanding at December 31, 1993; - 1,950,000 Series D perpetual, $1,000 stated value, 3,300 shares authorized, 2,000 shares issued and outstanding at 7.50%, at December 31, 1994, 3,300 shares issued and outstanding at 9.00%, at December 31, 1993; 2,000,000 3,300,000 Common stock- $5.00 par value No. of Shares 1994 1993 Authorized 15,000,000 2,500,000 Issued 6,526,227 2,172,863 Outstanding 6,504,876 2,163,107 32,631,135 10,864,315 Surplus - 16,134,180 Retained earnings 10,149,027 12,426,322 Unrealized loss on securities available for sale (net of tax) ( 4,403,568) - Treasury stock, (21,351 shares at cost, 1994 and 9,756 at cost, 1993) ( 149,762) ( 208,778) - ------------------------------------------------------------------------------------------------------------------------------ Stockholders' equity 52,476,832 55,416,039 - ------------------------------------------------------------------------------------------------------------------------------ Total liabilities & stockholders' equity $620,503,737 $610,663,210 - ------------------------------------------------------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings - ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1994, 1993 and 1992 Interest income 1994 1993 1992 Interest & fees on loans $23,625,296 $22,235,746 $19,821,679 Interest & dividends on investment securities: Taxable 9,928,614 6,077,449 6,691,118 Exempt from federal income tax 2,309,789 1,891,854 1,596,176 Other interest income 663,317 236,540 244,232 - ----------------------------------------------------------------------------------------------------------------------------------- Interest income 36,527,016 30,441,589 28,353,205 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense Interest on deposits 13,510,527 11,461,443 11,558,533 Interest on short-term borrowings 1,618,879 1,289,326 1,800,075 - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense 15,129,406 12,750,769 13,358,608 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 21,397,610 17,690,820 14,994,597 Provision for possible loan losses 200,000 1,620,000 325,000 - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 21,197,610 16,070,820 14,669,597 - ----------------------------------------------------------------------------------------------------------------------------------- Other income Trust fees 2,367,156 2,161,597 1,855,838 Service charges on deposits 1,907,463 1,466,387 934,461 Net gains on loans sold to secondary market 256,831 886,231 649,707 Investment securities gains, net 35,201 136,391 358,038 Other operating income 2,119,461 1,342,701 976,597 - ----------------------------------------------------------------------------------------------------------------------------------- Other income 6,686,112 5,993,307 4,774,641 - ----------------------------------------------------------------------------------------------------------------------------------- Other expenses Salaries 7,767,407 6,814,448 5,996,881 Pension, profit sharing, & other employee benefits 1,112,672 825,066 803,954 Net occupancy of bank premises 1,981,801 1,523,649 1,117,690 Furniture & equipment 1,088,454 1,064,031 882,818 Federal deposit insurance premiums 1,161,540 918,447 650,656 Amortization of excess cost over fair value of net assets acquired 1,592,433 833,838 194,197 Other 5,059,412 4,493,368 3,462,725 - ----------------------------------------------------------------------------------------------------------------------------------- Other expense 19,763,719 16,472,847 13,108,921 - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 8,120,003 5,591,280 6,335,317 Applicable income taxes 2,409,708 1,580,070 1,983,202 - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings $5,710,295 $4,011,210 $4,352,115 =================================================================================================================================== Earnings per share (On weighted average outstanding common shares of 6,648,744 in 1994, 6,245,097 in 1993 and 5,855,787 in 1992) $.68 $.55 $.74 ===================================================================================================================================
See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1994, 1993 and 1992 1994 1993 1992 ------- -------- -------- Cash flows from operating activities: Net earnings $5,710,295 $4,011,210 $4,352,115 Adjustments to reconcile net earnings to net cash from operating activities: Amortization net, related to: Investment securities 2,002,842 1,239,194 110,677 Excess of cost over net assets acquired 1,592,433 833,838 194,197 Other 248,371 178,029 ( 36,348) Depreciation 1,135,556 1,076,355 893,735 Provision for possible loan losses 200,000 1,620,000 325,000 Gain on sale related to: Investment securities ( 35,201) ( 136,391) ( 358,038) Loans sold to secondary market ( 256,831) ( 886,231) ( 649,707) Loans originated for sale ( 18,864,000) ( 58,485,000) ( 62,810,000) Loans sold to secondary market 18,864,000 58,485,000 62,810,000 Deferred income tax (benefit) expense 239,000 108,000 ( 38,443) Change in: Securities available for sale - ( 64,108,609) - Trading account assets - - 500,000 Accrued interest receivable ( 764,674) ( 1,374,094) 682,283 Other assets ( 311,337) ( 4,850,293) 143,885 Accrued taxes & other expenses ( 2,146,783) 1,623,933 14,135 Other liabilities ( 276,156) 127,395 ( 185,852) --------------------------------------------------------------------------------------------------------------------- Net cash from operating activities ( 7,337,515) ( 60,537,664) 5,947,639 --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Cash portion of acquisition, net of cash and cash equivalents acquired - ( 2,390,348) - Purchase of investment securities ( 11,095,547) ( 20,141,426) ( 78,440,053) Purchase of Securities Available for sale (131,754,087) Proceeds from: Maturities of investment securities 6,791,405 5,038,965 49,218,292 Sales of investment securities - 3,456,965 49,024,966 Maturities of securities available for sale 38,951,206 Sales of securities available for sale 22,744,000 Net increase in loans 46,113,195 ( 110,655,210) ( 5,135,541) Purchase of bank premises & equipment ( 290,602) ( 4,614,612) ( 4,949,619) ---------------------------------------------------------------------------------------------------------------------------- Net cash from investing activities ( 28,540,430) ( 129,305,666) 9,718,045 --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in: Deposits 5,674,460 209,125,831 22,113,588 Securities sold under agreements to repurchase ( 4,485,786) 5,717,248 ( 28,833,142) Short term borrowings 13,775,000 6,258,000 ( 8,349,000) Purchase of treasury stock - ( 208,778) - Reissuance (purchase) of treasury stock 59,016 - - Exercised stock options 19,000 - 74,901 (Redemption) issuance of preferred stock ( 1,950,000) 5,000,000 - Cash dividends paid ( 2,373,950) ( 1,574,037) ( 831,206) --------------------------------------------------------------------------------------------------------------------- Net cash from financing activities 10,717,740 224,318,264 ( 15,824,859) --------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents ( 10,485,175) 34,474,934 ( 159,175) Cash and cash equivalents, beginning of year 56,355,534 21,880,600 22,039,775 --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $45,870,359 $56,355,534 $21,880,600 --------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid during the year for: Interest 14,951,689 12,885,202 13,663,283 Income taxes 2,148,000 1,980,000 1,836,881 Purchase of Bank Subsidiaries and Branch Fair value of assets acquired 90,514 248,018,274 - Cash received (paid) 10,037,078 ( 16,325,000) - Common and preferred stock issued - ( 16,450,000) - Excess cost over fair value of assets acquired - 21,007,210 - Deposit premium 1,123,304 - - Fair value of liabilities assumed 11,250,896 236,250,484 - Non-cash activities: Investment securities transferred to securities available for sale 141,744,000 - 77,520,998 Conversion of preferred stock 1,300,000 - -
See accompanying notes to consolidated financial statements.
- ---------------------------------------------------------------------------------------------------------------------------------- Consolidated Statements of Changes in Stockholders' Equity - ----------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1994, 1993, and 1992 Unrealized Loss On Securities ESOP Shares Preferred Common Retained Available For Treasury Purchased Stock Stock Surplus Earnings Sale, Net Of Tax Stock With Debt Total - ------------------------------------------------------------------------------------------------------------------------------ Balance January 1, 1992 $ - $9,050,760 $10,760,735 $9,080,864 $ - ( $750,523) ($212,699) $27,929,137 - ------------------------------------------------------------------------------------------------------------------------------ Net earnings 4,352,115 4,352,115 Cash dividends ( 831,206) ( 831,206) 10% stock dividend 870,875 1,741,749 ( 2,612,624) - Employee stock ownership plan debt reduction 212,699 212,699 Exercised stock options 44,095 30,806 74,901 - ------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1992 - 9,965,730 12,533,290 9,989,149 ( 750,523) - 31,737,646 - ------------------------------------------------------------------------------------------------------------------------------- Net earnings 4,011,210 4,011,210 Cash dividends common stock ( 981,755) ( 981,755) Cash dividends preferred stock ( 592,282) ( 592,282) Issuance of Class A perpetual preferred shares 5,000,000 5,000,000 Issuance of shares in acquisition: Common shares 898,585 3,600,890 4,499,475 Class B convertible preferred shares 5,950,000 5,950,000 Class C perpetual preferred shares 1,950,000 1,950,000 Class D perpetual preferred shares 3,300,000 3,300,000 Treasury stock reissuance 750,523 750,523 Treasury stock purchase ( 208,778) ( 208,778) - -------------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1993 16,200,000 10,864,315 16,134,180 12,426,322 - ( 208,778) - 55,416,039 - -------------------------------------------------------------------------------------------------------------------------------- Net earnings 5,710,295 5,710,295 Cash dividends common stock (1,169,392) (1,169,392) Cash dividends preferred stock (1,204,558) (1,204,558) Three-for-one stock split 21,728,630 (16,134,180) (5,594,450) - Redemption of Series C - perpetual preferred stock ( 1,950,000) (1,950,000) Exercised stock options 38,190 (19,190) 19,000 Unrealized loss on securities available for sale, net of tax ( 4,403,568) (4,403,568) Treasury stock reissuance 59,016 59,016 - ------------------------------------------------------------------------------------------------------------------------------ Balance December 31, 1994 $14,250,000 $32,631,135 $ - $10,149,027 ( $4,403,568) ( $149,762)$ - $52,476,832 - ------------------------------------------------------------------------------------------------------------------------------
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1994 in conformity with generally accepted accounting principles. As discussed in Note 1 the Company changed its method of accounting for investments to adopt the provisions of the Financial Accounting Standards Board's Statement of Financial Accounting Standard No. 115, Accounting for Certain Investments in Debt and Equity Securities, in 1994. KPMG Peat Marwick, LLP Chicago, Illinois January 27, 1995 Notes to Consolidated Financial Statements December 31, 1994, 1993 and 1992 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. Investments held-to-maturity Investments held-to-maturity are stated at cost adjusted for amortization of premiums and accretion of discounts on the level yield method over the life of the security. Management has the positive intent and ability to hold these investment securities to maturity. Securities available for sale The Company adopted Statement of Financial Accounting Standards (SFAS) No. 115, Accounting for Certain Investments in Debt and Equity Securities, on January 1, 1994. In accordance with SFAS No. 115, securities classified as "securities available for sale" are carried at market value with unrealized gains and losses net of income taxes excluded from earnings and reported as a separate component of stockholders' equity. Prior to adoption of SFAS No. 115, these securities were carried at the lower of cost or market value. The impact of the adoption of SFAS No. 115 increased stockholders' equity by $690,000. 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 judgement, 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. 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 of 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, deferred income taxes were recognized for income and expense items that were 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 were not adjusted for subsequent changes in tax rates. 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, 1994 and 1993 were $1,899,000 and $1,055,000. 15 3. Investments held-to-maturity and securities available for sale The amortized cost and approximate market value of investments held- to-maturity at December 31, 1994 and 1993 are as follows (in thousands):
1994 1993 Gross Gross Approximate Gross Gross Approximate Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value U.S. Government and federal agency obligations $- $- $- $- $26 $- $- $26 Obligations of states & political subdivisions 40,483 1,170 (1,167) 40,486 36,693 1,778 (6) 38,465 Other securities 30 - - 30 3,068 13 - 3,081 $ 40,513 $ 1,170 $ (1,167) $ 40,516 $39,787 $1,791 $(6) $41,572
The carrying value and approximate market value of securities available for sale at December 31, 1994 and 1993 are as follows (in thousands):
1994 1993 Gross Gross Approx. Gross Gross Approx. Amortized Unrealized Unrealized Market Amortized Unrealized Unrealized Market Cost Gains Losses Value Cost Gains Losses Value U.S. Treasury obligations $ 71,125 $ 16 $ (1,721) $ 69,420 $ 73,384 $ 511 $ (24) $ 73,871 U.S. Government agencies 103,408 61 (3,754) 99,715 53,853 441 (55) 54,239 Mortgage-backed securities 35,723 33 (1,304) 34,452 13,462 183 (11) 13,634 Other securities 4,381 - (3) 4,378 - - - - $ 214,637 $ 110 $ (6,782) $207,965 $140,699 $ 1,135 (90) $141,744
16 The amortized cost and market value of investments held-to-maturity as of December 31, 1994 and 1993 by contractual maturity are shown below. Expected maturities may borrowers may have the right to call or prepay obligations with or without call or prepayment penalties.
1994 1993 Approximate Approximate Amortized Market Amortized Market Cost Value Cost Value Due in one year or less $ 9,025 $ 8,794 $ 5,817 $ 5,895 Due after one year through five years 21,739 21,725 24,251 24,932 Due after five years through ten years 5,949 6,053 6,238 7,074 Due after 10 years 3,800 3,944 3,455 3,645 Mortgage-backed securities - - 26 26 $40,513 $40,516 $39,787 $41,572
The amortized cost and market value of securities available for sale as of December 31, 1994 and 1993 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.
1994 1993 Approximate Approximate Amortized Market Amortized Market Cost Value Cost Value Due in one year or less $87,595 $85,342 $26,650 $26,918 Due after one year through five years 78,463 75,451 94,916 95,528 Due after five years through ten years 8,865 8,729 5,671 5,663 Due after ten years 3,991 3,991 - - Mortgage-backed securities 35,723 34,452 13,462 13,635 $214,637 $207,965 $140,699 $141,744
Proceeds from sales of securities available for sale during 1994 were $22,744,000. Gross gains of $40,000 and gross losses of $5,000 were realized on those sales. During 1993, proceeds from sales of investment securities 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. On December 31, 1994 securities with a carrying value of approximately $120,038,000 were pledged to secure funds and trust deposits and for other purposes as required or permitted by law. 18 4. Loans The following is a summary of loans by major classification as of December 31, 1994 and 1993 (in thousands): 1994 1993 Commercial and financial loans $ 91,392 $ 121,514 Agricultural loans 31,564 40,972 Real estate-residential 86,105 103,234 Real estate-commercial 53,289 35,832 Loans to individuals 22,056 29,728 Other loans 394 625 $ 284,800 $ 331,905 The Company serviced loans for others totaling $91,806,000, $81,939,000, and $63,688,000 as of December 31, 1994, 1993 and 1992, respectively. A summary of changes in the allowance for possible loan losses for the three years ended December 31 is as follows (in thousands): 1994 1993 1992 Balance beginning of year $ 4,369 $ 2,713 $3,203 Allowance from acquired entity - 2,351 - Recoveries 643 205 243 Provision charged to operating expense 200 1,620 325 5,212 6,889 3,771 Less:loans charged off 1,524 2,520 1,058 Balance end of year $ 3,688 $4,369 $2,713 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, 1994 and 1993, such loans aggregated $2,152,000 and $3,084,000, 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, 1994 $3,084 New loans 222 Repayments 1,154 Balance, December 31, 1994 $2,152 19 As of December 31, 1994 and 1993, the outstanding balance of nonaccrual loans was approximately $4,879,000 and $5,791,000 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 $420,000, $416,000 and $339,000 in 1994, 1993 and 1992 respectively. 5. Bank premises and equipment Bank premises and equipment are recorded at cost less accumulated depreciation as follows (in thousands): 1994 1993 Land, buildings and improvements $17,784 $17,866 Furniture, fixtures and equipment 5,331 5,328 23,115 23,194 Less accumulated depreciation 8,860 8,040 $14,255 $15,154 6. Short-term borrowings and securities sold under agreements to repurchase Following is a summary of short-term borrowings at December 31, 1994 and 1993 (in thousands): 1994 1993 Federal funds purchased $13,975 $ - Note payable to bank 12,210 12,410 $26,185 $12,410 The note payable to bank totaling $12,210,000 at December 31, 1994 is due on demand with variable interest (8.00% at December 31, 1994) and is secured by the Company's common stock holdings in its subsidiaries. The note payable is a draw on a $15 million revolving credit which matures in January, 1999. The note agreement contains certain restrictive covenants. The Company was in compliance with such covenants at December 31, 1994. At December 31, 1994 there were no material amounts of assets at risk with any one customer under agreements to repurchase securities sold. At December 31, 1994 and 1993 securities sold under agreements to repurchase are summarized as follows (in thousands): Weighted average Collateral Repurchase interest Collateral Market 1994 liability rate Book Value Value Within 30 days $ - - % $ - $ - 30 - 90 days 1,075 3.79% 1,096 1,084 After 90 days 2,334 5.91% 2,427 2,357 Demand 12,677 4.26% 29,180 28,603 $16,086 4.47% $32,703 $32,044 20 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 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. Effective July 1, 1994 the Company froze the benefits accumulating to participants. Accrued benefits as of that date were fully funded. Assumptions used in accounting for the pension plans as of December 31, 1994 and 1993 were as follows: 1994 1993 Discount rate 8.50% 7.00% Rate of increase in compensation level 4.00% 4.00% Expected long-term rates of return on assets 8.50% 8.50% 21
The following table sets forth the plan's funding status and amounts recognized in the Company's consolidated balance sheets at December 31, 1994 and 1993 (in thousands): 1994 1993 Actuarial present value of benefit obligations: Accumulated benefit obligation $2,696 $3,102 Vested benefit obligation $2,696 $2,959 Projected benefit obligation for service rendered to date $2,696 $4,062 Plan assets at fair value, primarily listed stocks & US Bonds 3,419 3,446 Plan assets in excess (deficiency) of projected benefit obligation 723 (616) Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions (267) 960 Unrecognized prior service cost - (7) Unrecognized net assets at beginning of year being recognized over 15 years (346) (404) Prepaid (accrued) pension cost included in other assets $ 110 $ (67)
Net pension cost for 1994, 1993 and 1992 included the following components (in thousands):
1994 1993 1992 Service cost-benefits earned during the period $ 91 $ 166 $ 160 Interest cost on projected benefits obligation 236 255 245 Actual return on plan assets (103) (231) (214) Net amortization and deferral (212) (70) (65) Gain on curtailment (189) - - Net periodic pension (income) expense $(177) $ 120 $ 126
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 $191,000 for 1994, $217,661 for 1993, and $329,592 for 1992. 22 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. At December 31, 1994, 34,095 of the options had been exercised. At December 31, 1994, there were no shares available for additional options and no new options were granted in 1994. The following is a summary of options granted, net of forfeitures: Grant Share Options Price Expiration Year Granted per Share Date 1988 103,128 $2.49 July 28, 1998 1989 138,240 3.16 June 22, 1999 1990 57,606 2.74 Dec. 20, 2000 1991 39,462 4.55 Dec. 20, 2001 1992 - - - 1993 43,578 7.17 Sept. 28, 2003 In 1990 a Performance Unit Plan was adopted under which the Company could grant up to an aggregate of 200,000 units to key employees. The value of each unit granted under the plan was 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. The Plan was terminated in 1994 and the discounted present value of the 18,542 units granted under the Plan ($202,500) is included in accrued taxes and other expenses at December 31, 1994. The total expense was $16,500 for 1994 and $78,000 for both 1993 and 1992. The Company adopted a Deferred Compensation Plan in 1994 for Directors and employees designated as Senior Leadership Employees by the Board of Directors. Participants may elect to defer up to 20% of salary, 50% of any bonus or 100% of directors fees under the Plan. The Company makes a 25% matching contribution. Amounts deferred are used to purchase company stock. Two hundred thousand shares are registered for purchase by the Plan. Participants deferral amounts are 100% vested, with matching contributions 100% vested on the earlier of the end of the third year following the year in which deferrals are made or termination of employment for any reason other than discharge for cause. Total expense was approximately $9,000 in 1994. 8. Stockholders' equity On April 28, 1994, the Board of Directors declared a three-for-one stock split in the form of a stock dividend, payable July 1, 1994 to stockholders of record on June 8, 1994. The stated par value of each share remained at $5 per share. The stock split resulted in the issuance of 4,345,726 additional shares of common stock from authorized but unissued shares. The issuance of authorized but unissued shares resulted in the transfer of $16,134,180 from surplus and $5,594,450 from retained earnings to common stock, representing the par value of the shares issued. Accordingly, earnings per share, cash dividends per share, weighted average shares outstanding and related prices, and the stock option plan information for prior periods presented have been restated to reflect the stock split. 23 In 1994, the Company redeemed all of the outstanding Series C Preferred Stock for $1,950,000 and converted 1,300 shares of Series D Preferred Stock to Series B convertible Preferred Stock at stated value. 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. Weighted average shares outstanding and related prices, all per share amounts and the stock option plan information included in the accompanying 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. At December 31, 1994, the Company had $2,477,000 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 1995 through the date of any declaration of dividends. 24 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): 1994 1993 1992 Current federal $2,171 $1,472 $2,022 Deferred federal 239 108 (39) Total income tax expense $2,410 $1,580 $1,983 The actual tax expense differs from the expected tax expense computed by applying the Federal corporate tax rate of 34% to earnings before income taxes as follows (in thousands):
1994 1993 1992 Tax expense at statutory rate $2,760 $1,901 $2,154 Tax-exempt interest, net of premium amortization (892) (592) (502) Amortization of excess cost over net assets acquired 541 284 66 Capitalized acquisition costs - 39 76 Other, net 1 (52) 189 Total income tax expense $2,410 $1,580 $1,983
The sources of timing differences resulting in deferred income taxes determined under APB Opinion No. 11 and the tax effect for the year ended December 31, 1992 was as follows (in thousands): 25 1992 Provision for possible loan and other real estate owned losses $39 Accounting method differences and changes (7) Depreciation 23 Deferred loan fees 12 Security accretion (47) Accrued software conversion costs (60) Other, net 1 Total deferred tax benefit $(39) 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, 1994 and 1993 are as follows (in thousands): Deferred tax liabilities: 1994 1993 Security accretion $81 $78 Tax depreciation in excess of book depreciation 272 329 Difference between tax and book basis of assets acquired 1,753 2,288 Other 17 - Total gross deferred tax liabilities $2,123 $2,695 Deferred tax assets: Alternative minimum tax credit carryforward $448 $634 Net operating loss carryforwards 1,275 1,488 Provision for other real estate owned - 208 Provision for loan losses 842 1,048 Deferred loan fees 117 154 Unrealized loss on securities available for sale 2,268 - Other 90 108 Total gross deferred tax assets $5,040 $3,640 Less: Valuation allowance (950) (1,000) Net deferred tax assets 4,090 2,640 Net deferred tax (asset) liability $(1,967) $ 55 26 The net change in the valuation allowance for the year ended December 31, 1994 was a decrease of $50,000. Subsequently recognized tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1994 will be allocated as follows: Income tax benefit reported in the consolidated statement of earnings $ 842 Excess cost over fair value of net assets acquired 108 $ 950 At December 31, 1994, the Company also has alternative minimum tax credit carryforwards of approximately $448,000 which are available to reduce future federal regular income taxes of the related acquired entities over an indefinite period. The Company has net operating loss carryforwards for state income tax purposes of approximately $27 million which expire beginning in 2000 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, 1994 and 1993, such commitments and off-balance sheet financial instruments are as follows (in thousands). 1994 1993 Letters of credit $2,827 $5,394 Lines of credit and other loan commitments 80,338 70,300 $83,165 $75,694 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. 27 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 payments 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. 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 judgement. 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. Investments held-to-maturity and securities available for sale The estimated fair values of investments held-to-maturity 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, 1994 are $284.5 million and $280.3 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 28 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. 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, 1994 are $523.7 million and $519.5 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 agreement 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, 1994 were $16.1 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. 29 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 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 1.25% after July 16, 1998, 8.25% or the Prime rate plus 1.50% after July 16, 2000 and 8.25% or the Prime rate plus 1.75% after July 16, 2002. Series B - Non-voting, convertible to common stock at $9.50 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. 30 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% at December 31, 1993 and 7.50% thereafter. 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 purchase accounting related to the acquisition and interest on borrowed funds. Year ended December 31, 1993 Pro Forma Net interest income $21,902 Earnings before income taxes 3,565 Net earnings $2,462 Primary earnings per common share $ .18 Year ended December 31, 1992 Pro Forma Net interest income $23,023 Earnings before income taxes 5,453 Net earnings $3,816 Primary earnings per common share $ .38 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. 31 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, 1994 1993 Assets Investments in subsidiaries $61,774 $64,472 Cash & interest bearing deposits 16 19 Premises and equipment 4,680 4,694 Other assets 38 313 Total assets $66,508 $69,498 Liabilities and stockholder's equity Short-term borrowings $12,210 $12,410 Other liabilities 1,821 1,672 Total liabilities 14,031 14,082 Stockholder's equity 52,477 55,416 Total liabilities and stockholder's equity $66,508 $69,498
32 Condensed statements of earnings
For the years ended December 31, 1994 1993 1992 Income: Dividends from subsidiaries $5,145 $8,250 $3,650 Other 2,940 2,706 1,269 8,085 10,956 4,919 Expenses: Interest 902 452 47 Salaries 2,670 2,263 1,346 Other 1,285 1,135 1,015 4,857 3,850 2,408 Earnings before income tax benefit and equity in undistributed earnings of subsidiaries 3,228 7,106 2,511 Income tax benefit 587 272 61 Earnings before equity in undistributed earnings of subsidiaries 3,815 7,378 2,572 Equity in undistributed earnings of subsidiaries 1,895 ( 3,367) 1,780 Net earnings $5,710 $ 4,011 $4,352 Earnings per share $ .68 $ .55 $ .74
33
Condensed statements of cash flows For the years ended December 31, 1994 1993 1992 Operating activities: Net cash provided by operating activities $ 4,095 $ 7,649 $2,859 Investing activities: Additional paid in capital subsidiaries - (5,950) (243) Cash paid for acquisition of subsidiaries - (16,325) - Purchase of bank premises and equipment (76) ( 47) (4,361) Net cash used by investing activities (76) (22,322) (4,604) Financing activities: Increase (decrease) in short-term debt (200) 10,530 1,620 Redemption of Series C Preferred stock (1,950) - - Purchase of treasury stock - ( 209) - Reissuance of treasury stock 59 - - Dividends paid (2,374) ( 1,574) (831) Other 443 935 931 Issuance of stock - 5,000 - Net cash provided (used) by financing activities (4,022) 14,682 1,720 Increase (decrease) in cash (3) 9 $(25) Cash paid (received) for Interest $1,031 $ 290 $43 Income taxes (1,168) ( 273) (550)
34 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Introduction The discussion presented below provides an analysis of the Company's financial condition and results of operations for the past three years, and is intended to cover significant factors affecting the Company's overall performance during that time. 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 1994 Annual report to shareholders. Results of Operations Net earnings available to common shareholders for 1994 (i.e., net earnings less preferred dividends) totaled $4.5 million, or $.68 per common share, compared with $3.4 million, or $.55 per share, in 1993. In 1992, net income was $4.4 million or $.74 per share. Prior years' earnings per share amounts have been restated to retroactively reflect the three-for-one stock dividend affected in 1994. Premier's return on average common equity was 11.11% in 1994, 10.80% in 1993 and 14.58% in 1992. Return on average assets was .95%, .83%, and 1.15% in 1994, 1993 and 1992 respectively. Our financial results in 1994 and 1993 as compared to 1992 were primarily influenced by two factors: 1) our acquisition of First Northbrook Bancorp, Inc. ("Northbrook") in July, 1993, and 2) concurrent short-term actions to improve on asset quality and increase long-term operating efficiency. Net Interest Income Tax equivalent net interest income for 1994 was $22.8 million, as compared to $18.8 million in 1993 and $15.9 million in 1992. The increases in 1994 and 1993 were primarily from interest earning assets added through the Northbrook acquisition. Average earning assets totaled $527.4 million in 1994 versus $423.4 million and $342.9 million in 1993 and 1992, respectively. Our net interest margin was 4.32% in 1994 as compared to 4.43% in 1993 and 4.62% in 1992. The decrease in net interest margin from 1992 to 1993 was primarily the result of narrowed spreads due to lower interest rates. The year-to- year decrease in 1994 as compared to 1993 was a function of a change in asset mix (i.e. lower average outstanding loans) coupled with continued narrowing spreads due to lower interest rates. Average loans as a percentage of average earning assets were 55.4% in 1994, 64.7% in 1993 and 65.1% in 1992. An analysis of our net interest margin from 1993 to 1994 reflects a 26 basis point decrease in the average yield on earning assets while the average cost of funds decreased 14 basis points, resulting in a lower net interest margin. In 1993 the yield on average earning assets was 108 basis points less than in 1992, while cost of funds declined by 89 basis points. Interest Rate Risk Management Movements in general market interest rates are a key element in 35 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 predicted or assumed changes in interest rates on balances and subsequently net interest income, and to manage interest rate risk. Our model provides for simultaneously comparing four different interest rate scenarios and their impact on net interest income over a two year horizon. The "most likely" rate scenario is predicated on an economic consensus of future movements in short-term interest rates. A "rising" and "declining" rate scenario are used to identify the potential impact of rapid changes, up or down, from current rates. The fourth scenario, i.e. the "base" or "flat rate" simulation, is used as a control to quantify the effect of changes in net interest income caused solely by repricing existing balances at current rates as they mature. Changes in balances reflecting repayment risk, likely changes in customer behavior under different interest rate environments and other "what if" assumptions can also be simulated under each scenario. Our interest sensitivity, i.e., our exposure to change in net interest income is measured over a rolling 12 month period under each of the first three scenarios and compared to the base case forecast. In January, 1995, the simulation model indicated rate sensitivity (i.e., a change in net interest income) of less than 3.00% in either a rising or declining rate environment. We would experience an increase in net interest income under the most likely simulation, assuming no action was taken. Generally, our policy is to maximize net interest income while limiting our negative interest sensitivity ( i.e., a decline in net interest income) to no more than 10% of after tax earnings under any interest rate scenario. We believe earnings simulation under a variety of interest rate and balance assumptions provides a more relevant depiction of interest rate risk than traditional "gap measurement" because it includes all of the significant variables that affect net interest income. Under gap, which is similar to the base or flat rate simulation, the only variable considered is rate. Our one year interest sensitivity, using gap measurement as of December 31, 1994, shows that more assets than liabilities would reprice, theoretically resulting in improved net interest income in a rising rate environment. The following table shows our gap position at year end: Volumes Subject to Repricing ($ in thousands) within within within over 90 days 180 days 1 year 1 year Loans (net of unearned income) .................... $163,865 $13,085 $19,335 $ 88,171 Investment securities ....... 49,666 23,351 60,191 115,270 Other earning assets ........ 14,684 - - - Total earning assets ...... 228,215 36,436 79,526 203,441 Interest-bearing deposits ... 97,714 36,454 42,044 261,463 Short-term borrowings ....... 39,937 1,134 1,200 - Total interest-bearing liabilities ............... 138,651 37,488 43,244 261,463 Asset (liability) gap ..... 89,564 ( 1,052) 36,282 (58,022) Cumulative asset (liability) gap .......... 89,564 88,512 124,794 66,772 36 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. Each loan in the portfolio is graded according to specific financial, risk and repayment criteria. The aggregate required reserve balance for the entire portfolio is maintained through earnings provisions as required. Our provision for loan losses in 1994 totaled $200,000 as compared to $1.6 million and $325,000 in 1993 and 1992, respectively. The decrease in the Allowance for Possible Loan Losses was primarily a result of improved asset quality and lower outstanding loan balances, resulting in a lower aggregate reserve requirement. (See "Asset Quality".) At December 31, 1994 the allowance for possible loan losses totaled $3.7 million, or 1.30% of gross loans compared to $4.4 million, or 1.32% of gross loans at December 31, 1993. Although we believe that the present level of the Allowance for Possible 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. Future provisions will continue to be determined in relation to overall asset quality as well as other factors mentioned previously. NonInterest Income Total noninterest income, exclusive of investment security gains, increased $794,000, or 13.6%, to $6.7 million in 1994 from $5.9 million in 1993. This improvement followed a $1.4 million, or 32.6%, increase in 1993 over 1992. Trust fees and service charges on deposits continue to be the primary components of noninterest income. Revenue from other fee-based services and products also increased modestly. Trust fees, which represent Premier's largest fee-based source of income, increased by 9.5% in 1994. The increase was primarily the result of an increasing customer base. Trust fees are based on providing fiduciary, investment management, custodial and related services to corporate and personal clients. As of December 31, 1994, managed assets were approximately $.5 billion. A significant portion of the growth experienced in Trust relationships came from our new market areas. We anticipate continued growth in relationships and fees in 1995. Service charges on deposit accounts rose 30.1%, to $1.9 million in 1994 from $1.5 million in 1993 following a 56.9% increase over 1992. The increases in service charges on deposit accounts are primarily due to an increase in fees from overdrafts and an overall increase in deposits resulting from the acquisitions. Another significant source of noninterest income over the past several years has been premiums recognized on sales of residential mortgage loans to the secondary market. The low interest rate environment 37 experienced from 1992 through the first quarter of 1994 created an increase in loan refinancing. As a result, net gains from the sale of residential mortgage loans added $170,000, $585,000 and $429,000 of after-tax earnings for the years 1994, 1993 and 1992, respectively. As rates continue to rise, both refinancing and premiums recognized on loans sold to the secondary market will decrease. Since Premier retains the servicing rights to loans sold on the secondary market, we anticipate that servicing fee income will offset some of the lost revenue. Net investment security gains were $35,000 in 1994 as compared to $136,000 in 1993 and $358,000 in 1992. As conditions change over time, the overall interest rate risk, liquidity demands and potential return on the investment security portfolio will change. Securities available for sale 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 by $776,000 from 1993 to 1994, following an increase of $366,000 the previous year. The increase in other operating income was primarily revenue from fee based services and products and prior years' recoveries of interest income. Approximately $396,000 of the increase from 1993 to 1994 related to interest collected but not accrued on loans from prior years. Noninterest Expense Total noninterest expenses increased by $3.3 million to $19.8 million in 1994 as compared to $16.5 million in 1993. Salaries and benefits, the largest component of non-interest expense, totaled $8.9 million in 1994 an increase of $1.2 million or 16.2% over 1993. In 1993 salaries and benefits increased approximately $800,000 (including one-time acquisition related severance payments totaling approximately $147,000) over 1992. Year-to-year increases primarily reflect an increase in average full-time equivalent employees as a result of the Northbrook acquisition. Average FTE employees were 220 at December 31, 1992, 286 at year end 1993, and 306 at December 31, 1994. Combined net occupancy and furniture and fixture expense increased $483,000 and $587,000 in 1994 and 1993, respectively. The increase in combined net occupancy and furniture and fixture expense is largely the result of the six new office locations acquired in Northbrook, Riverwoods and Cary, Illinois in July 1993. In December 1994, we added a new office location in DeKalb, Illinois. Net occupancy and furniture and fixture costs relating to the new facility were minimal. We anticipate future increases in net occupancy and furniture and fixtures costs for existing offices will be modest. In 1994, Premier's subsidiary banks paid $1.2 million for federal deposit (FDIC) insurance as compared to $918,000 in 1993 and $651,000 in 1992. This expense rises as deposits grow or the assessment rate changes. The 1994 and 1993 increased FDIC expense is attributable to an increase in deposits from the Northbrook acquisition and from returning approximately $16.6 million of discretionary funds to interest bearing deposits in the second quarter of 1994. Each of the subsidiary banks pay the lowest premium rate currently available. Amortization of intangible assets was $1.6 million in 1994 compared to 834,000 in 1993 and $194,000 in 1992. The increases in 1994 and 1993 relate to the additional amortization expense from the excess cost over fair value of net assets acquired in July 1993, from the 38 Northbrook acquisition. Other operating expenses increased by $566,000, or 12.6% in 1994, following a $1.0 million, or 29.7%, increase in 1993. As a result of our aggressive collection efforts, legal fees, collection costs and expenses associated with temporary holding of other real estate for sale increased by $138,000 from 1993 to 1994. The remaining 1994 increase relates to operating the six new offices acquired in July 1993 for a full year and start-up costs for the DeKalb office purchased in December, 1994. Amortization of the $1.1 million premium paid for deposits purchased in the DeKalb transaction are amortized over 10 years and consequently did not materially impact 1994 operating expenses. Income Taxes Taxes on earnings increased to $2.4 million in 1994 from $1.6 million in 1993. In 1992 taxes on earnings totaled $2.0 million. 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 FAS Statement 109, "Accounting for Income Taxes" 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, 1994, Premier had deferred tax liabilities of $2.1 million and deferred tax assets of $5 million. A valuation allowance of $950,000 has been provided for deferred tax assets. As a result, net deferred tax assets recorded in the consolidated financial statements equal $1.95 million. Financial Condition At December 31, 1994, Premier had total assets of $620.5 million, as compared to $610.7 million at December 31, 1993. Securities Securities available for sale are a part of Premier's interest rate risk management strategy and may be sold in response to changes in interest rates, changes in prepayment risk, liquidity management and other factors. Premier adopted FAS No. 115 entitled "Accounting for Certain Investments in Debt and Equity Securities" on January 1, 1994. Prior to adoption, securities "available for sale" were reported at the lower of cost or fair market value. FAS No. 115 requires securities available for sale to be reported at fair market value, 39 with unrealized gains and losses excluded from earnings but reported as a separate component of stockholders' equity. At December 31, 1994, we had $208 million in securities available for sale, compared with $140.7 million at year end 1993. The increase in securities available for sale reflected a change in asset mix due to lower outstanding loans. In addition, approximately $16.6 million of discretionary funds were invested in interest bearing deposits and the proceeds were invested in securities. At December 31, 1994 investments held-to-maturity increased to $40.5 million from $39.8 million at year end 1993. Loans Our lending strategy continues to stress quality growth, diversified by product, geography and industry. Total loans decreased by $47.1 million, to $284.8 million at December 31, 1994 from $331.9 million in 1993. The decrease in loans was primarily a result of 1) customers refinancing existing residential real estate loans carried on the Company's balance sheet and then selling the new loan origination to the secondary market, and 2) actions taken to improve overall loan portfolio quality. Approximately $18.9 million, or 40%, of the $47.1 million decrease in loans was from sales of refinanced residential real estate mortgages. By continuing to service these loans without carrying them on our balance sheet we've locked in an income stream without taking an interest rate risk as rates rise. The remainder of the decrease (approximately $28.2 million) was directly or indirectly a result of collection actions. Although total loans declined from year end 1993 to 1994, we are encouraged by the quality loan growth experienced in the fourth quarter of 1994. Most of the fourth quarter growth (which approximated an increase of 11.2% on an annualized basis) came in the commercial sector. Loan portfolio distribution at December 31, 1994, was 51% commercial, 38% retail, and 11% agricultural. The portfolio mix and concentration have not changed significantly from year-end 1993. Preserving loan quality and diversifying the loan portfolio both geographically and by industry continue to be key objectives for Premier. Asset Quality Asset quality improved significantly in 1994. At year end, nonperforming assets declined to $7.1 million, or 1.14% of total assets, down from $13.2 million, or 2.16% of total assets at December 31, 1993. Net charge-offs as a percentage of average loans were .30% in 1994, compared with .83% and .36% in 1993 and 1992, respectively. 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 continues to be prudent. In October 1994, the FASB issued SFAS No. 118, "Accounting by Creditors for Impairment of a Loan - Income Recognition and Disclosures." This statement applies to all creditors, and amends SFAS No. 114, "Accounting by Creditors for Impairment of a Loan." SFAS No. 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. 118 eliminates the income recognition provisions that had been included in 40 SFAS No. 114. Creditors are permitted to use existing methods for recognizing interest income on impaired loans. SFAS No. 118 acknowledges that certain existing methods can result in the recorded investment in an impaired loan being less than the present value of expected future cash flows. These methods include cost recovery, cash basis, or some combination. The provisions of SFAS No. 118 are effective concurrent with the effective date of SFAS No. 114. SFAS No. 114 is effective for financial statements for fiscal years beginning after December 15, 1994. Premier adopted SFAS No. 114 and SFAS No. 118 in January 1995 and implementation had an immaterial effect on the financial condition of the Company. Sources of Funds Premier's primary source of lendable funds is deposits, which totaled $523.7 million at December 31, 1994 and $518.0 million at December 31, 1993. The increase is primarily the result of returning approximately $16.6 million of discretionary funds back to interest bearing deposits and purchasing $11.2 million of deposits in the DeKalb office transaction. Excluding these two sources of funds, total deposits would have decreased by $22.1 million. Much of the deposit runoff was experienced in the first six months of 1994. In general, the decline represented a continuation of a trend which has significantly reduced the banking industry's share of the total financial marketplace. Many customers prefer the flexibility and advantages of non-regulated (and non-insured) alternatives such as mutual funds. As interest rates in general increased during the latter half of the year, deposits became relatively more attractive in relation to other saving/investment alternatives. Total deposits excluding the DeKalb office transaction increased $13.1 million during the fourth quarter of 1994, resulting in the small year-to-year increase. If market rates stabilize or continue to increase it is reasonable to assume deposits will remain relatively attractive. Rates paid on deposits are generally competitive with the rates paid by other banks for such deposits. 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 of generating cash other than thru operations: 1) primary and secondary market deposits, 2) securities available for sale, 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. Capital 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. At year end 1994, bank debt totaled $12.2 million down from $12.4 million at year end 1993. Preferred Stock outstanding at December 31, 1994 was $14.2 million as compared to 41 $16.2 million in 1993. In the third quarter of 1994, we redeemed all of the outstanding Series C Preferred Stock. In addition, we converted $1.3 million of Series D Preferred Stock to Series B Convertible Preferred Stock, effectively lowering the dividend rate on the entire $3.3 million of previously outstanding Series D shares from 9.00% to 7.50%. It is estimated that during 1995, cash requirements for interest on the debt, projected dividends on common stock, and dividends on preferred stock will approximate $3.3 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. Equity Capital Total equity capital decreased by $2.9 million during 1994, from $55.4 million at December 31, 1993 to $52.5 million in 1994. The decrease was due to a Preferred Stock redemption of $1.9 million and recording an after tax unrealized loss on securities available for sale of approximately $4.4 million in accordance with Statement of Financial Accounting Standards No. 115 ("FAS 115"). The total of these items exceeded current year retained earnings. As a result of the stock redemption, annualized after tax income available to common shareholders was increased by $186,000. The unrealized loss recorded pursuant to FAS 115 will change from time to time based on current market rates of interest. Generally, a loss would be incurred on securities available for sale only if those securities were sold prior to maturity. We do not anticipate liquidating our securities available for sale and realizing the loss. 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 3% or greater. At December 31, 1994, Premier had a "Tier 1" ratio of 10.37%, well above the Regulatory minimum. Our "Total Risk Based Capital Ratio" was 11.49%, and our "Leverage Ratio" was 5.71%, 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, 1994. Overview 1994 was a year of significant change for the financial services industry and for Premier. We expect that change will continue and accelerate. In the second half of 1993 and in 1994 we experienced all of the challenges we identified prior to expanding our Company by almost 70%. During that time, we met those challenges while significantly expanding our market areas. The end result was a measurable improvement in financial performance. 42 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, 1994, 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 First Bank/DeKalb Premier Trust Services, Inc. Premier Insurance Services, Premier Operating Systems, Inc. Stock information Our common stock is traded on the NASDAQ National Over-the-Counter market and is listed 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:
1994 1993 Cash Cash Quarter High Low Dividends Quarter High Low Dividends 1st 6.33 5.83 .043 1st 7.33 6.50 .04 2nd 6.33 5.83 .043 2nd 7.25 6.17 .04 3rd 8.25 6.75 .047 3rd 7.67 6.33 .04 4th 8.25 6.50 .047 4th 7.83 7.08 .04 Total .18 Total .16
A three-for-one stock split in the form of a 200% stock dividend was declared and distributed as follows: 1994 Declaration date April 28, 1994 Record date June 8, 1994 Payable date July 1, 1994 43 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 1994 1993 1992 1991 1990 Interest income $36,527,016 $30,441,589 $28,353,205 $30,634,167 $31,598,122 Interest expense 15,129,406 12,750,769 13,358,608 17,366,302 19,898,067 Net interest income 21,397,610 17,690,820 14,994,597 13,267,865 11,700,055 Provision for possible loan losses 200,000 1,620,000 325,000 - - Earnings before income taxes 8,120,003 5,591,280 6,335,317 4,920,829 3,819,099 Net earnings 5,710,295 4,011,210 4,352,115 3,618,395 2,882,105 Net earnings available to common shareholders 4,505,737 3,418,928 4,352,115 3,618,395 2,882,105
Per share statistics * - Common 1994 1993 1992 1991 1990 Net earnings $ .68 $ .55 $ .74 $ .64 $ .49 Cash dividend declared .18 .16 .15 .11 .08 Book Value 5.88 6.04 5.49 4.85 4.30
1994 1993 1992 1991 1990 Common shares outstanding - year end 6,504,876 6,489,321 5,782,608 5,756,151 5,635,338
44
1994 1993 1992 1991 1990 Rate earned on beginning stockholders' equity 10.30% 12.64% 15.58% 14.93% 12.75%
Financial position - year end 1994 1993 1992 1991 1990 Securities held-to-maturity $40,513,480 $39,787,245 $28,314,011 $125,390,853 $157,054,94 Securities available for sale 207,964,644 140,699,066 77,520,998 - - Loans, net 280,767,645 327,018,113 217,249,829 211,540,534 176,549,802 Allowance for possible loan losses 3,688,386 4,369,290 2,712,863 3,202,509 3,159,714 Excess cost over fair value of net assets acquired 21,600,583 23,193,016 3,009,951 3,204,148 3,399,302 Noninterest bearing deposits 86,018,604 104,976,862 49,979,533 40,304,642 44,142,877 Interest bearing deposits 437,674,799 413,042,081 258,913,579 246,474,882 247,248,068 Total deposits 523,693,403 518,018,943 308,893,112 286,779,524 291,390,945 Short-term borrowings 26,185,000 12,410,000 6,152,000 14,501,000 7,302,000 Securities sold under agreements to repurchase 16,085,872 20,571,658 14,854,410 43,687,552 50,534,481 Long-term debt - - - - 1,119,264 Stockholders' equity 52,476,832 55,416,039 31,737,646 27,929,137 24,228,635 Total assets 620,503,737 610,663,210 364,024,410 375,494,615 377,431,653
* Per share statistics have been adjusted to reflect 5% stock dividends to shareholders of record February 28, 1990, February 28, 1991, 10% stock dividend to shareholders of record February 28, 1992, and a three-for-one stock split i the form of a 200% stock dividend to shareholders of record June 8, 1994. 45 Board of Directors Principal Occupation Principal Business Donald E. Bitz Retired Chairman of the Insurance Company Board & Chief Executive Officer Economy Fire & Casualty Co. R. Gerald Fox President & Chief Executive Publisher of financial Officer books and periodicals F.I.A. Financial Publishing Company Richard L. Geach President & Chief Executive Officer Charles M. Luecke President, Luecke Jewelers, Retail Jeweler Inc. Edward G. Maris Senior Vice President, CFO, Raw steel production Secretary and Treasurer, and finished steel/wire Northwestern Steel and products Wire Company David L. Murray Executive Vice President & Chief Financial Officer H. Barry Musgrove President, Frantz Manufacturer of anti- Manufacturing Company friction products Dr. Joseph C. Piland Educational Consultant & Retired President, Highland Community College 46 EX-21 3 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, 1994. 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 Exhibit 23 CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS We consent to incorporation by reference in the registration Statements on Forms S-8 of Premier Financial Services, Inc. of our report dated January 27, 1995, relating to the consolidated balance sheets of Premier Financial Services, Inc. and Subsidiaries as of December 31, 1994 and 1993, 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, 1994, which report appears is incorporated by reference in the December 31, 1994 annual report on Form 10-K of Premier Financial Services, Inc. KPMG Peat Marwick LLP Chicago, Illinois March 21, 1995 EX-99 5 EXHIBIT 99(a) 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, 1994 PREMIER FINANCIAL SERVICES, INC. EMPOYEE SAVINGS AND STOCK PLAN (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, 1994 as follows: Independent Auditors' Report Statements of Net Assets Available for Plan Benefits December 31, 1994 and 1993 Statements of Changes in Net Assets Available for Plan Benefits for the two years ended December 31, 1994 Notes to Financial Statements Schedule I - Assets held for investment Schedule II - Reportable transactions (b) Exhibit 23. Consents of Experts and Counsel. 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 March 23, 1995 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, 1994. Exhibit 23 CONSENTS OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS The Board of Directors Premier Financial Services, Inc.: We consent to incorporation by reference in the Registration Statement on Form S-8 of Premier Financial Services, Inc. of our report dated March 3, 1995 relating to the statements of net assets available for plan benefits of Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust as of December 31, 1994 and 1993, and the related statements of changes in net assets available for plan benefits for the years then ended, which report appears on Form 11-K of the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust. KPMG Peat Marwick LLP Chicago, Illinois March 21, 1995 EX-99 6 EXHIBIT 99(b) 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, 1994 PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN (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, 1994 as follows: Independent Auditors' Report Statement of Net Assets Available for Plan Benefits December 31, 1994 Statement of Changes in Net Assets Available for Plan Benefits for the period form August 1, 1994 (commencement of operations) to December 31, 1994 Notes to Financial Statements (b) Exhibit 23. Consents of Experts and Counsel 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. Senior Leadership and Directors Deferred Compensation Plan March 23, 1995 By: David L. Murray David L. Murray, Executive Vice President, Chief Financial Officer and Director PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN TABLE OF CONTENTS Page(s) Independent Auditors' Report . . . . . . . . . . . . . . . . . . . 1 Statement of Net Assets Available for Plan Benefits. . . . . . . . 2 Statement of Changes in Net Assets Available for Plan Benefits . . 3 Notes to Financial Statements. . . . . . . . . . . . . . . . . . . 4-6 Independent Auditors' Report The Board of Directors Premier Financial Services, Inc. For the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan: We have audited the accompanying statement of net assets available for plan benefits of the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (Plan) as of December 31, 1994 and the related statement of changes in net assets available for plan benefits for the period from August 1, 1994 (commencement of operations) to December 31, 1994. These financial statements are the responsibility of the Plan's administrator. Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by the Plan's administrator, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the net assets available for plan benefits of the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan as of December 31, 1994, and the changes in net assets available for plan benefits for the period from August 1, 1994 (commencement of operations) to December 31, 1994 in conformity with generally accepted accounting principles. KPMG Peat Marwick LLP Chicago, Illinois March 3, 1995 PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN Statement of Net Assets Available for Plan Benefits December 31, 1994 Assets: Cash and cash equivalents $ 215 Premier Financial Services Inc., common stock, 7,917 shares at fair value (cost-$59,042) 55,419 Contributions receivable 17,426 $73,060 See accompanying notes to financial statements. PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN Statement of Changes in Net Assets Available for Plan Benefits Period from August 1, 1994 (commencement of operations) to December 31, 1994 Contributions: Participant $61,221 Employer 15,293 Total contributions 76,514 Dividends on Premier Financial Services, Inc. common stock 169 Net depreciation in Premier Financial Services, Inc. common stock (3,623) Total additions 73,060 Net assets available for plan benefits: Beginning of year - End of year $73,060 See accompanying notes to financial statements. PREMIER FINANCIAL SERVICES, INC. SENIOR LEADERSHIP AND DIRECTORS DEFERRED COMPENSATION PLAN Notes to Financial Statements December 31, 1994 (1) Description of Plan The following description of the Premier Financial Services, Inc. (Company) Senior Leadership and Directors Deferred Compensation Plan (Plan) provides only general information. Participants should refer to the Plan Agreement for a more complete description of the Plan's provisions. The Company is responsible for the general operation and administration of the Plan. The accompanying financial statements have been prepared in accordance with generally accepted accounting principles and present the net assets available for plan benefits and changes in net assets available for plan benefits. (a) Eligibility The Plan, established in 1994, is a defined contribution plan covering senior leadership employees of the Company as designated by the Board of Directors and those individuals who serve as directors of the Company. At December 31, 1994 there were 13 participants in the Plan. (b) Contributions to the Plan Both participants and the Company contribute to the Plan. A participant may contribute to the Plan by electing to defer annually the receipt of a portion of the compensation otherwise payable by the Company in any plan year. This participant contribution shall be a fixed amount or percentage of such compensation, but shall not exceed 20% of such participants base salary, 50% of such participants annual bonus or 100% of such participants directors' fees. Both employee and matching Company contributions are to be made monthly and invested in shares of Premier Financial Services, Inc. common stock. The Company may, in its discretion contribute Premier Financial Services, Inc. common stock, in an amount equal to the participants' and the matching Company contribution. In 1994 all contributions to the Plan were in the form of Premier Financial Services, Inc. common stock. (c) Investments Participant and Company contributions shall be invested in shares of the Company's common stock, except the excess amounts that are insufficient to purchase shares of Company common stock shall be held in cash until such amounts are sufficient to purchase shares of the Company's common stock. The investment in Premier Financial Services, Inc. common stock is stated at fair value by readily available market quotations. (d) Participant Accounts Each participant's account is credited with employee contributions and the matching company contribution. Dividends on shares of common stock held in a participants' account shall be credited to such participants' account. The benefit to which a participant is entitled is the benefit that can be provided from the participant's account. (e) Vesting Employee contributions are fully vested at all times. Company matching contributions shall invest on the date that is the earlier of (i) the last day of the plan year that begins three years after the end of the plan year in which such company contributions were made (ii) the date of the participant's employment termination on account of death or disability; (iii) the participant's retirement date or (iv) a change in control of the Company, as defined. (f) Withdrawals Upon termination of service, a participant whose vested account value is less than $5,000 will receive a lump sum amount equal to the value of their account. Participants who have a vested account value greater that $5,000 may elect to receive either a lump-sum amount equal to the value of their account or equal monthly installments over a fixed period of five, ten, or fifteen years depending upon the option chosen. Early withdrawals of a participant's vested account balance are allowed, subjet to a 10% penalty which is to be forfeited. Hardship distributions, as defined, are allowed at the discretion of the Company. A participants account shall be distributed in cash or common stock, at the discretion of the Company. (g) Expenses Administrative expenses of the Plan are paid by the Company. (h) Termination Although it has not expressed any intention to do so, the Company has the right under the Plan provisions to terminate the Plan. In the event of termination of the Plan, the amounts then held in the participants' accounts shall be 100% vested. (i) Forfeitures Forfeitures remain in the Plan and are used to offset future Company contributions. 5 (2) Federal Income Taxes The Plan is an unfunded nonqualified deferred compensation plan. All plan assets are held as part of the general assets of the Employer. Any earnings on plan assets are taxable to the Employer rather than the Plan; therefore, no provision for income tax has been made. 6 Exhibit 23 Consent of Independent Certified Public Accountants The Board of Directors Premier Financial Services, Inc.: We consent to incorporation by reference in the Registration Statement on Form S-8 of Premier Financial Services, Inc. of our report dated March 3, 1995 relating to the statement of net assets available for plan benefits of Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan as of December 31, 1994 and the related statement of changes in net assets available for plan benefits for the period from August 1, 1994 (commencement of operations) to December 31 1994, which report appears of Form 11-K of the Premier Financial Services, Inc Senior Leadership and Directors Deferred Compensation Plan. KPMG Peat Marwick LLP Chicago, Illinois March 21, 1995 EX-27 7
9 year DEC-31-1994 dec-31-1994 31186418 14683941 0 0 207964644 40513480 40516000 284799933 3688386 620503737 523693403 26185000 18148502 0 32631135 0 14250000 5595697 620503737 23625296 12238403 663317 36527016 13510527 15129406 21397610 200000 35201 19763719 8120003 5710295 0 0 5710295 .68 .68 4.32 4878938 144419 261350 0 4369290 1523727 642823 3688386 2637386 0 1051000
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