-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, GkkTZzjocuPK30SQI4rVhAT/ER9oG7Jdak+wxgRgcM9TpEeTJc/e6MwGpMELGbWK PpCAvZ6kVCndC3XO365+Uw== 0000036340-96-000005.txt : 19960607 0000036340-96-000005.hdr.sgml : 19960607 ACCESSION NUMBER: 0000036340-96-000005 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19951231 FILED AS OF DATE: 19960328 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: PREMIER FINANCIAL SERVICES INC CENTRAL INDEX KEY: 0000036340 STANDARD INDUSTRIAL CLASSIFICATION: 6022 IRS NUMBER: 362852290 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-13425 FILM NUMBER: 96539987 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, 1995, 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. X Aggregate market value of voting stock held by non-affiliates of the registrant as of February 29, 1996, based upon the average bid and asked price at this date: $52,034,126.00 At February 29, 1996, the registrant had outstanding 6,550,113 shares of its common stock, $5.00 par value. DOCUMENTS INCORPORATED BY REFERENCE Portions of the 1995 Annual Report to Shareholders are incorporated by reference into Part II of the Form 10-K. Portions of the Proxy Statement for Registrant's 1996 Annual Meeting of Shareholders to be held May 15, 1996 have been incorporated by reference into Part III of the Form 10-K. No. of Pages Sequentially Numbered: 30 Exhibit Index is on Page 29 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 subsidiaries. The primary function of the Company is to coordinate the 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"). The Company acquired FNBN and FSBCG on July 16, 1993, through the acquisition of all of the outstanding common stock of First Northbrook Bancorp, Inc., the parent corporation of FNBN and 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., a direct subsidiary of the Company, is a full line casualty and life insurance agency. Premier Operating Systems, Inc., ("POS"), is also a direct subsidiary of the Company. POS provides data processing and operational services to the Company and its subsidiaries. Competition Active competition exists in all principal areas where the Company and its subsidiaries are engaged, not only with commercial banking organizations, but also with savings and loan associations, finance companies, mortgage companies, credit unions, brokerage houses and other providers of financial services. The Company has seen the level of competition and number of competitors in its markets increase in recent years and expects a continuation of these aggressively competitive market conditions. To gain a competitive market advantage, the Company relies on a strategic marketing plan that is employed throughout the Company, reaching every level of its sales force. The marketing plan includes the identification of target markets and customers so that the Company's resources, both financial and manpower, can be utilized where the greatest opportunities for gaining market share exist. The differentiation between the Company's approach to providing products and services to its customers and that of the competition is in the individualized attention that the Company devotes to the needs of its customers. This focus on fulfilling customer's financial needs generally results in long-term customer relationships. Banking deposits are well balanced, with a large customer base and no dominant accounts in any category. The Company's loan portfolio is also characterized by a large customer base, balanced between loans to individuals, commercial and agricultural customers, with no dominant relationships. There is no readily available source of information which delineates the market for financial services, including services offered by non-bank competitors, in the company's market area. Regulation and Supervision Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by references to the particular statutes and regulations. Any significant change in applicable law or regulation may have an effect on the business and prospects of the Company and its subsidiaries. The Company is registered under and is subject to the provisions of the Bank Holding Company Act, and is regulated by the Federal Reserve Board. Under the Bank Holding Company Act the Company is required to file annual reports and such additional information as the Federal Reserve Board may require and is subject to examination by the Federal Reserve Board. The Federal Reserve Board has jurisdiction to regulate all aspects of the Company's business. The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before merging with or consolidating into another bank holding company, acquiring substantially all the assets of any bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank. Bank holding companies are also prohibited from acquiring shares of any bank located outside the state in which the operations of the holding company's banking subsidiaries are principally conducted unless such an acquisition is specifically authorized by statute of the state of the bank whose shares are to be acquired. The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks, or services to banks and their subsidiaries. The Company, however, may engage in certain businesses determined by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Bank Holding Company Act does not place territorial restrictions on the activities of bank holding companies or their nonbank subsidiaries. The Company is also subject to the Illinois Bank Holding Company Act of 1957, as amended (the "Illinois Act"). Effective December 1, 1990, certain provisions of the Illinois Act were amended to permit Illinois banks and bank holding companies to acquire or be acquired by banks and bank holding companies located in any state having a reciprocal law. The approval of the Commissioner of Banks and Trust 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. On September 29, 1994, the Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994 (the "Riegle-Neal Act") became law. Since September 29, 1995, the Riegle-Neal Act has permitted adequately capitalized and adequately managed bank holding companies to acquire banks across state lines, with Federal Reserve Board approval, without regard to whether the transaction is permitted under state law, exxcept that state law may establish the minimum age of the banks in such state (up to a maximum of five years) that are subject to acquisition by out-of-state bank holding companies. The acquiring bank holding company must maintain the acquired bank as a separately chartered institution. Under the Riegle-Neal Act, the Federal Reserve Board generally may not approve an acquisition if, upon consummation, the applicant bank holding company would control more than 10% of the total deposits of U.S. insured depository institutions or 30% or more of the deposits in the state where the target bank is located. Since September 29, 1995, the Riegle-Neal Act has also permitted any bank subsidiary of a bank holding company to receive deposits, renew time deposits, close loans, service loans and receive payments on loans and other obligations as agent for a bank or thrift affiliate, whether such affiliate is located in a different state or in the same state. Beginning June 1, 1997, banks may, with the approval of the appropriate Federal bank regulatory ageny, merge across state lines, unless one or more of the states in which the banks are located has opted-out of interstate branching. The appropriate Federal bank regulatory agency generally may not approve such a merger, however, if, after the merger, the resulting entity would control more than 10% of the total deposits of U.S. insured depository institutions or 30% or more of the deposits in any state affected by the merger. Under the Riegle-Neal Act, a state may adopt legislation permitting interstate mergers before June 1, 1997 or, alternatively, opting out of interstate branching. Illinois has adopted legislation permitting interstate branching beginning June 1, 1997. 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 was to address public concern over the financial crisis of the thrift industry through the imposition of strict reforms on that industry, FIRREA granted bank holding companies more expansive rights of entry into "the savings institution" market through the acquisition of both healthy and failed savings institutions. FIRREA also enhanced the enforcement powers of the federal regulatory agencies over insured depository institutions and provided that an insured depository institution which is commonly controlled with another insured depository institution may be held liable for any loss incurred by the Federal Deposit Insurance Corporation resulting from the failure of, or any assistance provided by the Federal Deposit Insurance Corporation to, such other commonly controlled institution. 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. As required by FDICIA and subsequently amended by the Riegle Community Development and Regulatory Improvement Act of 1994, the federal banking regulators have adopted, effective August 9, 1995, interagency guidelines establishing standards for safety and soundness for depository institutions and their holding companies on such matters as internal controls, loan documentation, credit underwriting, interest rate risk exposure, asset growth, and compensation and other benefits (the "Guidelines"). In addition, the federal banking regulators have proposed asset quality and earning standards to be added to the Guidelines. An institution whose failure to meet one or more of the standards is of such severity that it could threaten the safe and sound operation of the institution may be required to file a compliance plan with the regulators. A range of other regulations adopted as a result of FDICIA include, for example, new requirements applicable to the closure of branches, additional disclosures to depositors with respect to terms and interest rates applicable to deposit accounts, and modification of certain accounting standards to conform to GAAP, including the reporting of off-balance sheet items and supplemental disclosure of estimated fair market value of assets and liablities in financial statements filed with the banking regulators. See also "Capital Requirements." The Company's Subsidiaries FBN, FBS and FSBCG 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. 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 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 exceed the regulatory capital guidelines as currently defined. The Company's Tier 1 capital to risk-weighted asset ratio and total capital to risk-weighted asset ratio as of December 31, 1995 and 1994 were as follows (in thousands): 12/31/94 12/31/95 Total Assets Leverage Ratio: Tier 1 Capital: Common Stockholders' Equity $38,227 $47,857 Series A Preferred (1) 5,000 5,000 Series B Convertible Preferred 7,250 7,250 Series D Preferred 2,000 2,000 Unrealized Gain/Loss on SAFS 4,404 (1,242) Intangible Assets (22,715) (21,010) Total Tier 1 Capital 34,166 39,855 Adjusted Total Assets: Total Assets 620,504 670,219 Unrealized Gain/Loss on SAFS 4,404 (1,242) Intangible Assets (22,715) (21,010) Total Adjusted Total Assets 602,193 647,967 Total Assets Leverage Ratio 5.67% 6.15% Tier 1 Capital to Risk-Weighted Assets: Total Tier 1 Capital (per above) 34,166 39,855 Risk Weighted Assets 329,471 377,471 Total Tier 1 Capital to Risk-Weighted Assets 10.37% 10.56% Total Capital to Risk-Weighted Assets: Total Tier 2 Capital Allowance for Loan Losses 3,688 3,850 1.25% of Risk-Weighted Assets 4,118 4,718 Lower of Allowance for Loan Losses or 1.25% of Risk-Weighted Assets 3,688 3,850 Total Tier 1 Capital (per above) 34,166 39,855 Total Tier 2 Capital 37,854 43,705 Risk-Weighted Assets Ineligible Portion of the Allowance for Loan Losses - - Adjusted Risk-Weighted Assets 329,471 377,471 Total Tier 2 Capital to Adjusted Risk-Weighted Assets 11.49% 11.58% (1) Series A Perpetual Preferred stock has a cumulative dividend feature. Inclusion in Tier 1 Capital is limited to 25% of the sum of all core capital elements. Monetary Policy and Econmonic 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. Changes in the amount of the assessments from the Bank Insurance Fund, which insures commercial bank deposits, also affect earnings. Assessments were reduced in 1995 to reflect the Bank Insurance Fund's fully-funded status. The Company cannot predict how future changes in the amount of the assessments will impact earnings. Employees As of December 31, 1995, the Company and its subsidiaries had a total of 258 full-time and 64 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 de novo 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 sales personnel. 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 2000. 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 the Company's 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 owned by the bank. 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, 1997. 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, 1995. 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, 1995. PART II Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters Information required by this item is incorporated herein by reference to "Supplementary Business Information -- Stock Information" and Note 8 to the "Notes to Consolidated Financial Statements" included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1995, which is included as an exhibit to this report. Item 6. Selected Financial Data Incorporated herein by reference to the "Five Year Summary of Selected Financial Data" included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1995, 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 "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Registrant's Annual Report to its shareholders for the year ended December 31, 1995, 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, 1995 Loan Portfolio Loan Maturities and Sensitivity to Changes in Interest Rates, December 31, 1995 Risk Elements in the Loan Portfolio Summary of Loan Loss Experience Deposits Time Certificates and Other Time Deposits of $100,000 or more as of December 31, 1995 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, 1995, are submitted herewith as an exhibit, and are incorporated by reference: 1. Consolidated Balance Sheets, December 31, 1995 and 1994 2. Consolidated Statements of Earnings for the three years ended December 31, 1995 3. Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1995 4. Consolidated Statements of Cash Flows for the three years ended December 31, 1995 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 1991 1992 1993 1994 1995 ASSETS: Cash & Non-interest bearing deposits $ 15,129 $ 17,162 $30,003 $ 27,316 $27,036 Interest Bearing Deposits 1,114 880 1,677 12,027 3,606 Taxable Investment Securities 114,281 95,691 102,323 185,110 222,011 Non-Taxable Investment Securities 26,200 24,374 37,038 40,498 38,200 Total Investment Securities 140,481 120,065 139,361 225,608 260,211 Trading Account Assets 773 2,017 --- --- 333 Federal Funds Sold 1,704 656 4,706 3,737 814 Loans (Net) 182,975 219,684 273,951 287,825 298,508 All Other Assets 16,755 17,450 32,101 46,101 45,001 TOTAL ASSETS $358,931 $377,914 $481,799 $602,614 $635,509 LIABILITIES & STOCKHOLDERS EQUITY: Non-Interest Bearing Deposits $ 36,118 $ 38,402 $ 66,895 $ 88,594 $ 75,320 Interest Bearing Deposits 244,253 259,271 335,510 420,530 459,645 Total Deposits 280,371 297,673 402,405 509,124 534,965 Short Term Borrowings 49,544 47,556 24,014 33,033 37,761 Long Term Debt 826 --- --- --- --- All Other Liabilities & Reserves 2,861 2,844 10,785 4,619 5,310 Stockholders' Equity 25,329 29,841 44,595 55,838 57,473 TOTAL LIABILITIES & EQUITY $358,931 $377,914 $481,799 $602,614 $635,509 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 1991 1992 1993 1994 1995 Interest Earned: Interest Bearing Deposits Interest Earned $ 94 $ 68 $ 104 $ 514 $ 213 Average Yield 8.43% 7.73% 6.20% 4.27% 5.91% Taxable Investment Securities Interest Earned 9,387 6,691 6,077 9,929 14,076 Average Yield 8.21% 6.99% 5.94% 5.36% 6.34% Non-Taxable Investment Securities (taxable equivalent) (1) Interest Earned 2,593 2,418 2,938 3,658 3,631 Average Yield 9.89% 9.92% 7.93% 9.03% 9.50% Trading Account Assets Interest Earned 58 151 --- --- 20 Average Yield 7.50% 7.49% --- --- 6.01% Federal Funds Sold Interest Earned 88 25 133 150 50 Average Yield 5.16% 3.81% 2.83% 4.01% 6.14% Loans (Excluding Unearned Discount & Non Accrual Loans) (taxable equivalent) (1) Interest & Fees Earned (2) 19,357 19,860 22,262 23,641 27,739 Average Yield (3) 10.56% 9.06% 8.13% 8.21% 9.29% Interest Paid: Interest Bearing Deposits Interest Paid 14,358 11,559 11,461 13,511 19,851 Average Effective Rate Paid 5.87% 4.46% 3.42% 3.21% 4.32% Borrowed Funds Interest Paid 2,921 1,800 1,289 1,619 2,309 Average Effective Rate Paid 5.89% 3.79% 5.37% 4.90% 6.11% Long Term Debt Interest Paid 88 --- --- --- --- Average Effective Rate Paid 10.65% --- --- --- --- Margin Between Rates Earned and Rates Paid: All Interest Earnings Assets (taxable equivalent) Interest & Fees Earned 31,577 29,213 31,514 37,892 45,729 Average Yield 9.65% 8.52% 7.44% 7.18% 8.11% All Interest Bearing Liabilities Interest Paid 17,367 13,359 12,750 15,130 22,160 Average Effective Rate Paid 5.89% 4.35% 3.55% 3.33% 4.46% Net Interest Earned 14,210 15,854 18,764 22,762 23,569 Net Yield 4.34% 4.62% 4.43% 4.32% 4.18% (1) Yields on tax exempt securities and loans are full tax equivalent yields at 34%. (2) Includes fees of $548, $568, $718, $675 and $678 for 1991 through 1995 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) 1994 over 1993 1995 over 1994 Rate Volume Rate Volume Changes in Interest Earned: Interest Bearing Deposits $ (42) $ 452 148 (449) Taxable Investment Securities (644) 4,496 1,984 2,163 Non-taxable Investment Securities (taxable equivalent) 290 430 186 (213) Trading Account Assets --- --- --- 20 Fed Funds Sold 48 (31) 55 (155) Loans (net) 224 1,155 3,196 902 Total $ (124) $6,502 $ 5,569 2,268 Changes in Interest Paid: Interest Bearing Deposits $ (735) $2,785 4,996 1,344 Short Term Borrowings (121) 451 436 254 Total $ (856) 3,236 5,432 1,598 Changes in Interest Margin $ 732 $3,266 $ 137 $ 670 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, U.S. Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities for each of the last five years (dollar figures in thousands): 1991 1992 1993 1994 1995 U.S. Treasury and U.S. Agency Securities $ 89,825 $ 77,897 $140,725 $203,956 $219,315 Obligations of States and Political Subdivisions 25,258 24,358 36,693 40,513 40,463 Other Securities 10,308 3,580 3,068 4,009 5,548 Total $125,391 $105,835 $180,486 $248,478 $265,326 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, 1995 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 $ 41,512 $ 8,350 $ 86 6.56% After One Year to Five Years 53,248 18,230 256 7.33% After Five Years to Ten Years 52,256 7,986 --- 7.84% Over Ten Years 72,299 5,897 5,206 7.00% Total $ 219,315 $ 40,463 $ 5,548 7.11% (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, 1995 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 1991 1992 1993 1994 1995 Commercial & Financial Loans $ 83,777 $ 88,341 $121,514 $ 91,392 $ 97,767 Agricultural Loans 32,428 45,924 40,972 31,564 29,905 Real Estate - Residential Mortgage Loans 66,256 54,728 103,234 86,105 85,965 Real Estate - Other 18,289 16,904 35,832 53,289 92,000 Loans to Individuals 13,364 13,268 29,728 22,056 21,066 Other Loans 859 980 625 394 272 214,973 220,145 331,905 284,800 326,975 Less: Unearned Discount 231 182 518 344 278 Allowance for Possible Loan Losses 3,202 2,713 4,369 3,688 3,850 Net Loans $211,540 $217,250 $327,018 $280,768 $322,847 The following tables set forth the registrant's loan maturity distribution for certain major categories of loans as of December 31, 1995 (dollar figures in thousands). AMOUNT DUE IN 1 Year or Less 1-5 Years After 5 Years Commercial & Financial Loans $ 72,291 $ 24,294 $ 1,182 Agricultural Loans 18,841 8,386 2,678 Real Estate - Other Loans 23,079 58,302 10,619 Total $ 114,211 $ 90,982 $ 14,479 As of December 31, 1995 loans totaling $105,146, which are due after one year have predetermined interest rates, while $315 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 1991 1992 1993 1994 1995 Non-accrual Loans $ 3,683 $ 2,915 $ 5,791 $ 4,879 $2,345 Loans Past Due 90 days or more and accruing 501 152 5,151 144 158 Renegotiated Loans 314 288 523 261 75 Other Real Estate 48 153 1,749 1,403 1,453 Total $ 4,546 $ 3,508 $13,214 $6,687 $4,031 The following table sets forth interest information for certain non- performing loans for the year ended December 31, 1995 (dollar figures in thousands): Non-Accrual Loans Renegotiated Loans Balance December 31, 1995 $ 2,345 $ 75 Gross interest income that would have been recorded if the loans had been current in accordance with their original terms 230 6 Amount of interest included in net earnings. 67 8 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 27% remains 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 12/31/95: Loans-year End (Gross) $ 127,672 $177,965 $ 21,066 $ 272 $ --- $326,975 Average Loans (Gross) 127,829 154,155 20,089 337 --- 302,410 Allowance for Loan Losses (Beginning of Year) 638 1,549 429 21 1,051 3,688 Loans Charged Off 1,113 76 216 --- --- 1,405 Recoveries - Loans Previously Charged Off 782 28 121 --- --- 931 Net Loan Losses (Recoveries) 331 48 95 --- --- 474 Operating Expense Provision 636 --- --- --- --- 636 Allowance For Loan Losses (Year End) 943 1,501 334 21 1,051 3,850 Ratios: Loans in Category to Total Loans 39.05% 54.43% 6.44% .08% --- 100% Net Loan Losses (Recoveries) to Average Loans .26% .03% .47% --- --- .16% 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%) 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 1991 1992 1993 1994 1995 Demand Deposits (Non- Interest Bearing) $ 36,119 $ 38,402 $66,895 $ 88,594 $ 75,320 Demand Deposits (Interest Bearing) 38,194 44,772 57,937 93,788 121,038 Savings Deposits 67,456 73,684 95,351 154,188 126,021 Time Deposits 138,603 140,815 182,222 172,554 212,586 Deposits in Foreign Bank Offices None None None None None TOTAL DEPOSITS $280,372 $297,673 $402,405 $509,124 $534,965 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 1991 1992 1993 1994 1995 Demand Deposits (Interest Bearing) 4.83% 3.67% 2.41% 2.37% 3.11% Savings Deposits 4.89% 3.52% 2.74% 2.99% 3.33% Time Deposits 6.65% 5.20% 4.09% 4.30% 5.59% TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's maturity distribution for all time deposits of $100,000 or more as of December 31, 1995 (in thousands): Maturity Amount Outstanding 3 months or less $ 23,866 3 through 6 months 11,928 6 through 12 months 6,170 Over 12 months 4,366 TOTAL $ 46,330 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 1991 1992 1993 1994 1995 Return on Average Assets 1.01% 1.15% .83% .95% .99% Return on Average Common Equity 14.29% 14.58% 10.80% 11.11% 11.93% Return on Average Equity 14.29% 14.58% 8.99% 10.23% 10.90% Dividend Payout Ratio 16.75% 19.73% 29.27% 26.47% 27.27% Average Equity to Average Asset Ratio 7.06% 7.90% 9.26% 9.27% 9.04% 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 1991 1992 1993 1994 1995 Balance at End of Period: Federal Funds Purchased and FHLB Advances $ 14,241 $ 4,272 $ --- $ 13,975 $ 23,975 Securities Sold Under Repurchase Agreements 43,688 14,854 20,571 16,086 18,635 Notes Payable to Banks 260 1,880 12,410 12,210 8,750 Other --- --- --- --- --- TOTAL $ 58,189 $21,006 $32,981 $ 42,271 $ 51,360 Weighted Average Interest Rate at the end of Period: Federal Funds Purchased and FHLB Advances 4.75% 3.53% --- 5.75% 5.75% Securities Sold Under Repurchase Agreements 4.53% 3.79% 2.76% 4.47% 4.73% Notes Payable to Banks 6.50% 6.00% 6.00% 8.00% 7.43% Other --- --- --- --- --- Highest Amount Outstanding at Any Month-End: Federal Funds Purchased and FHLB Advances $ 14,241 $16,614 $18,535 $13,975 $23,975 Securities Sold Under Repurchase Agreements 47,033 45,557 23,952 23,127 18,635 Notes Payable to Banks 1,115 1,880 17,500 14,555 12,570 Other 2,000 --- --- 1,000 3,000 Average Outstanding During the Year: Federal Funds Purchased and FHLB Advances $ 6,305 $10,715 $ 8,534 $ 3,205 $10,137 Securities Sold Under Repurchase Agreements 42,320 36,073 15,480 16,872 17,183 Notes Payable to Banks 760 768 7,362 12,755 10,334 Other 160 --- --- 201 107 Weighted Average Interest Rate During the Year: Federal Funds Purchased and FHLB Advances 5.78% 3.93% 3.30% 4.90% 6.55% Securities Sold Under Repurchase Agreements 5.87% 3.74% 3.58% 3.26% 4.94% Notes Payable to Banks 8.63% 6.12% 6.14% 7.07% 8.00% Other 6.40% --- --- 3.98% 6.25% PART III Item 10. Directors and Executive Officers of the Registrant Incorporated herein by reference to "Information Concerning Nominees" and "Executive Officers" in the Registrant's Proxy Statement dated April 8, 1996 in connection with its annual meeting to be held on May 15, 1996. Item 11. Executive Compensation Incorporated herein by reference to "Directors' Fees and Compensation" and "Executive Compensation" in the Registrant's Proxy Statement dated April 8, 1996, in connection with its annual meeting to be held on May 15, 1996. Item 12. Security Ownership of Certain Beneficial Owners and Management Incorporated herein by reference to "Security Ownership of Certain Beneficial Owners and Management" in the Registrant's Proxy Statement dated April 8, 1996, in connection with its annual meeting to be held on May 15, 1996. Item 13. Certain Relationships and Related Transactions Incorporated herein by reference to "Executive Compensation" and "Certain Relationships and Related Transactions" in the Registrant's Proxy Statement dated April 8, 1996 in connection with its annual meeting to be held on May 15, 1996. 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, 1995 as follows: 1. Consolidated Balance Sheets, December 31, 1995 and 1994 2. Consolidated Statements of Earnings for the three years ended December 31, 1995. 3. Consolidated Statements of Cash Flows for the three years ended December 31, 1995. 4. Consolidated Statements of Changes in Stockholders' Equity, for the three years ended December 31, 1995. 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report 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 v notes. C. Exhibits as follows: The exhibits listed on the Exhibit Index beginning on page 29 of this Form 10-K are filed herewith or are incorporated herein by reference to other filings. 2. Reports on Form 8-K The registrant did not file any reports on Form 8-K during the quarter ended December 31, 1995. 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. /s/ Richard L. Geach By: Richard L. Geach, President Chief Executive Officer and Director Date: March 25, 1996 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. /s/ David L. Murray By: D. L. Murray, Executive Vice President /s/ Donald E. Bitz Chief Financial Officer and Director By: Donald E. Bitz Date: March 25, 1996 Date: March 12, 1996 /s/ R. Gerald Fox /s/ Charles M. Luecke By: R. Gerald Fox By: Charles M. Luecke Date: March 28, 1996 Date: March 15, 1996 /s/ Joseph C. Piland /s/ H. Barry Musgrove By: Joseph C. Piland By: H. Barry Musgrove Date: March 28, 1996 Date: March 28, 1996 /s/ E. G. Maris By: E. G. Maris Date: March 18, 1996 EXHIBIT INDEX The following exhibits are filed herewith or incorporated herein by reference. All documents incorporated by reference to prior filings have been filed under Commission File No. 0-13425, unless otherwise indicated. Each management contract or compensatory plan or arrangement required to be filed as an exhibit to this report has been marked with an asterisk. Exhibit Number Description 2.1 Agreement and Plan of Reorganization, date January 22, 1996, among the Registrant, Northern Illinois Financial Corporation and Grand Premier Financial, Inc. (incorporated by reference to the Registrant's Form 8-K, dated January 18, 1996). 2.2 First Amendment to Agreement and Plan of Reorganization, dated March 18, 1996, among the Registrant, Northern Illinois Financial Corporation and Grand Premier Financial, Inc. 3.1 Restated Certificate of Incorporation of the Company, as amended by the Certificate of Amendment, dated May 2, 1994, together with Certificates of Designation for the Series A Perpetual Preferred Stock, the Series B Perpetual Preferred Stock and the Series D Perpetual Preferred Stock incorporated by reference to the Registrant's Registration Statement on Form 10-K/A, dated April 5, 1995. 3.2 By-laws of the Registrant, as amended incorporated herein by reference to the Registrant's Registration Statement on Form 10-K, dated March 23, 1989. 4.1 Agreement, dated July 16, 1993, among Premier Financial Services, Inc., Premier Acquisition Company, First Northbrook Bancorp, Thomas D. Flanagan and James M. Flanagan incorporated by reference to the Registrant's Registration Statement on Form 8-K, dated July 29, 1993. 10.1* Change in Control and Termination Agreement, dated January 20, 1995, between the Registrant and Richard L. Geach. 10.2* Change in Control and Termination Agreement, dated January 20, 1995, between the Registrant and David L. Murray. 10.3* Change in Control and Termination Agreement, dated January 20, 1995, between the Registrant and Kenneth A. Urban. 10.4* Change in Control and Termination Agreement, dated January 20, 1995, between the Registrant and Steve E. Flahaven. 10.5 Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan, effective August 1, 1994, incorporated by reference to the Regristrant's Registration Statement on Form S-8, dated October 5, 1994, Registration No. 33-55793. 10.6 Premier Financial Services, Inc. 1995 Non-Qualified Stock Option Plan, effective as of January 26, 1995, incorporated by reference to the Registrant's Registration Statement on Form S-8, dated May 5, 1995, Registration No. 33-59137. 13 Premier Financial Services, Inc. 1995 Annual Report to Stockholders. 21 Subsidiaries of the Registrant. 23 Consent of KPMG Peat Marwick LLP 27 Article 9 Financial Data Schedule for the Fiscal Year Ended December 31, 1995. EX-13 2 To our Stockholders: Last year was another rewarding chapter in the history of Premier Financial Services, Inc. During 1995, we experienced excellent growth in earnings, assets, capital, and most importantly the value of your investment in our stock. Some of the years' highlights included: * a 13.2% improvement in earnings per share * net loan growth of $42 million * a $9.6 million increase in capital * a 25% increase in the closing bid price of our common stock, from $7.00 at year end 1994 to $8.75 at December 31, 1995. We re very pleased with these results in an industry which can only be described as volatile, and will continue to strive for similar achievements in the years ahead. There were a number of other significant changes during 1995 which should contribute to future performance. First was the Federal Deposit Insurance Corporation s decision to reduce insurance premiums for the banking industry. We, along with the industry in general, benefitted from that decision; it is a benefit the industry has earned by replenishing the insurance fund through payment of high premiums. Secondly, we continue to benefit from market expansion resulting from our acquisition of First National Bank of Northbrook and First Security Bank of Cary-Grove. Their combined performance has exceeded our expectations and we look forward to continued positive results. Finally, the progress we made in reducing non-performing assets to $4 million at year end (.60% of total assets) allows us to focus more of our resources on new growth rather than collection efforts. The only constant in the financial services industry is change. Premier has changed more dramatically in the past five years than in its previous history. We certainly expect that trend to continue in 1996. We look forward to your continued participation and thank you for your confidence. Cordially, Richard L. Geach David L. Murray President & Chief Executive Officer Executive Vice President & Chief Financial Officer Consolidated Balance Sheets --------------------------------------------------------------------------------------------------------------- December 31, 1995, and 1994 1995 1994 --------------------------------------------------------------------------------------------------------------- Assets Cash & non-interest bearing deposits $37,390,597 $31,186,418 Interest bearing deposits 676,367 14,683,941 --------------------------------------------------------------------------------------------------------------- Cash and cash equivalents 38,066,964 45,870,359 --------------------------------------------------------------------------------------------------------------- Securities available for sale at market value 265,326,397 207,964,644 Investments held to maturity (approximate market value): December 31, 1994 - $40,516,000 - 40,513,480 Loans 326,975,311 284,799,933 Less: Unearned discount ( 278,242) ( 343,902) Allowance for possible loan losses ( 3,849,863) ( 3,688,386) --------------------------------------------------------------------------------------------------------------- Net loans 322,847,206 280,767,645 --------------------------------------------------------------------------------------------------------------- Bank premises & equipment 13,898,077 14,254,748 Excess cost over fair value of net assets acquired 20,008,150 21,600,583 Accrued interest receivable 6,514,630 5,835,006 Other assets 3,557,959 3,697,272 --------------------------------------------------------------------------------------------------------------- Total assets $670,219,383 $620,503,737 --------------------------------------------------------------------------------------------------------------- Liabilities & stockholders' equity Non-interest bearing deposits $82,694,865 $86,018,604 Interest bearing deposits 468,797,581 437,674,799 --------------------------------------------------------------------------------------------------------------- Deposits 551,492,446 523,693,403 --------------------------------------------------------------------------------------------------------------- Short-term borrowings 32,725,000 26,185,000 Securities sold under agreements to repurchase 18,635,335 16,085,872 Accrued taxes & other expenses 5,033,133 1,759,512 Other liabilities 226,065 303,118 --------------------------------------------------------------------------------------------------------------- Liabilities $608,111,979 $568,026,905 --------------------------------------------------------------------------------------------------------------- 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, issuedand outstanding 7,250,000 7,250,000 Series D perpetual, $1,000 stated value, 7.50%, 3,300 shares authorized, 2,000 shares issued and outstanding 2,000,000 2,000,000 Common stock- $5.00 par value No. of Shares 1995 1994 Authorized 15,000,000 15,000,000 Issued 6,544,347 6,526,227 Outstanding 6,544,347 6,504,876 32,721,735 32,631,135 Retained earnings 13,893,248 10,149,027 Unrealized gain (loss) on securities available for sale, net of tax 1,242,421 (4,403,568) Less: Treasury stock, (21,351 shares at cost) - ( 149,762) --------------------------------------------------------------------------------------------------------------- Stockholders' equity $62,107,404 $52,476,832 --------------------------------------------------------------------------------------------------------------- Total liabilities & stockholders' equity $670,219,383 $620,503,737 --------------------------------------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements.
Consolidated Statements of Earnings --------------------------------------------------------------------------------------------------------------------------------- Years ended December 31, 1995, 1994 and 1993 Interest income 1995 1994 1993 Interest & fees on loans $27,729,373 $23,625,296 $22,235,746 Interest & dividends on investment securities: Taxable 14,075,762 9,928,614 6,077,449 Exempt from federal income tax 2,291,917 2,309,789 1,891,854 Other interest income 282,972 663,317 236,540 - - ----------------------------------------------------------------------------------------------------------------------------------- Interest income 44,380,024 36,527,016 30,441,589 - - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense Interest on deposits 19,851,147 13,510,527 11,461,443 Interest on borrowings 2,308,515 1,618,879 1,289,326 - - ----------------------------------------------------------------------------------------------------------------------------------- Interest expense 22,159,662 15,129,406 12,750,769 - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income 22,220,362 21,397,610 17,690,820 Provision for possible loan losses 636,000 200,000 1,620,000 - - ----------------------------------------------------------------------------------------------------------------------------------- Net interest income after provision for possible loan losses 21,584,362 21,197,610 16,070,820 - - ----------------------------------------------------------------------------------------------------------------------------------- Other income Trust fees 2,459,025 2,367,156 2,161,597 Service charges on deposits 1,960,424 1,907,463 1,466,387 Net gains on loans sold to secondary market 222,333 256,831 886,231 Investment securities gains, net 409,021 35,201 136,391 Other operating income 2,179,330 2,119,461 1,342,701 - - ----------------------------------------------------------------------------------------------------------------------------------- Other income 7,230,133 6,686,112 5,993,307 ---------------------------------------------------------------------------------------------------------------------------------- Other expenses Salaries 8,313,135 7,767,407 6,814,448 Pension, profit sharing, & other employee benefits 1,181,375 1,112,672 825,066 Net occupancy of bank premises 2,160,448 1,981,801 1,523,649 Furniture & equipment 1,068,153 1,088,454 1,064,031 Federal deposit insurance premiums 585,635 1,161,540 918,447 Amortization of excess cost over fair value of net assets acquired 1,592,433 1,592,433 833,838 Other 4,970,549 5,059,412 4,493,368 - - ----------------------------------------------------------------------------------------------------------------------------------- Other expense 19,871,728 19,763,719 16,472,847 - - ----------------------------------------------------------------------------------------------------------------------------------- Earnings before income taxes 8,942,767 8,120,003 5,591,280 Applicable income taxes 2,680,588 2,409,708 1,580,070 - - ----------------------------------------------------------------------------------------------------------------------------------- Net earnings $6,262,179 $5,710,295 $4,011,210 =================================================================================================================================== Earnings per share (On weighted average outstanding common and common equivalent shares outstanding of 6,694,059 in 1995, 6,648,744 in 1994 and 6,245,097 in 1993) $.77 $.68 $.55 =================================================================================================================================== See accompanying notes to consolidated financial statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS Years ended December 31, 1995, 1994 and 1993 1995 1994 1993 ------- ------- -------- Cash flows from operating activities: Net earnings $6,262,179 $5,710,295 $4,011,210 Adjustments to reconcile net earnings to net cash from operating activities: Amortization net, related to: Investment securities 1,225,796 2,002,842 1,239,194 Excess of cost over net assets acquired 1,592,433 1,592,433 833,838 Other 356,741 248,371 178,029 Depreciation 1,091,176 1,135,556 1,076,355 Provision for possible loan losses 636,000 200,000 1,620,000 Gain on sale related to: Investment securities ( 409,021) ( 35,201) ( 136,391) Loans sold to secondary market ( 222,333) ( 256,831) ( 886,231) Loans originated for sale ( 18,942,000) ( 18,864,000) ( 58,485,000) Loans sold to secondary market 18,942,000 18,864,000 58,485,000 Deferred income tax expense 88,000 239,000 108,000 Change in: Securities available for sale - - ( 64,108,609) Accrued interest receivable ( 679,624) ( 764,674) ( 1,374,094) Other assets 137,540 ( 311,337) ( 4,850,293) Accrued taxes & other expenses 3,185,622 ( 2,146,783) 1,623,933 Other liabilities ( 2,985,593) ( 276,156) 127,395 --------------------------------------------------------------------------------------------------------------------- Net cash from operating activities 10,278,916 7,337,515 ( 60,537,664) --------------------------------------------------------------------------------------------------------------------- Cash flows from investing activities: Cash portion of acquisition, net of cash and cash equivalents acquired - - ( 2,390,348) Purchase of investment securities held-to-maturity ( 8,887,616) ( 11,095,547) ( 20,141,426) Purchase of securities available for sale (202,555,577) ( 131,754,087) - Proceeds from: Maturities of investment securities held-to-maturity 6,118,044 6,791,405 5,038,965 Sales of investment securities - - 3,456,965 Maturities of securities available for sale 56,358,609 38,951,206 - Sales of securities available for sale 139,856,020 22,744,000 - Net (increase) decrease in loans ( 42,795,702) 46,113,195 (110,655,210) Purchase of bank premises & equipment ( 788,772) ( 290,602) ( 4,614,612) --------------------------------------------------------------------------------------------------------------------- Net cash from investing activities ( 52,694,994) ( 28,540,430) (129,305,666) --------------------------------------------------------------------------------------------------------------------- Cash flows from financing activities: Net increase (decrease) in: Deposits 27,799,043 5,674,460 209,125,831 Securities sold under agreements to repurchase 2,549,463 ( 4,485,786) 5,717,248 Short term borrowings 6,540,000 13,775,000 6,258,000 Reissuance (purchase) of treasury stock 149,762 59,016 ( 208,778) Exercised stock options 50,971 19,000 - (Redemption) issuance of preferred stock - ( 1,950,000) 5,000,000 Cash dividends paid ( 2,476,556) ( 2,373,950) ( 1,574,037) --------------------------------------------------------------------------------------------------------------------- Net cash from financing activities 34,612,683 10,717,740 224,318,264 --------------------------------------------------------------------------------------------------------------------- Increase (decrease) in cash and cash equivalents ( 7,803,395) ( 10,485,175) 34,474,934 Cash and cash equivalents, beginning of year 45,870,359 56,355,534 21,880,600 --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents, end of year $38,066,964 $45,870,359 $56,355,534 --------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information Cash paid during the year for: Interest $21,653,182 $14,951,689 $12,885,202 Income taxes 3,025,000 2,148,000 1,980,000 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 43,309,651 141,744,000 - 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, 1995, 1994, and 1993 Unrealized Gain (Loss) On Securities Preferred Common Retained Available For Treasury Stock Stock Surplus Earnings Sale, Net Of Tax Stock Total --------------------------------------------------------------------------------------------------------------------------- Balance January 1, 1993 $ - $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 --------------------------------------------------------------------------------------------------------------------------- Net earnings 6,262,179 6,262,179 Cash dividends common stock (1,370,306) (1,370,306) Cash dividends preferred stock (1,106,250) (1,106,250) Exercised stock options 90,600 (39,629) 50,971 Change in unrealized gain (loss) on securites available for sale, net of tax 5,645,989 5,645,989 Treasury stock reissuance (1,773) 149,762 147,989 --------------------------------------------------------------------------------------------------------------------------- Balance December 31, 1995 $14,250,000 $32,721,735 $ - $13,893,248 $1,242,421 $ - $62,107,404 --------------------------------------------------------------------------------------------------------------------------- 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, 1995 and 1994, 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, 1995. 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, 1995 and 1994, and the results of their operations and their cash flows for each of the years in the three-year period ended December 31, 1995 in conformity with generally accepted accounting principles. KPMG Peat Marwick, LLP Chicago, Illinois January 26, 1996 Notes to Consolidated Financial Statements December 31, 1995, 1994 and 1993 1. Significant accounting policies The accompanying consolidated financial statements conform to generally accepted accounting principles and to general practices within the banking industry. The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of income and expense during the reporting period. Actual results could differ from those estimates. 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. 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. The impact of the adoption of SFAS No. 115 increased stockholders' equity by $690,000 in 1994. 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. On November 30, 1995, the Company transferred all securities classified as held-to-maturity to securities available for sale under the provisions of the SFAS No. 115 implementation guide. 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: buildings 40 years and 12 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. 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. The effect on deferred taxes of a change in tax rates is recognized in income in the period that includes the enactment date. Nature of operations 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. The Company's markets are throughout northern Illinois. 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, 1995 and 1994 were $2,821,000 and $1,899,000. 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 are as follows (in thousands): 1994 Gross Gross Approximate Amortized Unrealized Unrealized Market Cost Gains Losses Value Obligations of states & political subdivisions 40,483 1,170 (1,167) 40,486 Other securities 30 - - 30 $ 40,513 $ 1,170 $ (1,167) $ 40,516
The amortized cost and approximate market value of securities available for sale at December 31, 1995 and 1994 are as follows (in thousands): 1995 1994 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 $ 44,730 $ 347 $ (300) $ 44,777 $ 71,125 $ 16 $(1,721) $ 69,420 U.S. Government agencies 105,964 977 (562) 106,379 103,408 61 (3,754) 99,715 Obligations of state & political subdivisions 39,653 1,441 (631) 40,463 - - - - Mortgage-backed securities 67,548 672 (61) 68,159 35,723 33 (1,304) 34,452 Other securities 5,549 - (1) 5,548 4,381 - (3) 4,378 $ 263,444 $ 3,437 $ (1,555) $265,326 $214,637 $ 110 $(6,782) $207,965
The amortized cost and market value of securities available for sale as of December 31, 1995 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. 1995 Approximate Amortized Market Cost Value Due in one year or less $51,209 $49,948 Due after one year through five years 70,417 71,734 Due after five years through ten years 59,212 60,242 Due after ten years 15,058 15,243 Mortgage-backed securities 67,548 68,159 $263,444 $265,326 During 1995, proceeds from sales of securities available for sale were $139,856,000. Gross gains of $548,000 and gross losses of $139,000 were realized on those sales. 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 $3,457,000. Gross gains of $141,000 and gross losses of $5,000 were realized on those sales. On December 31, 1995 securities with a carrying value of approximately $116,939,000 were pledged to secure funds and trust deposits and for other purposes as required or permitted by law. 4. Loans The following is a summary of loans by major classification as of December 31, 1995 and 1994 (in thousands): 1995 1994 Commercial and financial loans $ 97,767 $ 91,392 Agricultural loans 29,905 31,564 Real estate-residential 85,965 86,105 Real estate-commercial 92,000 53,289 Loans to individuals 21,066 22,056 Other loans 272 394 $ 326,975 $ 284,800 The Company serviced loans for others totaling $92,350,000, $91,806,000, and $81,939,000 as of December 31, 1995, 1994 and 1993, respectively. A summary of changes in the allowance for possible loan losses for the three years ended December 31 is as follows (in thousands): 1995 1994 1993 Balance beginning of year $3,688 $4,369 $ 2,713 Allowance from acquired entity - - 2,351 Recoveries 931 643 205 Provision charged to operating expense 636 200 1,620 5,255 5,212 6,889 Less:loans charged off 1,405 1,524 2,520 Balance end of year $3,850 $3,688 $4,369 The Company adopted the provisions of Statement of Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan," as amended by SFAS No. 118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and Disclosures," effective January 1, 1995. Prior periods have not been restated. All loans have been evaluated for collectibility under the provisions of these statements. The Company recognized a loan as being impaired when, based on current information and events,it is probable that the Company will be unable to collect all amounts due according to the contractual terms of the loan agreement. The recorded investment in loans for which an impairment has been recognized at December 31, 1995 was $2,578,000. The recorded investment in loans for which an impairment has been recognized and the related allowance for possible loan losses at December 31, 1995 was $558,000 and $494,000, respectively. The average recorded investment in impaired loans during 1995 was $3,319,000. Interest income recognized on impaired loans during 1995 was $68,000. 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. 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, 1995 $2,151 New loans 156 Repayments (228) Balance, December 31, 1995 $2,079 As of December 31, 1995 and 1994, the outstanding balance of nonaccrual loans was approximately $2,345,000 and $4,879,000 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 $163,000, $420,000 and $416,000 in 1995, 1994 and 1993 respectively. 5. Bank premises and equipment Bank premises and equipment are recorded at cost less accumulated depreciation as follows (in thousands): 1995 1994 Land, buildings and improvements $18,317 $17,784 Furniture, fixtures and equipment 5,374 5,331 23,691 23,115 Less accumulated depreciation 9,793 8,860 $13,898 $14,255 6. Short-term borrowings and securities sold under agreements to repurchase Following is a summary of short-term borrowings at December 31, 1995 and 1994 (in thousands): 1995 1994 Federal funds purchased and FHLB advances $23,975 $13,975 Note payable to bank 8,750 12,210 $32,725 $26,185 The note payable to bank totaling $8,750,000 and $12,210,000 at December 31, 1995 and 1994, respectively, is due on demand with variable interest (7.43 and 8.00% at December 31, 1995 and 1994, respectively) and is secured by the Company's common stock holdings in its subsidiaries. The note payable is a draw on a $15 million revolving line of credit which matures in January, 1999. The note agreement contains certain restrictive covenants. The Company was in compliance with such covenants at December 31, 1995. At December 31, 1995 and 1994 there were no material amounts of assets at risk with any one customer under agreements to repurchase securities sold. At December 31, 1995 and 1994 securities sold under agreements to repurchase are summarized as follows (in thousands): Weighted average Collateral Repurchase interest Collateral Market 1995 liability rate Book Value Value Within 30 days $ 2,035 6.58% $2,004 $ 2,004 30 - 90 days 1,276 6.26% 1,277 1,297 After 90 days 2,687 5.67% 2,715 2,734 Demand 12,637 4.07% 16,772 16,919 $18,635 4.73% $22,768 $22,954 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 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 five of the last 10 years of their employment. 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, 1995 and 1994 were as follows: 1995 1994 Discount rate 7.25% 8.50% Expected long-term rates of return on assets 8.00% 8.50% The following table sets forth the plan's funding status and amounts recognized in the Company's consolidated balance sheets at December 31, 1995 and 1994 (in thousands): 1995 1994 Actuarial present value of accumulated, vested and projected benefit obligations $3,344 $2,696 Plan assets at fair value, primarily listed stocks & US Bonds 3,871 3,419 Plan assets in excess of projected benefit obligation 527 723 Unrecognized net gain (loss) from past experience different from that assumed and effects of changes in assumptions 13 (267) Unrecognized net assets at beginning of year being recognized over 15 years (288) (346) Prepaid pension cost included in other assets $ 252 $ 110
Net pension cost for 1995, 1994 and 1993 included the following components (in thousands): 1995 1994 1993 Service cost-benefits earned during the period $ - $ 91 $ 166 Interest cost on projected benefits obligation 205 236 255 Actual return on plan assets (584) (103) (231) Net amortization and deferral 237 (212) (70) Gain on curtailment - (189) - Net periodic pension (income) expense $(142) $(177) $ 120
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 $341,000 for 1995, $191,000 for 1994, and $218,000 for 1993. 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. The plan provides for the total number of shares of common stock that may be available for options under the Plan to be adjusted on January 1 of each calendar year, so that the total number of shares of common stock that may be issued and sold under the Plan as of January 1, of each calendar year to be equal to four percent (4%) of the outstanding shares of common stock of the Company on such date; provided, however, that no such adjustment will reduce the total number of shares of common stock that may be issued and sold under the plan below 200,000. The following table summarizes option activity under this plan. Number of Option Shares Price Options outstanding at December 31, 1992 311,979 $2.49 to $4.55 Granted 43,578 7.17 Exercised - - Options outstanding at December 31, 1993 355,557 2.49 to 7.17 Granted - - Exercised 7,638 2.49 Options outstanding at December 31, 1994 347,919 2.49 to 7.17 Granted 68,000 6.88 Exercised 18,120 2.49 to 4.55 Options outstanding at December 31, 1995 397,799 2.49 to 7.17 At December 31,1995 options to acquire 295,760shares were exercisable. 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% 20 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 $19,000 and $9,000 in 1995 and 1994, respectively. 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. 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. 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, 1995, the Company had $3,131,000 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 1996 through the date of any declaration of dividends. 9. Income Taxes The components of total tax expensereported in the consolidated income statements for the years ended December31, 1995, 1994, and 1993 areas follows (in thousands): 1995 1994 1993 Current federal $2,592 $2,171 $1,472 Deferred federal 88 239 108 Total income tax expense $2,680 $2,410 $1,580 21 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): 1995 1994 1993 Tax expense at statutory rate $3,040 $2,760 $1,901 Tax-exempt interest, net of premium amortization (806) (892) (592) Amortization of excess cost over net assets acquired 541 541 284 Capitalized acquisition costs 41 - 39 Reduction in valuation allowance (90) - - Other, net (46) 1 (52) Total income tax expense $2,680 $2,410 $1,580
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, 1995 and 1994 are as follows (in thousands): 1995 1994 Deferred tax assets Alternative minimum tax credit carryforward $ - $448 Net operating loss carryforwards 910 1,275 Provision for loan losses 1,035 842 Deferred loan fees - 117 Other 52 90 Total gross deferred tax assets 1,997 2,772 Less: Valuation allowance (763) (950) Net deferred tax assets $1,234 $1,822 Deferred tax liabilities: 1995 1994 Security accretion $26 $81 Tax depreciation in excess of book depreciation 166 272 Difference between tax and book basis of assets acquired 1,322 1,753 Deferred loan fees 109 - Other - 17 Total gross deferred tax liabilities 1,623 2,123 Net deferred tax liability 389 301 Unrealized gain (losses) on securities available for sale 640 (2,268) Net deferred tax (asset) liability $ 1,029 $(1,967) The net change in the valuation allowance for the year ended December 31, 1995 was a decrease of $187,000. Future recognition of tax benefits relating to the valuation allowance for deferred tax assets as of December 31, 1995 will be allocated as follows: Income tax benefit reported in the consolidated statement of earnings $ 655 Excess cost over fair value of net assets acquired 108 $ 763 The Company has net operating loss carryforwards for state income tax purposes of approximately $19 million which expire beginning in 2002 through 2007. 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, 1995 and 1994, such commitments and off-balance sheet financial instruments are as follows (in thousands). 1995 1994 Letters of credit $8,554 $2,827 Lines of credit and other loan commitments 96,091 80,338 $104,645 $83,165 Letters of credit are conditional commitments issued by the Company to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. 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 of $38.1 million is a reasonable estimate of fair value. Securities available for sale The estimated fair values of securities available for sale are provided in note 3 to the consolidated 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, 1995 are $326.7 million and $327.7 million, respectively. In order to determine the fair values for loans the loan portfolio was categorized based on loan type such as commercial, real estate, agricultural, individual and nonperforming. Each loan category was further segmented into fixed and adjustable rate interest terms. For performing, variable rate loans with no significant credit concerns and frequent repricing, estimated fair values are based on carrying values. The fair values of other performing loans, except residential real estate and credit card, loans are estimated using discounted cash flow analyses. The discount rates used in these analyses are based on origination rates for similar loans of comparable credit quality. For performing residential real estate loans, fair value is estimated by discounting contractual cash flows adjusted for prepayment estimates using discount rates based on secondary market sources adjusted to reflect differences in servicing and credit costs. 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 flow. 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, 1995 are $551.5 million and $553.5 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 the Company receives from the low-cost, long-term funding they provide. These benefits are significant. The estimated fair value of time deposits is based on the discounted value of contractual cash flows. The discount rate is estimated using the rates currently offered for deposits of similar remaining maturities. Short-term borrowings Short-term borrowings reprice frequently and therefore the carrying amount is a reasonable estimate of fair value. Securities sold under agreements to repurchase The fair value of securities sold under agreements to repurchase is estimated using the rates currently offered for securities sold under agreements to repurchase with similar remaining maturities. Both the carrying values and estimated fair values of Premier's securities sold under agreements to repurchase as of December 31, 1995 were $18.6 million. Commitments to extend credit and letters of credit Pricing of these financial instruments is based on the credit quality and relationship, fees, interest rates, probability of funding, and compensating balance and other covenants or requirements. Loan commitments generally have fixed expiration dates, are variable rate and contain termination and other clauses which provide for relief from funding in the event that there is significant deterioration in the credit quality of the customer. Many loan commitments are expected to, and typically do, expire without being drawn upon. The rates and terms of Premier's commitments to lend, and letters of credit are competitive with others in the various markets in which Premier operates. The carrying amounts are reasonable estimates of the fair values of these financial instruments. Carrying amounts are comprised of the unamortized fee income and, where necessary, reserves for any expected credit losses from these financial instruments. 12. Acquisition On July 16, 1993, the Company acquired 100% of the common stock of First Northbrook Bancorp, Inc., Northbrook, Illinois for a total purchase price of $32,775,000. As a result of the merger Premier indirectly acquired 100% of the stock of First National Bank of Northbrook, Northbrook, Illinois and First Security Bank of Cary Grove, Cary, Illinois. The acquisition was accounted for as a purchase transaction. The aggregate of cash and shares exchanged for First Northbrook Bancorp, Inc. was as follows: Premier Series B - Convertible Preferred Stock (5,950 shares) $5,950,000 Premier Series C - Noncumulative Perpetual Preferred Stock (1,950 shares) 1,950,000 Premier Series D - Noncumulative Perpetual Preferred Stock (3,300 shares) 3,300,000 Premier Common Stock 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 a 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, 2003. 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. 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%. No longer authorized at December 31, 1995. Series D - Non-voting, up to $1,300,000 convertible at any time 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 (in thousands) which follow assume the acquisition had occurred at the beginning of the 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. December 31, 1993 Net interest income $21,902 Earnings before income taxes 3,565 Net earnings 2,462 Primary earnings per common share $ .18 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 period, or of results which may occur in the future. 13. Condensed financial information (Parent Company only) The following is a summary of condensed financial information for the Parent Company only (in thousands): Condensed balance sheets December 31, 1995 1994 Assets Investments in subsidiaries $67,742 $61,774 Cash & interest bearing deposits 173 16 Premises and equipment 4,631 4,680 Other assets 221 38 Total assets $72,767 $66,508 Liabilities and stockholder's equity Short-term borrowings $ 8,750 $12,210 Other liabilities 1,910 1,821 Total liabilities 10,660 14,031 Stockholder's equity 62,107 52,477 Total liabilities and stockholder's equity $72,767 $66,508
Condensed statements of earnings For the years ended December 31, 1995 1994 1993 Income: Dividends from subsidiaries $6,888 $5,145 $8,250 Other 2,996 2,940 2,706 9,884 8,085 10,956 Expenses: Interest 826 902 452 Salaries 2,517 2,670 2,263 Other 1,187 1,285 1,135 4,530 4,857 3,850 Earnings before income tax benefit and equity in undistributed earnings of subsidiaries 5,354 3,228 7,106 Income tax benefit 456 587 272 Earnings before equity in undistributed earnings of subsidiaries 5,810 3,815 7,378 Equity in undistributed earnings of subsidiaries 452 1,895 (3,367) Net earnings $6,262 $ 5,710 $4,011 Earnings per share $ .77 $ .68 $ .55
Condensed statements of cash flows For the years ended December 31, 1995 1994 1993 Operating activities: Net cash provided by operating activities $ 6,033 $ 4,095 $ 7,649 Investing activities: Cash paid for acquisition of subsidiaries - - (16,325) Additional paid in capital to subsidiaries - - (5,950) Purchase of bank premises and equipment (40) (76) (47) Net cash used by investing activities (45) (76) (22,322) Financing activities: Increase (decrease) in short-term debt (3,460) (200) 10,530 Redemption of Series C Preferred stock - (1,950) - Purchase of treasury stock - - (209) Reissuance of treasury stock 149 59 - Dividends paid (2,477) (2,374) (1,574) Other (43) 443 935 Issuance of stock - - 5,000 Net cash provided (used) by financing activities (5,831) (4,022) 14,682 Increase (decrease) in cash $157 ($3) $9 Cash paid (received) for Interest $ 837 $1,031 $290 Income taxes (3,525) (1,168) (273)
14. Subsequent Event On January 22, 1996, the Company signed a definitive agreement to merge their assets and operations with Northern Illinois Financial Corporation (NIFCO) located in Wauconda, Illinois and form a new financial services organization to be named Grand Premier Financial, Inc. In the proposed merger, which is subject to director, shareholder and regulatory approval, NIFCO shareholders will receive 4.25 shares, of Grand Premier Financial, Inc. for each share held. The Company shareholders will receive 1.116 shares of Grand Premier Financial, Inc. for each share held. At December 31, 1995, NIFCO had total assets of approximately $954 million. It is expected that the merger will be accounted for as a pooling-of-interests and be consummated in the third quarter of 1996. 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 1995 Annual report to shareholders. Results of Operations Net earnings available to common shareholders for 1995 (i.e., net earnings less preferred dividends) totaled $5.2 million, or $.77 per common share, compared with $4.5 million, or $.68 per share, in 1994. In 1993, net earnings available to common shareholders were $3.4 million or $.55 per share. Premier's return on average common equity was 11.93% in 1995, 11.11% in 1994 and 10.80% in 1993. Return on average assets was .99%, .95%, and .83% in 1995, 1994 and 1993, respectively. Net Interest Income Tax equivalent net interest income for 1995 was $23.6 million, as compared to $22.8 million in 1994 and $18.8 million in 1993. The year-to-year increases were primarily a result of increased earning asset volume. The growth is directly related to management's efforts to expand the loan portfolio, and funded with core deposits. Net interest income earned from the increased earning asset volume more than offset declines in net interest margin. Average earning assets totaled $563.7 million in 1995 versus $527.4 million and $423.4 million in 1994 and 1993, respectively. Average loans, the highest yielding component of earning assets, increased by $78.8 million over the three year period. The remainder of the increase is in investment securities. Our net interest margin was 4.18% in 1995 as compared to 4.32% in 1994 and 4.43% in 1993. The decrease in net interest margin from 1993 to 1995 was the result of a change in earning asset mix. Although loans increased significantly during the three year period, they comprised a declining percentage of average earning assets; 53.6% in 1995, 55.4% in 1994 and 64.7% in 1993. This change is reflected in the components of net interest margin. From 1994 to 1995, we experienced a 93 basis point increase in the average yield on earning assets while the average cost of funds increased 107 basis points. In 1994 the yield on average earning assets was 26 basis points less than in 1993, while cost of funds declined by 15 basis points. Interest Rate Risk Management Movements in general market interest rates are a key element in changes in net interest margin. The impact on earnings of changes in interest rates, known as interest rate risk, must be measured and managed to avoid unacceptable levels of risk. Premier uses simulation modeling to analyze the effect of 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, (more traditionally known as "gap measurement") 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 are also 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. 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. In January, 1996, the simulation model indicated rate sensitivity (i.e., a change in net interest income) of less than 1.00% in either a rising or declining rate environment. Management uses earnings simulation under a variety of interest rate and balance assumptions to manage interest rate risk in a dynamic environment. The following table shows our base or flat rate measurement (i.e., "gap position") as of December 31, 1995: Volumes Subject to Repricing within within within over 90 days 180 days 1 year 1 year ($ in thousands) Loans (net of unearned income) .................... $180,246 $15,075 $17,717 $113,659 8Investment securities ....... 45,300 39,041 27,743 153,242 Other earning assets ........ 676 - - - Total earning assets ...... 226,222 54,116 45,460 266,901 Interest-bearing deposits ... 119,510 36,923 32,658 279,707 Short-term borrowings ....... 38,853 10,850 1,657 - Total interest-bearing liabilities ............... 158,363 47,773 34,315 279,707 Asset (liability) gap...... 67,859 6,343 11,145 (12,806) Cumulative asset gap ...... 67,859 74,202 85,347 72,541 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 1995 totaled $636,000 as compared to $200,000 and $1.6 million in 1994 and 1993, respectively. At December 31, 1995 the allowance for possible loan losses totaled $3.9 million, or 1.17% of gross loans, compared to $3.7 million, or 1.29% of gross loans at December 31, 1994. Net charge-offs as a percentage of average loans were .16% in 1995, compared with .30% and .83% in 1994 and 1993, respectively. 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 increased $544,000, or 8.1%, in 1995 over 1994 following a $693,000, or 11.6%, increase in 1994 over 1993. 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 34 income, totalled $2.5 million in 1995, a 3.9% increase over 1994. This increase followed revenue growth of 9.5% in 1994. The growth in both years was primarily due to 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, 1995, the market value of total managed assets approximated $.6 billion. We anticipate continued growth in relationships and fees in 1996. Service charges on deposit accounts totalled $2.0 million and $1.9 million in 1995 and 1994, respectively. In 1993, service charges on deposit accounts increased $532,000, or 56.9%, to $1.5 million. Although total deposits grew approximately $27.8 million in 1995, modest growth in fees from service charges were experienced due to an increase in earnings credit on commercial transaction accounts, which essentially offset higher transaction volume. The increase in service charges on deposit accounts from 1993 to 1994 was due to an overall increase in transaction related fees. Another source of noninterest income over the past several years has been premiums recognized on sales of residential mortgage loans to the secondary market. Net gains from the sale of residential mortgage loans totalled $222,000, $257,000 and $886,000 for the years 1995, 1994 and 1993, respectively. Low interest rate environments such as those experienced from 1992 through the first quarter of 1994 and again in the fourth quarter of 1995 create an increase in loan refinancing. As market rates decrease, both refinancing and premiums recognized on loans sold to the secondary market generally increase. Net investment security gains were $409,000 in 1995 as compared to $35,000 in 1994 and $136,000 in 1993. 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 modestly, by $60,000, to $2.2 million in 1995, following an increase of $776,000 in 1994 from 1993. Contributing to the 1995 increase were fees from loan servicing, credit card processing and safe deposit box rental. In 1994, other operating income included non-recurring income of $396,000 on loans charged off in prior periods that were recovered in 1994, as well as income from operating the six new offices acquired in July, 1993 for a full year. Noninterest Expense Total noninterest expense increased modestly, by $110,000, to $19.9 million in 1995 as compared to $19.8 million in 1994. In 1993 noninterest expense totalled $16.5 million. Our efficiency ratio, which measures the level of operating expense (non-interest expense 35 exclusive of taxes, loan loss provision and non cash charges such as depreciation and amortization) to total tax equivalent net interest income plus recurring non-interest revenue, improved from 61.4% in 1993 to 59.2% and 56.5% in 1994 and 1995, respectively. Salaries and benefits, the largest component of non-interest expense, totaled $9.5 million in 1995 an increase of $614,000 or 6.9% over 1994 following an increase of approximately $1.2 million over 1993. The 1995 increase was primarily a result of higher incentive pay and increased employee benefits including medical insurance premiums, profit-sharing contributions and Company-matched 401-k contributions. Employee benefits were 12.4% of compensation expense in 1995 compared with 12.5% in 1994 and 10.8% in 1993. The increase in 1994 over 1993 reflects increased employee benefits and staffing of the six new offices acquired in July, 1993 for a full year. At December 31, 1995, full-time equivalent employees totaled 296, as compared to 306 and 286 employees at December 31, 1994 and 1993, respectively. Combined net occupancy and furniture and fixture expense increased $158,000 and $483,000 in 1995 and 1994, respectively. The increase in 1995 over 1994 was primarily the result of higher real estate taxes and a new office location in DeKalb, Illinois. The increase in combined net occupancy and furniture and fixture expense in 1994 was largely the result of the six new office locations acquired in Northbrook, Riverwoods and Cary, Illinois in July 1993. We anticipate future increases in net occupancy and furniture and fixtures costs for existing offices will be modest. In 1995, Premier's subsidiary banks paid $586,000 for federal deposit (FDIC) insurance as compared to $1.2 million in 1994 and $918,000 in 1993. The decrease in 1995 was the result of the FDIC's restructuring of deposit insurance premiums to reflect the now fully-funded position of the insurance fund. Deposit insurance premium rates are based on individual institution's adequacy of capital. Premier's subsidiary banks' are currently categorized by the FDIC as "well capitalized" which allows them to take advantage of the lowest available premium rate. The increase in 1994 over 1993 was attributable to an increase in deposits. Amortization of intangible assets was $1.6 million in both 1995 and 1994 as compared to 834,000 in 1993. The increased amortization in 1994 relates to the additional amortization expense from the excess cost over fair value of net assets acquired in July, 1993. Other operating expenses decreased by $88,000, or 1.7%, in 1995, following a $566,000, or 12.6%, increase in 1994. The primary factor contributing to the 1995 improvement were lower expenses associated with temporary holding of other real estate for sale and collection costs on non-performing assets. Other real estate expense and collection costs totaled approximately $357,000, $401,000, and $382,000 in 1995, 1994 and 1993 respectively. The 1994 increase relates primarily to operating the six offices acquired in July 1993 36 for a full year and start-up costs for the DeKalb office purchased in December, 1994. Income Taxes Income taxes for 1995 totaled $2.7 million as compared to $2.4 million in 1994 and $1.6 million in 1993. The increase in the tax provision is due to higher pretax earnings and a decrease in tax-exempt income as a percentage of pre-tax income. Premier's effective tax rate was 29.97% for 1995 as compared to 29.68% and 28.26% in 1994 and 1993, respectively. Financial Condition At December 31, 1995, Premier had total assets of $670.2 million, as compared to $620.5 million at December 31, 1994. Average total assets for 1995 increased $32.9 million, or 5.5%, over 1994. Loan growth and purchase of securities accounted for much of the increase in total assets. The increase in assets were funded primarily by interest bearing deposits and short-term borrowings. 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. At December 31, 1995, we had $265.3 million in securities available for sale, compared to $208 million at year end 1994. The increase in securities available for sale was due to 1) reclassifying all of our held to maturity securities into available for sale in November 1995 and 2) utilization of short-term borrowings for the purchase of adjustable rate mortgage backed securities. In November 1995, financial institutions were given a one-time opportunity from the Financial Accounting Standards Board to reclassify, without violating the provisions of FAS No. 115, their investment securities. Bank Regulatory Authorities currently do not include unrealized gains and losses in evaluating capital adequacy. By carrying all of our securities in the available for sale category, management can more actively manage the investment portfolio. At December 31, 1994 investments held-to-maturity totaled $40.5 million. Loans Our lending strategy continues to stress quality growth, diversified by product, geography and industry. Loans represent the largest component of Premier's earning assets. At December 31, 1995, total gross loans outstanding were $327 million, a $42.2 million, or 14.80% increase as compared to a year ago. This increase was the result of growth in both the commercial and real estate portfolios. Loan portfolio distribution at December 31, 1995, was 58% commercial, 33% retail, and 9% agricultural. The portfolio mix and concentration have not changed significantly from year-end 1994. Preserving loan quality and diversifying the loan portfolio both geographically and by 37 industry continue to be key objectives for Premier. We anticipate total loan growth to continue in 1996. Asset Quality Over the past several years, aggressive collection actions combined with a healthy local and national economy have improved asset quality significantly. At year end, nonperforming assets declined to $4 million, or .60% of total assets, down from $7.1 million, or 1.14% of total assets at December 31, 1994. Non-performing assets consist of loans 90 days or more past due, loans not accruing interest, loans with renegotiated credit terms, and other real estate owned. Impaired loans at December 31, 1995 decreased $3.1 million, to $2.6 million, compared to $5.7 million a year earlier. Impaired loans as a percentage of loans were .78% and 1.99% at December 31, 1995 and 1994, respectively. Other real estate owned totaled $1.5 million and $1.4 million at December 31, 1995 and 1994, respectively. Sources of Funds We consider core deposits, which include transaction accounts, savings deposit accounts, and consumer time deposits less than $100,000 as our most stable source of funding. These core deposits are supplemented by time deposits from governmental entities, time deposits greater than $100,000 and repurchase agreements. Short-term borrowings and stockholders' equity comprise the other portion of our total funding sources. Total deposits increased $27.8 million, or 5.3% to $551.5 million at December 31, 1995 compared with $523.7 million at December 31, 1994. Core deposits totaled $504.8 million at December 31, 1995 and $500.7 million at December 31, 1994. Non-interest bearing deposits were 15.0% and 16.4% of total deposits at December 31, 1995 and 1994, respectively. Total short-term borrowings, including repurchase agreements, were $51.4 million at December 31, 1995 compared with $42.3 million at December 31, 1994. 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 through 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 for future liquidity needs. 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 38 exceeded this position. Stockholders' Equity Stockholders' equity increased by $9.6 million during 1995, from $52.5 million at December 31, 1994 to $62.1 million in 1995. The increase was due to retained net earnings of $4.0 million and recording an after tax unrealized gain on securities available for sale of approximately $1.2 million in accordance with Statement of Financial Accounting Standards No. 115 ("FAS 115") as compared to recording an after tax unrealized loss of $4.4 million in 1994. 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, 1995, Premier had a "Tier 1" ratio of 10.61%, well above the Regulatory minimum. Our "Total Risk Based Capital Ratio" was 11.64%, and our "Leverage Ratio" was 6.14%, 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, 1995. Current Accounting Developments In May, 1995, the Financial Accounting Standards Board issued SFAS No. 122, "Accounting for Mortgage Servicing Rights, an amendment of SFAS No. 65." SFAS 122 requires the recognition as a separate asset the rights to service mortgage loans for others, however those servicing rights are acquired. SFAS 122 also requires the assessment of capitalized mortgage servicing rights for impairment to be based on the current value of those rights. This statement is effective for fiscal years beginning after December 15, 1995. The Company adopted SFAS January 1, 1996 and it did not have a material effect on the financial position or results of operation of the Company. On October 23, 1995, the Financial Accounting Standards Board issued Statement 123, "Accounting for Stock-Based Compensation." The Statement permits a company to choose either a new fair value based method or the current APB Opinion 25 intrinsic value based method of accounting for its stock-based compensation arrangements. The Statement requires pro forma disclosures of net income and earnings per share computed as if the fair value based method had been applied in financial statements of companies that continue to follow current practice in accounting for such arrangements under APB Opinion 25. Premier plans to continue accounting for its stock-based compensation 39 plans under APB Opinion 25. 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, 1995, 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: 1995 1994 Cash Cash Quarter High Low Dividends Quarter High Low Dividends 1st 7.50 6.50 .05 1st 6.33 5.83 .043 40 2nd 8.25 7.25 .05 2nd 6.33 5.83 .043 3rd 8.00 6.75 .05 3rd 8.25 6.75 .047 4th 9.75 7.75 .06 4th 8.25 6.50 .047 Total .21 Total .18 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 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 1995 1994 1993 1992 1991 Interest income $44,380,024 $36,527,016 $30,441,589 $28,353,205 $30,634,167 Interest expense 22,159,662 15,129,406 12,750,769 13,358,608 17,366,302 Net interest income 22,220,362 21,397,610 17,690,820 14,994,597 13,267,865 Provision for possible loan losses 636,000 200,000 1,620,000 325,000 - Earnings before income taxes 8,942,767 8,120,003 5,591,280 6,335,317 4,920,829 Net earnings 6,262,179 5,710,295 4,011,210 4,352,115 3,618,395 Net earnings available to common shareholders 5,155,929 4,505,737 3,418,928 4,352,115 3,618,395
Per share statistics * - Common 1995 1994 1993 1992 1991 Net earnings $.77 $ .68 $ .55 $ .74 $ .64 Cash dividend declared .21 .18 .16 .15 .11 Book Value 7.31 5.88 6.04 5.49 4.85
1995 1994 1993 1992 1991 Common shares outstanding - year end 6,544,347 6,504,876 6,489,321 5,782,608 5,756,151
1995 1994 1993 1992 1991 Rate earned on beginning stockholders' equity 11.93% 10.30% 12.64% 15.58% 14.93%
Financial position - year end 1995 1994 1993 1992 1991 Securities held-to-maturity $ - $40,513,480 $39,787,245 $28,314,011 $125,390,853 Securities available for sale 265,326,397 207,964,644 140,699,066 77,520,998 - Loans, net 322,847,206 280,767,645 327,018,113 217,249,829 211,540,534 Allowance for possible loan losses 3,849,863 3,688,386 4,369,290 2,712,863 3,202,509 Excess cost over fair value of net assets acquired 20,008,150 21,600,583 23,193,016 3,009,951 3,204,148 Noninterest bearing deposits 82,694,865 86,018,604 104,976,862 49,979,533 40,304,642 Interest bearing deposits 468,797,581 437,674,799 413,042,081 258,913,579 246,474,882 Total deposits 551,492,446 523,693,403 518,018,943 308,893,112 286,779,524 Short-term borrowings 32,725,000 26,185,000 12,410,000 6,152,000 14,501,000 Securities sold under agreements to repurchase 18,635,335 16,085,872 20,571,658 14,854,410 43,687,552 Stockholders' equity 62,107,404 52,476,832 55,416,039 31,737,646 27,929,137 Total assets 670,219,383 620,503,737 610,663,210 364,024,410 375,494,615
* Per share statistics have been adjusted to reflect a 5% stock dividend to shareholders of record February 28, 1991, 10% stock dividend to shareholders of record February 28, 1992, and a three-for-one stock split in the form of a 200% stock dividend to shareholders of record June 8, 1994. 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 Private Investor 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 44 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, 1995. 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 Form S-8 of Premier Financial Services, Inc. of our report dated January 26, 1996, relating to the consolidated balance sheets of Premier Financial Servives, Inc. and subsidiaries as of December 31, 1995 and 1994 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, 1995, which report is incorporated by reference in the December 31, 1995 annual report on Form 10-K of Premier Financial Services, Inc. KPMG Peat Marwick LLP Chicago, Illinois March 22, 1996 EX-27 5
9 YEAR DEC-31-1995 DEC-31-1995 37,390,597 676,367 0 0 265,326,397 0 0 326,975,311 3,849,863 670,219,383 551,492,446 32,725,000 23,894,533 0 32,721,735 0 14,250,000 15,135,669 670,219,383 27,729,373 16,367,679 282,972 44,380,024 19,851,147 22,159,662 22,220,362 636,000 409,021 19,871,728 8,942,767 6,262,179 0 0 6,262,179 .77 .76 4.18 2,345,084 158,368 75,280 0 3,688,386 1,405,113 930,590 3,849,863 2,798,863 0 1,051,000
EX-2 6 FIRST AMENDMENT TO AGREEMENT AND PLAN OF MERGER This First Amendment to the Agreement and Plan of Merger (this "Amendment") is entered into as of March 18, 1996 by and among NORTHERN ILLINOIS FINANCIAL CORPORATION, an Illinois corporation ("Northern Illinois"), PREMIER FINANCIAL SERVICES, INC., a Delaware corporation ("Premier"), and GRAND PREMIER FINANCIAL, INC., a Delaware corporation ("GPF"). WHEREAS, Northern Illinois, Premier and GPF have entered into an Agreement and Plan of Merger, dated as of January 22, 1996 (the "Agreement"), providing for the merger of Northern Illinois and Premier with and into GPF, subject to the terms and conditions set forth therein; and WHEREAS, Northern Illinois, Premier and GPF each believe it to be in their best interests and in the best interests of their respective stockholders to amend certain provisions of the Agreement; NOW THEREFORE, in consideration of the mutual covenants, representations, warranties and agreements contained herein, and intending to be legally bound hereby, the parties agree as follows: 1. Amendments to Agreement. The Agreement is hereby amended as follows: 1.1 Section 3.4 of the Agreement is amended by deleting the same in its entirety and substituting in lieu thereof the following: 3.4 Authority; No Violation. (a) Northern Illinois has full corporate power and authority to execute and deliver this Agreement and to consummate the transactions contemplated hereby. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly and validly approved by the Board of Directors of Northern Illinois. The Board of Directors of Northern Illinois has directed that this Agreement and the transactions contemplated hereby be submitted to Northern Illinois' stockholders for approval at a meeting of such stockholders and, except for the adoption of this Agreement by the affirmative vote of the holders of (i) at least 80% of the outstanding shares of Northern Illinois Common Stock and (ii) a majority of the outstanding shares of Northern Illinois Common Stock not held by Howard A. McKee and his "associates" and "affiliates" (as defined in Section 7.85 of the IBCA and Rule 12b-2 under the Exchange Act), no other corporate proceedings on the part of Northern Illinois are necessary to approve this Agreement and to consummate the transactions contemplated hereby. This Agreement has been duly and validly executed and delivered by Northern Illinois and (assuming due authorization, execution and delivery by Premier and GPF) constitutes a valid and binding obligation of Northern Illinois, enforceable against Northern Illinois in accordance with its terms. 1.2. Section 3.5 of the Agreement is hereby amended by deleting the same in its entirety and substituting in lieu thereof the following: 3.5 Consents and Approvals. No consents or approvals of or filings or registrations with any court, administrative agency or commission or other governmental authority or instrumentality (each a "Governmental Entity") or with any third party are necessary in connection with the execution and delivery by Northern Illinois of this Agreement and the consummation by Northern Illinois of the Merger and the other transactions contemplated hereby except for (a) the filing by GPF of an application with the Board of Governors of the Federal Reserve System (the "Federal Reserve Board") under the BHC Act and the approval of such application, (b) the filing by Keeco, Inc., an Illinois corporation, and Northland Insurance Agency, Inc., an Illinois corporation, of an application with the Federal Reserve System under the BHC Act and the approval of such application, (c) the filing with the Securities and Exchange Commission (the "SEC") of a joint proxy statement in definitive form relating to the meetings of Northern Illinois' and Premier's stockholders to be held in connection with this Agreement and the transactions contemplated hereby (the "Joint Proxy Statement") and the registration statement on Form S-4 (the "S-4") in which such Joint Proxy Statement will be included as a prospectus, (d) the filing of a registration statement on Form 8-A (the "8- A") registering the GPF Common Stock under Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), (e) the filing of articles of merger with, and the issuance of a certificate of merger by, the Illinois Secretary under the IBCA, and the filing of a certificate of merger with the Delaware Secretary pursuant to the DGCL, (f) the filing of a consent to service of process, an appointment of the Illinois Secretary as agent for service of process, and an agreement with respect to any Dissenting Shares required to be filed by GPF with the Illinois Secretary pursuant to Section 11.35 of the IBCA, (g) such filings and approvals as are required to be made or obtained under the securities or "Blue Sky" laws of various states in connection with the issuance of the shares of GPF Common Stock and GPF Preferred Stock pursuant to this Agreement, (h) the approval of an application to list the GPF Common Stock on The Nasdaq Stock Market's National Market, subject to official notice of issuance, and (i) the approval of this Agreement by the requisite vote of the stockholders of Northern Illinois and Premier. 1.3. Paragraph (a) of Section 4.2 of the Agreement is hereby amended by deleting the same in its entirety and substituting in lieu thereof the following: 4.2 Capitalization. (a) The authorized capital stock of Premier consists of 15,000,000 shares of Premier Common Stock, of which, as of December 31, 1995, 6,544,347 shares were issued and outstanding, and 1,000,000 shares of Preferred Stock, par value $1.00 per share (the "Premier Preferred Stock", of which (i) 7,000 shares were designated and 5,000 shares were issued and outstanding as Premier Series A Perpetual Preferred Stock, (ii) 7,250 shares were designated and issued and outstanding as Premier Series B Perpetual Preferred Stock, and (iii) 2,000 shares were designated and issued and outstanding as Premier Series D Perpetual Preferred Stock. During the fiscal year ended December 31, 1994, (i) Premier redeemed all 1,950 shares of Premier Series C Perpetual Preferred Stock, with a par value of $1.00 and a stated value of $1,000 per share, that had previously been authorized and issued, and such shares reverted to authorized but unissued shares of Premier Preferred Stock in accordance with the terms of the Certificate of Designation establishing the Premier Series C Perpetual Preferred Stock, and (ii) 1,300 shares of Premier Series D Perpetual Preferred Stock were converted into 1,300 shares of Premier Series B Perpetual Preferred Stock and such 1,300 shares of Series D Perpetual Preferred Stock reverted to authorized but unissued shares of Premier Preferred Stock, in accordance with the terms and conditions of the Certificate of Designation establishing the Premier Series D Perpetual Preferred Stock. The shares of Premier Series B Perpetual Preferred Stock and Premier Series D Perpetual Preferred Stock are subject to a letter agreement, dated as of the date of their issuance, pursuant to which Premier has agreed to amend the terms of the Premier Series B Perpetual Preferred Stock and the Premier Series D Perpetual Preferred Stock to provide for the payment of cumulative, rather than non- cumulative dividends, at such time as such cumulative preferred stock may be counted as "Tier 1 Capital" under applicable regulations of the Federal Reserve Board. As of December 31, 1995, no shares of Premier Common Stock were held in treasury. On December 31, 1995, no shares of Premier Common Stock or Premier Preferred Stock were reserved for issuance, except for (i) 397,799 shares of Premier Common Stock reserved for issuance upon the exercise of stock options pursuant to the Premier Stock Plans, (ii) 763,157 shares of Premier Common Stock reserved for issuance upon the conversion of the Series B Perpetual Preferred Stock, (iii) the shares of Premier Common Stock issuable pursuant to the Premier Option Agreement, and (iv) 200,000 shares of Premier Common Stock reserved for issuance pursuant to the Premier Benefit plans, other than the stock option plans. All of the issued and outstanding shares of Premier Common Stock and Premier Preferred Stock have been duly authorized and validly issued and are fully paid, nonassessable and free of preemptive rights, with no personal liability attaching to the ownership thereof. As of the date of this Agreement, except for the Premier Option Agreement, certain provisions of the Certificates of Designation of the Premier Series B Perpetual Preferred Stock and the Premier Series D Perpetual Preferred Stock, and the Premier Stock Plans, Premier does not have and is not bound by any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character calling for the purchase or issuance of any shares of Premier Common Stock or Premier Preferred Stock or any other equity securities of Premier or any securities representing the right to purchase or otherwise receive any shares of Premier Common Stock or Premier Preferred Stock. Assuming compliance by Northern Illinois and GPF with Article I of this Agreement, after the Effective Time, there will not be any outstanding subscriptions, options, warrants, calls, commitments or agreements of any character by which Premier or any of the Premier Subsidiaries will be bound calling for the purchase or issuance of any shares of the capital stock of Premier. Premier has previously provided Northern Illinois with a list of the option holders, the date of each option to purchase Premier Common Stock granted, the number of shares subject to each such option, the expiration date of each such option, and the price at which each such option may be exercised under an applicable Premier Stock Plan. Since September 30, 1995, Premier has not issued any shares of its capital stock or any securities convertible into or exercisable for any shares of its capital stock, other than pursuant to the exercise of employee stock options granted prior to such date. 1.4. Section 7.1 of the Agreement is hereby amended by deleting paragraph (h) thereof. 1.5. The Agreement is amended by (i) deleting Exhibit G as an exhibit thereto, (ii) re-lettering Exhibits H and I as Exhibits G and H, respectively, (iii) deleting the reference to Exhibit H in Section 7.2(e) of the Agreement and substituting in lieu thereof a reference to Exhibit G, and (iv) deleting the reference to Exhibit I in Section 7.3(e) of the Agreement and substituting in lieu thereof a reference to Exhibit H. 1.6. The Agreement is amended by deleting the form of Amended and Restated Certificate of Incorporation of Grand Premier Financial, Inc. attached as Exhibit C thereto and substituting in lieu thereof, as Exhibit C thereto, the form of Amended and Restated Certificate of Incorporation of Grand Premier Financial, Inc. attached to this Amendment. 2. Board Ratification. This Amendment and the execution and delivery thereof are subject to ratification by the Boards of Directors of each of Premier, Northern Illinois and GPF. 3. References. All references in the Agreement to "this Agreement" shall hereafter refer to the Agreement as amended hereby. 4. Counterparts. This Amendment may be executed in counterparts, all of which shall be considered one and the same instrument, it being understood that all parties need not sign the same counterpart. IN WITNESS WHEREOF, Premier, Northern Illinois and GPF have caused this Amendment to be executed by their respective officers thereunto duly authorized as of the date first above written. PREMIER FINANCIAL SERVICES, INC. NORTHERN ILLINOIS FINANCIAL CORPORATION By:/s/ Richard L. Geach By: /s/ Robert W. Hinman Richard L. Geach Robert W. Hinman President and Chief Executive Officer President and Chief Executive Officer GRAND PREMIER FINANCIAL, INC. By:/s/ Richard L. Geach Richard L. Geach Chief Executive Officer By:/s/ Robert W. Hinman Robert W. Hinman President EX-10 7 CHANGE IN CONTROL AND TERMINATION AGREEMENT This Change in Control and Termination Agreement ("Agreement") is entered into as of this 20th day of January, 1995, by and between Premier Financial Services, Inc., a Delaware corporation ("Premier") and Richard L. Geach ("Executive"). WITNESSETH: WHEREAS, Executive is currently employed by Premier as its President and Chief Executive Officer; and WHEREAS, Premier desires to provide security to Executive in connection with Executive's employment with Premier in the event of a Change in Control of Premier; and WHEREAS, Executive and Premier desire to enter into this Agreement pertaining to the terms of the security Premier is providing to Executive with respect to his employment in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall be the period beginning on the date hereto and terminating on the date 36 months after the date hereof (the "Term"), provided that for each day from and after the date hereof the Term will automatically be extended for an additional day, unless either Premier or Executive has given written notice to the other party of its or his election to cease such automatic extension, in which case the Term shall end at the expiration of the 36 month period beginning on the date such notice is received by such other party. 2. Definitions. For purposes of this Agreement: (a) "Affiliate" or "Associate" shall have the meaning set forth in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"). (b) "Base Salary" shall mean Executive's monthly base salary at the rate in effect on the date of a termination of employment under circumstances described in subsections 3(a) or (b) below; provided, however, that such rate shall in no event be less than the highest rate in effect for Executive at any time during the Term. (c) "Beneficiary" shall mean the person or entity designated by the Executive, by written instrument delivered to Premier, to receive the benefits payable under this Agreement in the event of his death. If the Executive fails to designate a Beneficiary, or if no Beneficiary survives the Executive, such death benefits shall be paid: (i) to the Executive's surviving spouse; or (ii) if there is no surviving spouse, to the Executive's living descendants per stirpes; or (iii) if there is neither a surviving spouse nor descendants, to the Executive's duly appointed and qualified executor or personal representative. (d) A "Change in Control" of Premier shall be deemed to have occurred if: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 25% or more of the combined voting power of Premier's then outstanding securities; or (ii) at any time during any period of two consecutive years (not including any period prior to January 1, 1995) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by Premier's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. (e) "Good Cause" shall be deemed to exist if, and only if: (i) Executive engages in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to Premier or any Affiliate; or (ii) Executive is convicted of a criminal violation involving fraud or dishonesty. (e) "Good Reason" shall be deemed to exist if, and only if, Executive terminates his employment because, without his express written consent: (i) Premier assigns to Executive duties of a nonexecutive nature or for which Executive is not reasonably equipped by his skills and experience; (ii) Premier reduces the salary of Executive, or materially reduces the amount of paid vacation to which he is entitled, or his fringe benefits and perquisites; (iii) Premier requires Executive to relocate his principal business office or his principal place of residence, or assign to Executive duties that would reasonably require such relocation; (iv) Premier requires Executive, or assign duties to Executive which would reasonably require him to spend more than 30 normal working days away from his principal business office or his principal place of residence during any consecutive twelve- month period; (v) Premier fails to provide office facilities, secretarial services, and other administrative services to Executive which are substantially equivalent to the facilities and services provided to Executive on the date hereof; or (vi) Premier terminates any Incentive, Retirement or Welfare Plans, or reduces or limits Executive's participation therein relative to the level of participation of other executives of similar rank, to such an extent as to materially reduce the aggregate value of Executive's incentive compensation and benefits below their aggregate value as of the date hereof. (f) "Retirement Plan" shall mean any qualified or supplemental employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust (the "Savings Plan") and the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (the "Deferred Compensation Plan"). (g) "Severance Period" shall mean the period beginning on the date Executive's employment with Premier terminates under circumstances described in subsection 3(a) and ending on the date 12 months thereafter. (h) "Substantial Portion of the Property of Premier" shall mean 50% of the aggregate book value of the assets of Premier and its Affiliates and Associates as set forth on the most recent balance sheet of Premier, prepared on a consolidated basis, by its regularly employed, independent, certified public accountants. (i) "Welfare Plan" shall mean any health and dental plan, disability plan, survivor income plan or life insurance plan, as defined in Section 3(1) of ERISA, currently or hereafter made available by Premier in which Executive is eligible to participate. (j) "Incentive Plan" shall mean any incentive or bonus plan currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. 1995 Stock Option Plan, and any successor thereto.. 3. Benefits Upon Termination of Employment. The following provisions will apply if a Change in Control occurs during the Term, and at any time during the 24 months after the Change in Control occurs (whether during or after the expiration of the Term), the employment of Executive with Premier is terminated by Premier for any reason other than Good Cause, or Executive terminates his employment with Premier for Good Reason: (a) Premier shall pay Executive an amount equal to Executive's Base Salary multiplied by 12. Such amount shall be paid to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payment on any date that is no earlier than the later to occur of: (i) the date 10 days after the date of termination; and (ii) the date 10 days after receipt of such notice. (b) During the Severance Period Executive and his spouse and other dependents will continue to be covered by all Welfare Plans maintained by Premier in which he and his spouse and other dependents were participating immediately prior to the date of his termination, as if he continued to be an employee of Premier, and Premier will continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Premier will provide substantially identical benefits. Coverage under any such Welfare Plan will cease if and when Executive obtains employment with another employer during the Severance Period, and becomes eligible for coverage under any substantially similar Welfare Plan provided by his new employer. (c) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment: (i) a bonus in the amount that would have been payable under any Incentive Plan for the year of such employment termination had he not terminated employment, but pro rated according to the number of months the Executive was employed by Premier for that year; and (ii) an additional bonus amount that is equal to the average of the annual bonus amount paid to Executive during the three years preceding the year of his employment termination. (d) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment an amount equal to the amount that would have been contributed by Premier on behalf of the Executive under the Savings Plan and under the Deferred Compensation Plan for the 12 month period following the Executive's employment termination had he not terminated employment and had he made contributions and deferrals under the Plans at the same level as he made during the 12 month preceding his employment termination. (e) Executive shall receive any and all benefits accrued under any Retirement Plan, Welfare Plan, Incentive Plan or other plan or program in which he participates at the date of termination of employment, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Retirement Plan, Welfare Plan, Incentive Plan and other plan or program. Executive's employment shall be deemed to have terminated by reason of retirement, and without regard to vesting limitations in all such Plans and other plans or programs not subject to the qualification requirements of Section 401(a) of the Internal Revenue Code of 1986 ("Code"), under circumstances that have the most favorable result for Executive thereunder for all purposes of such Plans and other plans or programs. Payment shall be made at the earliest date permitted under any such Plan. (f) If upon the date of termination of Executive's employment, Executive holds any options with respect to stock of Premier, all such options will immediately become fully vested and exercisable upon such date and will be exercisable for 200 days thereafter. Any restrictions on stock of Premier owned by Executive on the date of termination of his employment will lapse on such date. To the extent such acceleration of exercise of such options, or such lapse of restrictions, is not permissible under the terms of any plan pursuant to which the options or restricted stock were granted, Premier will pay to Executive: (i) an amount equal to the excess, if any, of the aggregate fair market value of all stock of Premier subject to such options, determined on the date of termination of employment, over the aggregate exercise price of such stock, and Executive will surrender all such options unexercised; and (ii) the aggregate fair market value on the date of termination of employment of all such restricted stock and Executive shall transfer such stock to Premier. Payments pursuant to the preceding sentence will be made to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payments on any date that is not earlier than the later to occur of (i) the date 10 days after the date of termination, and (ii) the date 10 days after receipt of such notice. If the employment of Executive with Premier is terminated by Premier for Good Cause or by Executive other than for Good Reason, Executive's Base Salary shall be paid through the date of his termination, and Premier shall have no further obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive's other rights, including but not limited to rights under the Retirement, Welfare and Incentive Plans. Notwithstanding anything herein to the contrary, in the event Premier or an Affiliate shall terminate the employment of Executive for Good Cause hereunder, Premier shall give Executive at least thirty (30) days prior written notice specifying in detail the reason or reasons for Executive's termination. This Agreement shall have no effect, and Premier shall have no obligations hereunder, if Executive's employment terminates for any reason at any time other than during the 24 months following a Change in Control. 4. Excise Tax. It is the intention of Premier and Executive that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "Excess Parachute Payment" as defined in Section 280G of the Code, or its successors. It is agreed that the present value of and payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on the Change in Control of Premier, and to which Section 280G of the Code applies (in the aggregate "Total Payments") shall not exceed an amount equal to one dollar less than the maximum amount that Premier may pay without loss of deduction under Section 280G(a) of the Code. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty (60) days following the earlier of (i) the giving of the notice of termination or (ii) the giving of notice by Premier to Executive of its belief that there is a payment or benefit due Executive which will result in an excess parachute payment as defined in Section 280G of the Code, Executive and Premier, at Premier's expense, shall obtain the opinion of such legal counsel and certified public accountants as Executive may choose (notwithstanding the fact that such persons have acted or may also be acting as the legal counsel or certified public accountants for Premier), which opinions need not be unqualified, which sets forth: (i) the amount of the Base Period Income of Executive (as defined in Code Section 280G), (ii) the present value of Total Payments; and (iii) the amount and present value of any excess parachute payments. In the event that such opinion determines that there would be an excess parachute payment, the payment hereunder or any other payment determined by such counsel to be includable in Total Payments shall be modified, reduced or eliminated as specified by Executive in writing delivered to Premier within thirty (30) days of his receipt of such opinions or, if Executive fails to so notify Premier, then as Premier shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect. 5. Set-Off. No payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount that: (i) Executive or his spouse or Beneficiary, or any other beneficiary under the Retirement and Welfare Plans, may earn or receive from employment with another employer or from any other source, except as expressly provided in subsection 3(b); or (ii) Premier claims is owed to Premier or an Affiliate by Executive. 6. Death. Upon Executive's death following his termination of employment: (i) all unpaid amounts payable to Executive under subsections 3(a), (b), (c), (d) and (f), if any, shall be paid to his Beneficiary, all amounts payable under subsection 3(e) shall be paid pursuant to the terms of said subsection to his spouse or other beneficiary under the Retirement Plan; and (ii) the Executive's spouse and other dependents shall continue to be covered under all applicable Welfare Plans during the remainder of the Severance Period, if any, pursuant to subsection 3(b). 7. No Solicitation of Representatives and Employees. Executive agrees that he shall not, during the Term or the Severance Period, directly or indirectly, in his individual capacity or otherwise, induce, cause, persuade (or attempt to induce or persuade), any representative, agent or employee of Premier or any of its Affiliates to terminate such person's employment relationship with Premier or any of its Affiliates, or to violate the terms of any agreement between said representative, agent or employee and Premier or any of its Affiliates. 8. Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Premier or its Affiliates and their respective customers, representatives, and employees is of critical importance to the continued business success of Premier and its Affiliates and that it is the active policy of Premier and its Affiliates to guard as confidential certain information not available to the public and relating to the business affairs of Premier and its Affiliates. In view of the foregoing, Executive agrees that he shall not during the Term and at any time thereafter, without the prior written consent of Premier, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment by Premier or any of its Affiliates. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information. 9. Forfeiture. If Executive shall at any time violate any obligation of his under Sections 7 or 8 in a manner that results in material damage to the Premier or its business, he shall immediately forfeit his right to any benefits under this Agreement, and Premier thereafter shall have no further obligation hereunder to Executive or his spouse, Beneficiary or any other person. 10. Executive Assignment. No interest of Executive, his spouse or any Beneficiary, or any other beneficiary under the Retirement, Welfare or Incentive Plans, or under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse, Beneficiary or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. 11. Benefits Unfunded. All rights under this Agreement of Executive and his spouse, Beneficiary or other beneficiary shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of Premier for payment of any amounts due hereunder. None of Executive, his spouse, Beneficiary or any other beneficiary under the Retirement, Welfare or Incentive Plans shall have any interest in or rights against any specific assets of Premier, and Executive and his spouse, Beneficiary or other beneficiary shall have only the rights of a general unsecured creditor of Premier. Notwithstanding the preceding provisions of this Section, the parties hereto may at any time mutually agree that amounts payable to Executive or his Beneficiary hereunder be paid to the trustee of a trust established by Premier for the benefit of Executive and his Beneficiary that contains terms and conditions mutually satisfactory to the parties. 12. Waiver. No waiver by any party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 13. Litigation Expenses. Premier shall pay Executive's reasonable attorneys' fees and legal expenses in connection with any judicial proceeding to enforce this Agreement, or to construe or determine the validity of this Agreement or otherwise in connection therewith, if Executive is successful in such litigation. 14. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of Illinois. 15. Entire Agreement. This Agreement contains the entire Agreement between Premier and the Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Premier and Executive. 16. No Employment Contract. Nothing contained in this Agreement shall be construed to be an employment contract between Executive and Premier. 17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 18. Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby. 19. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors. In the event of a Change in Control of Premier, Premier shall cause its purchaser, transferee or successor to adopt and assume this Agreement. This Agreement shall not be terminated by a transfer or sale of assets of Premier, or by the merger or consolidation of Premier into or with any other corporation or other entity, rather this Agreement shall be continued after such sale, merger or consolidation by the transferee, purchaser or successor entity. 20. Employment with an Affiliate. For purposes of this Agreement: (i) employment or termination of employment of Executive shall mean employment or termination of employment with Premier and all Affiliates; (ii) Base Salary shall include remuneration received by Executive from Premier and all Affiliates; and (iii) the terms Incentive Plan, Retirement Plan and Welfare Plan maintained or made available by Premier shall include any such plans of any Affiliate of Premier. 21. Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such other address as the party being notified may have previously furnished to the other party by written notice: If to Premier: Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 Attention: Director of Human Resources If to Executive: Richard L. Geach c/o Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 IN WITNESS WHEREOF, Executive has hereunto set his hand, and Premier has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. PREMIER FINANCIAL SERVICES, INC. By: /s/ David L. Murray Title: Executive Vice President & CFO /s/ Richard L. Geach Executive EX-10 8 CHANGE IN CONTROL AND TERMINATION AGREEMENT This Change in Control and Termination Agreement ("Agreement") is entered into as of this 20th day of January, 1995, by and between Premier Financial Services, Inc., a Delaware corporation ("Premier") and David L. Murray ("Executive"). WITNESSETH: WHEREAS, Executive is currently employed by Premier as its ; and WHEREAS, Premier desires to provide security to Executive in connection with Executive's employment with Premier in the event of a Change in Control of Premier; and WHEREAS, Executive and Premier desire to enter into this Agreement pertaining to the terms of the security Premier is providing to Executive with respect to his employment in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall be the period beginning on the date hereto and terminating on the date 36 months after the date hereof (the "Term"), provided that for each day from and after the date hereof the Term will automatically be extended for an additional day, unless either Premier or Executive has given written notice to the other party of its or his election to cease such automatic extension, in which case the Term shall end at the expiration of the 36 month period beginning on the date such notice is received by such other party. 2. Definitions. For purposes of this Agreement: (a) "Affiliate" or "Associate" shall have the meaning set forth in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"). (b) "Base Salary" shall mean Executive's monthly base salary at the rate in effect on the date of a termination of employment under circumstances described in subsections 3(a) or (b) below; provided, however, that such rate shall in no event be less than the highest rate in effect for Executive at any time during the Term. (c) "Beneficiary" shall mean the person or entity designated by the Executive, by written instrument delivered to Premier, to receive the benefits payable under this Agreement in the event of his death. If the Executive fails to designate a Beneficiary, or if no Beneficiary survives the Executive, such death benefits shall be paid: (i) to the Executive's surviving spouse; or (ii) if there is no surviving spouse, to the Executive's living descendants per stirpes; or (iii) if there is neither a surviving spouse nor descendants, to the Executive's duly appointed and qualified executor or personal representative. (d) A "Change in Control" of Premier shall be deemed to have occurred if: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 25% or more of the combined voting power of Premier's then outstanding securities; or (ii) at any time during any period of two consecutive years (not including any period prior to January 1, 1995) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by Premier's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. (e) "Good Cause" shall be deemed to exist if, and only if: (i) Executive engages in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to Premier or any Affiliate; or (ii) Executive is convicted of a criminal violation involving fraud or dishonesty. (e) "Good Reason" shall be deemed to exist if, and only if, Executive terminates his employment because, without his express written consent: (i) Premier assigns to Executive duties of a nonexecutive nature or for which Executive is not reasonably equipped by his skills and experience; (ii) Premier reduces the salary of Executive, or materially reduces the amount of paid vacation to which he is entitled, or his fringe benefits and perquisites; (iii) Premier requires Executive to relocate his principal business office or his principal place of residence, or assign to Executive duties that would reasonably require such relocation; (iv) Premier requires Executive, or assign duties to Executive which would reasonably require him to spend more than 30 normal working days away from his principal business office or his principal place of residence during any consecutive twelve- month period; (v) Premier fails to provide office facilities, secretarial services, and other administrative services to Executive which are substantially equivalent to the facilities and services provided to Executive on the date hereof; or (vi) Premier terminates any Incentive, Retirement or Welfare Plans, or reduces or limits Executive's participation therein relative to the level of participation of other executives of similar rank, to such an extent as to materially reduce the aggregate value of Executive's incentive compensation and benefits below their aggregate value as of the date hereof. (f) "Retirement Plan" shall mean any qualified or supplemental employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust (the "Savings Plan") and the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (the "Deferred Compensation Plan"). (g) "Severance Period" shall mean the period beginning on the date Executive's employment with Premier terminates under circumstances described in subsection 3(a) and ending on the date 12 months thereafter. (h) "Substantial Portion of the Property of Premier" shall mean 50% of the aggregate book value of the assets of Premier and its Affiliates and Associates as set forth on the most recent balance sheet of Premier, prepared on a consolidated basis, by its regularly employed, independent, certified public accountants. (i) "Welfare Plan" shall mean any health and dental plan, disability plan, survivor income plan or life insurance plan, as defined in Section 3(1) of ERISA, currently or hereafter made available by Premier in which Executive is eligible to participate. (j) "Incentive Plan" shall mean any incentive or bonus plan currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. 1995 Stock Option Plan, and any successor thereto.. 3. Benefits Upon Termination of Employment. The following provisions will apply if a Change in Control occurs during the Term, and at any time during the 24 months after the Change in Control occurs (whether during or after the expiration of the Term), the employment of Executive with Premier is terminated by Premier for any reason other than Good Cause, or Executive terminates his employment with Premier for Good Reason: (a) Premier shall pay Executive an amount equal to Executive's Base Salary multiplied by 12. Such amount shall be paid to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payment on any date that is no earlier than the later to occur of: (i) the date 10 days after the date of termination; and (ii) the date 10 days after receipt of such notice. (b) During the Severance Period Executive and his spouse and other dependents will continue to be covered by all Welfare Plans maintained by Premier in which he and his spouse and other dependents were participating immediately prior to the date of his termination, as if he continued to be an employee of Premier, and Premier will continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Premier will provide substantially identical benefits. Coverage under any such Welfare Plan will cease if and when Executive obtains employment with another employer during the Severance Period, and becomes eligible for coverage under any substantially similar Welfare Plan provided by his new employer. (c) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment: (i) a bonus in the amount that would have been payable under any Incentive Plan for the year of such employment termination had he not terminated employment, but pro rated according to the number of months the Executive was employed by Premier for that year; and (ii) an additional bonus amount that is equal to the average of the annual bonus amount paid to Executive during the three years preceding the year of his employment termination. (d) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment an amount equal to the amount that would have been contributed by Premier on behalf of the Executive under the Savings Plan and under the Deferred Compensation Plan for the 12 month period following the Executive's employment termination had he not terminated employment and had he made contributions and deferrals under the Plans at the same level as he made during the 12 month preceding his employment termination. (e) Executive shall receive any and all benefits accrued under any Retirement Plan, Welfare Plan, Incentive Plan or other plan or program in which he participates at the date of termination of employment, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Retirement Plan, Welfare Plan, Incentive Plan and other plan or program. Executive's employment shall be deemed to have terminated by reason of retirement, and without regard to vesting limitations in all such Plans and other plans or programs not subject to the qualification requirements of Section 401(a) of the Internal Revenue Code of 1986 ("Code"), under circumstances that have the most favorable result for Executive thereunder for all purposes of such Plans and other plans or programs. Payment shall be made at the earliest date permitted under any such Plan. (f) If upon the date of termination of Executive's employment, Executive holds any options with respect to stock of Premier, all such options will immediately become fully vested and exercisable upon such date and will be exercisable for 200 days thereafter. Any restrictions on stock of Premier owned by Executive on the date of termination of his employment will lapse on such date. To the extent such acceleration of exercise of such options, or such lapse of restrictions, is not permissible under the terms of any plan pursuant to which the options or restricted stock were granted, Premier will pay to Executive: (i) an amount equal to the excess, if any, of the aggregate fair market value of all stock of Premier subject to such options, determined on the date of termination of employment, over the aggregate exercise price of such stock, and Executive will surrender all such options unexercised; and (ii) the aggregate fair market value on the date of termination of employment of all such restricted stock and Executive shall transfer such stock to Premier. Payments pursuant to the preceding sentence will be made to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payments on any date that is not earlier than the later to occur of (i) the date 10 days after the date of termination, and (ii) the date 10 days after receipt of such notice. If the employment of Executive with Premier is terminated by Premier for Good Cause or by Executive other than for Good Reason, Executive's Base Salary shall be paid through the date of his termination, and Premier shall have no further obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive's other rights, including but not limited to rights under the Retirement, Welfare and Incentive Plans. Notwithstanding anything herein to the contrary, in the event Premier or an Affiliate shall terminate the employment of Executive for Good Cause hereunder, Premier shall give Executive at least thirty (30) days prior written notice specifying in detail the reason or reasons for Executive's termination. This Agreement shall have no effect, and Premier shall have no obligations hereunder, if Executive's employment terminates for any reason at any time other than during the 24 months following a Change in Control. 4. Excise Tax. It is the intention of Premier and Executive that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "Excess Parachute Payment" as defined in Section 280G of the Code, or its successors. It is agreed that the present value of and payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on the Change in Control of Premier, and to which Section 280G of the Code applies (in the aggregate "Total Payments") shall not exceed an amount equal to one dollar less than the maximum amount that Premier may pay without loss of deduction under Section 280G(a) of the Code. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty (60) days following the earlier of (i) the giving of the notice of termination or (ii) the giving of notice by Premier to Executive of its belief that there is a payment or benefit due Executive which will result in an excess parachute payment as defined in Section 280G of the Code, Executive and Premier, at Premier's expense, shall obtain the opinion of such legal counsel and certified public accountants as Executive may choose (notwithstanding the fact that such persons have acted or may also be acting as the legal counsel or certified public accountants for Premier), which opinions need not be unqualified, which sets forth: (i) the amount of the Base Period Income of Executive (as defined in Code Section 280G), (ii) the present value of Total Payments; and (iii) the amount and present value of any excess parachute payments. In the event that such opinion determines that there would be an excess parachute payment, the payment hereunder or any other payment determined by such counsel to be includable in Total Payments shall be modified, reduced or eliminated as specified by Executive in writing delivered to Premier within thirty (30) days of his receipt of such opinions or, if Executive fails to so notify Premier, then as Premier shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect. 5. Set-Off. No payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount that: (i) Executive or his spouse or Beneficiary, or any other beneficiary under the Retirement and Welfare Plans, may earn or receive from employment with another employer or from any other source, except as expressly provided in subsection 3(b); or (ii) Premier claims is owed to Premier or an Affiliate by Executive. 6. Death. Upon Executive's death following his termination of employment: (i) all unpaid amounts payable to Executive under subsections 3(a), (b), (c), (d) and (f), if any, shall be paid to his Beneficiary, all amounts payable under subsection 3(e) shall be paid pursuant to the terms of said subsection to his spouse or other beneficiary under the Retirement Plan; and (ii) the Executive's spouse and other dependents shall continue to be covered under all applicable Welfare Plans during the remainder of the Severance Period, if any, pursuant to subsection 3(b). 7. No Solicitation of Representatives and Employees. Executive agrees that he shall not, during the Term or the Severance Period, directly or indirectly, in his individual capacity or otherwise, induce, cause, persuade (or attempt to induce or persuade), any representative, agent or employee of Premier or any of its Affiliates to terminate such person's employment relationship with Premier or any of its Affiliates, or to violate the terms of any agreement between said representative, agent or employee and Premier or any of its Affiliates. 8. Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Premier or its Affiliates and their respective customers, representatives, and employees is of critical importance to the continued business success of Premier and its Affiliates and that it is the active policy of Premier and its Affiliates to guard as confidential certain information not available to the public and relating to the business affairs of Premier and its Affiliates. In view of the foregoing, Executive agrees that he shall not during the Term and at any time thereafter, without the prior written consent of Premier, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment by Premier or any of its Affiliates. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information. 9. Forfeiture. If Executive shall at any time violate any obligation of his under Sections 7 or 8 in a manner that results in material damage to the Premier or its business, he shall immediately forfeit his right to any benefits under this Agreement, and Premier thereafter shall have no further obligation hereunder to Executive or his spouse, Beneficiary or any other person. 10. Executive Assignment. No interest of Executive, his spouse or any Beneficiary, or any other beneficiary under the Retirement, Welfare or Incentive Plans, or under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse, Beneficiary or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. 11. Benefits Unfunded. All rights under this Agreement of Executive and his spouse, Beneficiary or other beneficiary shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of Premier for payment of any amounts due hereunder. None of Executive, his spouse, Beneficiary or any other beneficiary under the Retirement, Welfare or Incentive Plans shall have any interest in or rights against any specific assets of Premier, and Executive and his spouse, Beneficiary or other beneficiary shall have only the rights of a general unsecured creditor of Premier. Notwithstanding the preceding provisions of this Section, the parties hereto may at any time mutually agree that amounts payable to Executive or his Beneficiary hereunder be paid to the trustee of a trust established by Premier for the benefit of Executive and his Beneficiary that contains terms and conditions mutually satisfactory to the parties. 12. Waiver. No waiver by any party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 13. Litigation Expenses. Premier shall pay Executive's reasonable attorneys' fees and legal expenses in connection with any judicial proceeding to enforce this Agreement, or to construe or determine the validity of this Agreement or otherwise in connection therewith, if Executive is successful in such litigation. 14. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of Illinois. 15. Entire Agreement. This Agreement contains the entire Agreement between Premier and the Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Premier and Executive. 16. No Employment Contract. Nothing contained in this Agreement shall be construed to be an employment contract between Executive and Premier. 17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 18. Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby. 19. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors. In the event of a Change in Control of Premier, Premier shall cause its purchaser, transferee or successor to adopt and assume this Agreement. This Agreement shall not be terminated by a transfer or sale of assets of Premier, or by the merger or consolidation of Premier into or with any other corporation or other entity, rather this Agreement shall be continued after such sale, merger or consolidation by the transferee, purchaser or successor entity. 20. Employment with an Affiliate. For purposes of this Agreement: (i) employment or termination of employment of Executive shall mean employment or termination of employment with Premier and all Affiliates; (ii) Base Salary shall include remuneration received by Executive from Premier and all Affiliates; and (iii) the terms Incentive Plan, Retirement Plan and Welfare Plan maintained or made available by Premier shall include any such plans of any Affiliate of Premier. 21. Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such other address as the party being notified may have previously furnished to the other party by written notice: If to Premier: Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 Attention: Director of Human Resources If to Executive: Richard L. Geach c/o Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 IN WITNESS WHEREOF, Executive has hereunto set his hand, and Premier has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. PREMIER FINANCIAL SERVICES, INC. By: /s/ Richard L. Geach Title: President & CEO /s/ David L. Murray Executive EX-10 9 CHANGE IN CONTROL AND TERMINATION AGREEMENT This Change in Control and Termination Agreement ("Agreement") is entered into as of this 20th day of January , 1995, by and between Premier Financial Services, Inc., a Delaware corporation ("Premier") and Kenneth A. Urban ("Executive"). WITNESSETH: WHEREAS, Executive is currently employed by Premier as its Division Head - Non-Bank Services; and WHEREAS, Premier desires to provide security to Executive in connection with Executive's employment with Premier in the event of a Change in Control of Premier; and WHEREAS, Executive and Premier desire to enter into this Agreement pertaining to the terms of the security Premier is providing to Executive with respect to his employment in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall be the period beginning on the date hereto and terminating on the date 36 months after the date hereof (the "Term"), provided that for each day from and after the date hereof the Term will automatically be extended for an additional day, unless either Premier or Executive has given written notice to the other party of its or his election to cease such automatic extension, in which case the Term shall end at the expiration of the 36 month period beginning on the date such notice is received by such other party. 2. Definitions. For purposes of this Agreement: (a) "Affiliate" or "Associate" shall have the meaning set forth in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"). (b) "Base Salary" shall mean Executive's monthly base salary at the rate in effect on the date of a termination of employment under circumstances described in subsections 3(a) or (b) below; provided, however, that such rate shall in no event be less than the highest rate in effect for Executive at any time during the Term. (c) "Beneficiary" shall mean the person or entity designated by the Executive, by written instrument delivered to Premier, to receive the benefits payable under this Agreement in the event of his death. If the Executive fails to designate a Beneficiary, or if no Beneficiary survives the Executive, such death benefits shall be paid: (i) to the Executive's surviving spouse; or (ii) if there is no surviving spouse, to the Executive's living descendants per stirpes; or (iii) if there is neither a surviving spouse nor descendants, to the Executive's duly appointed and qualified executor or personal representative. (d) A "Change in Control" of Premier shall be deemed to have occurred if: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 25% or more of the combined voting power of Premier's then outstanding securities; or (ii) at any time during any period of two consecutive years (not including any period prior to January 1, 1995) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by Premier's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. (e) "Good Cause" shall be deemed to exist if, and only if: (i) Executive engages in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to Premier or any Affiliate; or (ii) Executive is convicted of a criminal violation involving fraud or dishonesty. (e) "Good Reason" shall be deemed to exist if, and only if, Executive terminates his employment because, without his express written consent: (i) Premier assigns to Executive duties of a nonexecutive nature or for which Executive is not reasonably equipped by his skills and experience; (ii) Premier reduces the salary of Executive, or materially reduces the amount of paid vacation to which he is entitled, or his fringe benefits and perquisites; (iii) Premier requires Executive to relocate his principal business office or his principal place of residence, or assign to Executive duties that would reasonably require such relocation; (iv) Premier requires Executive, or assign duties to Executive which would reasonably require him to spend more than 30 normal working days away from his principal business office or his principal place of residence during any consecutive twelve- month period; (v) Premier fails to provide office facilities, secretarial services, and other administrative services to Executive which are substantially equivalent to the facilities and services provided to Executive on the date hereof; or (vi) Premier terminates any Incentive, Retirement or Welfare Plans, or reduces or limits Executive's participation therein relative to the level of participation of other executives of similar rank, to such an extent as to materially reduce the aggregate value of Executive's incentive compensation and benefits below their aggregate value as of the date hereof. (f) "Retirement Plan" shall mean any qualified or supplemental employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust (the "Savings Plan") and the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (the "Deferred Compensation Plan"). (g) "Severance Period" shall mean the period beginning on the date Executive's employment with Premier terminates under circumstances described in subsection 3(a) and ending on the date 12 months thereafter. (h) "Substantial Portion of the Property of Premier" shall mean 50% of the aggregate book value of the assets of Premier and its Affiliates and Associates as set forth on the most recent balance sheet of Premier, prepared on a consolidated basis, by its regularly employed, independent, certified public accountants. (i) "Welfare Plan" shall mean any health and dental plan, disability plan, survivor income plan or life insurance plan, as defined in Section 3(1) of ERISA, currently or hereafter made available by Premier in which Executive is eligible to participate. (j) "Incentive Plan" shall mean any incentive or bonus plan currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. 1995 Stock Option Plan, and any successor thereto.. 3. Benefits Upon Termination of Employment. The following provisions will apply if a Change in Control occurs during the Term, and at any time during the 24 months after the Change in Control occurs (whether during or after the expiration of the Term), the employment of Executive with Premier is terminated by Premier for any reason other than Good Cause, or Executive terminates his employment with Premier for Good Reason: (a) Premier shall pay Executive an amount equal to Executive's Base Salary multiplied by 12. Such amount shall be paid to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payment on any date that is no earlier than the later to occur of: (i) the date 10 days after the date of termination; and (ii) the date 10 days after receipt of such notice. (b) During the Severance Period Executive and his spouse and other dependents will continue to be covered by all Welfare Plans maintained by Premier in which he and his spouse and other dependents were participating immediately prior to the date of his termination, as if he continued to be an employee of Premier, and Premier will continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Premier will provide substantially identical benefits. Coverage under any such Welfare Plan will cease if and when Executive obtains employment with another employer during the Severance Period, and becomes eligible for coverage under any substantially similar Welfare Plan provided by his new employer. (c) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment: (i) a bonus in the amount that would have been payable under any Incentive Plan for the year of such employment termination had he not terminated employment, but pro rated according to the number of months the Executive was employed by Premier for that year; and (ii) an additional bonus amount that is equal to the average of the annual bonus amount paid to Executive during the three years preceding the year of his employment termination. (d) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment an amount equal to the amount that would have been contributed by Premier on behalf of the Executive under the Savings Plan and under the Deferred Compensation Plan for the 12 month period following the Executive's employment termination had he not terminated employment and had he made contributions and deferrals under the Plans at the same level as he made during the 12 month preceding his employment termination. (e) Executive shall receive any and all benefits accrued under any Retirement Plan, Welfare Plan, Incentive Plan or other plan or program in which he participates at the date of termination of employment, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Retirement Plan, Welfare Plan, Incentive Plan and other plan or program. Executive's employment shall be deemed to have terminated by reason of retirement, and without regard to vesting limitations in all such Plans and other plans or programs not subject to the qualification requirements of Section 401(a) of the Internal Revenue Code of 1986 ("Code"), under circumstances that have the most favorable result for Executive thereunder for all purposes of such Plans and other plans or programs. Payment shall be made at the earliest date permitted under any such Plan. (f) If upon the date of termination of Executive's employment, Executive holds any options with respect to stock of Premier, all such options will immediately become fully vested and exercisable upon such date and will be exercisable for 200 days thereafter. Any restrictions on stock of Premier owned by Executive on the date of termination of his employment will lapse on such date. To the extent such acceleration of exercise of such options, or such lapse of restrictions, is not permissible under the terms of any plan pursuant to which the options or restricted stock were granted, Premier will pay to Executive: (i) an amount equal to the excess, if any, of the aggregate fair market value of all stock of Premier subject to such options, determined on the date of termination of employment, over the aggregate exercise price of such stock, and Executive will surrender all such options unexercised; and (ii) the aggregate fair market value on the date of termination of employment of all such restricted stock and Executive shall transfer such stock to Premier. Payments pursuant to the preceding sentence will be made to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payments on any date that is not earlier than the later to occur of (i) the date 10 days after the date of termination, and (ii) the date 10 days after receipt of such notice. If the employment of Executive with Premier is terminated by Premier for Good Cause or by Executive other than for Good Reason, Executive's Base Salary shall be paid through the date of his termination, and Premier shall have no further obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive's other rights, including but not limited to rights under the Retirement, Welfare and Incentive Plans. Notwithstanding anything herein to the contrary, in the event Premier or an Affiliate shall terminate the employment of Executive for Good Cause hereunder, Premier shall give Executive at least thirty (30) days prior written notice specifying in detail the reason or reasons for Executive's termination. This Agreement shall have no effect, and Premier shall have no obligations hereunder, if Executive's employment terminates for any reason at any time other than during the 24 months following a Change in Control. 4. Excise Tax. It is the intention of Premier and Executive that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "Excess Parachute Payment" as defined in Section 280G of the Code, or its successors. It is agreed that the present value of and payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on the Change in Control of Premier, and to which Section 280G of the Code applies (in the aggregate "Total Payments") shall not exceed an amount equal to one dollar less than the maximum amount that Premier may pay without loss of deduction under Section 280G(a) of the Code. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty (60) days following the earlier of (i) the giving of the notice of termination or (ii) the giving of notice by Premier to Executive of its belief that there is a payment or benefit due Executive which will result in an excess parachute payment as defined in Section 280G of the Code, Executive and Premier, at Premier's expense, shall obtain the opinion of such legal counsel and certified public accountants as Executive may choose (notwithstanding the fact that such persons have acted or may also be acting as the legal counsel or certified public accountants for Premier), which opinions need not be unqualified, which sets forth: (i) the amount of the Base Period Income of Executive (as defined in Code Section 280G), (ii) the present value of Total Payments; and (iii) the amount and present value of any excess parachute payments. In the event that such opinion determines that there would be an excess parachute payment, the payment hereunder or any other payment determined by such counsel to be includable in Total Payments shall be modified, reduced or eliminated as specified by Executive in writing delivered to Premier within thirty (30) days of his receipt of such opinions or, if Executive fails to so notify Premier, then as Premier shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect. 5. Set-Off. No payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount that: (i) Executive or his spouse or Beneficiary, or any other beneficiary under the Retirement and Welfare Plans, may earn or receive from employment with another employer or from any other source, except as expressly provided in subsection 3(b); or (ii) Premier claims is owed to Premier or an Affiliate by Executive. 6. Death. Upon Executive's death following his termination of employment: (i) all unpaid amounts payable to Executive under subsections 3(a), (b), (c), (d) and (f), if any, shall be paid to his Beneficiary, all amounts payable under subsection 3(e) shall be paid pursuant to the terms of said subsection to his spouse or other beneficiary under the Retirement Plan; and (ii) the Executive's spouse and other dependents shall continue to be covered under all applicable Welfare Plans during the remainder of the Severance Period, if any, pursuant to subsection 3(b). 7. No Solicitation of Representatives and Employees. Executive agrees that he shall not, during the Term or the Severance Period, directly or indirectly, in his individual capacity or otherwise, induce, cause, persuade (or attempt to induce or persuade), any representative, agent or employee of Premier or any of its Affiliates to terminate such person's employment relationship with Premier or any of its Affiliates, or to violate the terms of any agreement between said representative, agent or employee and Premier or any of its Affiliates. 8. Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Premier or its Affiliates and their respective customers, representatives, and employees is of critical importance to the continued business success of Premier and its Affiliates and that it is the active policy of Premier and its Affiliates to guard as confidential certain information not available to the public and relating to the business affairs of Premier and its Affiliates. In view of the foregoing, Executive agrees that he shall not during the Term and at any time thereafter, without the prior written consent of Premier, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment by Premier or any of its Affiliates. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information. 9. Forfeiture. If Executive shall at any time violate any obligation of his under Sections 7 or 8 in a manner that results in material damage to the Premier or its business, he shall immediately forfeit his right to any benefits under this Agreement, and Premier thereafter shall have no further obligation hereunder to Executive or his spouse, Beneficiary or any other person. 10. Executive Assignment. No interest of Executive, his spouse or any Beneficiary, or any other beneficiary under the Retirement, Welfare or Incentive Plans, or under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse, Beneficiary or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. 11. Benefits Unfunded. All rights under this Agreement of Executive and his spouse, Beneficiary or other beneficiary shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of Premier for payment of any amounts due hereunder. None of Executive, his spouse, Beneficiary or any other beneficiary under the Retirement, Welfare or Incentive Plans shall have any interest in or rights against any specific assets of Premier, and Executive and his spouse, Beneficiary or other beneficiary shall have only the rights of a general unsecured creditor of Premier. Notwithstanding the preceding provisions of this Section, the parties hereto may at any time mutually agree that amounts payable to Executive or his Beneficiary hereunder be paid to the trustee of a trust established by Premier for the benefit of Executive and his Beneficiary that contains terms and conditions mutually satisfactory to the parties. 12. Waiver. No waiver by any party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 13. Litigation Expenses. Premier shall pay Executive's reasonable attorneys' fees and legal expenses in connection with any judicial proceeding to enforce this Agreement, or to construe or determine the validity of this Agreement or otherwise in connection therewith, if Executive is successful in such litigation. 14. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of Illinois. 15. Entire Agreement. This Agreement contains the entire Agreement between Premier and the Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Premier and Executive. 16. No Employment Contract. Nothing contained in this Agreement shall be construed to be an employment contract between Executive and Premier. 17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 18. Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby. 19. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors. In the event of a Change in Control of Premier, Premier shall cause its purchaser, transferee or successor to adopt and assume this Agreement. This Agreement shall not be terminated by a transfer or sale of assets of Premier, or by the merger or consolidation of Premier into or with any other corporation or other entity, rather this Agreement shall be continued after such sale, merger or consolidation by the transferee, purchaser or successor entity. 20. Employment with an Affiliate. For purposes of this Agreement: (i) employment or termination of employment of Executive shall mean employment or termination of employment with Premier and all Affiliates; (ii) Base Salary shall include remuneration received by Executive from Premier and all Affiliates; and (iii) the terms Incentive Plan, Retirement Plan and Welfare Plan maintained or made available by Premier shall include any such plans of any Affiliate of Premier. 21. Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such other address as the party being notified may have previously furnished to the other party by written notice: If to Premier: Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 Attention: Director of Human Resources If to Executive: Richard L. Geach c/o Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 IN WITNESS WHEREOF, Executive has hereunto set his hand, and Premier has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. PREMIER FINANCIAL SERVICES, INC. By: /s/ Richard L. Geach Title: President & CEO /s/ Kenneth A. Urban Executive EX-10 10 CHANGE IN CONTROL AND TERMINATION AGREEMENT This Change in Control and Termination Agreement ("Agreement") is entered into as of this 20th day of January, 1995, by and between Premier Financial Services, Inc., a Delaware corporation ("Premier") and Steven E. Flahaven ("Executive"). WITNESSETH: WHEREAS, Executive is currently employed by Premier as its Division Head - Commercial Banking; and WHEREAS, Premier desires to provide security to Executive in connection with Executive's employment with Premier in the event of a Change in Control of Premier; and WHEREAS, Executive and Premier desire to enter into this Agreement pertaining to the terms of the security Premier is providing to Executive with respect to his employment in the event of a Change in Control; NOW, THEREFORE, in consideration of the mutual covenants and promises contained herein, and other good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows: 1. Term. The term of this Agreement shall be the period beginning on the date hereto and terminating on the date 36 months after the date hereof (the "Term"), provided that for each day from and after the date hereof the Term will automatically be extended for an additional day, unless either Premier or Executive has given written notice to the other party of its or his election to cease such automatic extension, in which case the Term shall end at the expiration of the 36 month period beginning on the date such notice is received by such other party. 2. Definitions. For purposes of this Agreement: (a) "Affiliate" or "Associate" shall have the meaning set forth in Rule 12b-2 under the Securities Exchange Act of 1934 (the "Exchange Act"). (b) "Base Salary" shall mean Executive's monthly base salary at the rate in effect on the date of a termination of employment under circumstances described in subsections 3(a) or (b) below; provided, however, that such rate shall in no event be less than the highest rate in effect for Executive at any time during the Term. (c) "Beneficiary" shall mean the person or entity designated by the Executive, by written instrument delivered to Premier, to receive the benefits payable under this Agreement in the event of his death. If the Executive fails to designate a Beneficiary, or if no Beneficiary survives the Executive, such death benefits shall be paid: (i) to the Executive's surviving spouse; or (ii) if there is no surviving spouse, to the Executive's living descendants per stirpes; or (iii) if there is neither a surviving spouse nor descendants, to the Executive's duly appointed and qualified executor or personal representative. (d) A "Change in Control" of Premier shall be deemed to have occurred if: (i) any "person" or "group" (as such terms are used in Sections 13(d) and 14(d) of the Exchange Act is or becomes the "beneficial owner" (as defined in Rule 13d-3 under the Exchange Act, except that a person shall be deemed to be the "beneficial owner" of all shares that any such person has the right to acquire pursuant to any agreement or arrangement or upon exercise of conversion rights, warrants, options or otherwise, without regard to the sixty day period referred to in such Rule), directly or indirectly, of securities representing 25% or more of the combined voting power of Premier's then outstanding securities; or (ii) at any time during any period of two consecutive years (not including any period prior to January 1, 1995) individuals who at the beginning of such period constituted the Board (the "Incumbent Board") cease for any reason to constitute at least a majority of the Board; provided, however, that any individual becoming a director subsequent to such date whose election, or nomination for election by Premier's shareholders, was approved by a vote of at least a majority of the directors then comprising the Incumbent Board shall be considered as though such individual were a member of the Incumbent Board, but excluding, for this purpose, any such individual whose initial assumption of office occurs as a result of either an actual or threatened election contest (as such terms are used in Rule 14a-11 or Regulation 14A promulgated under the Exchange Act) or other actual or threatened solicitation of proxies or consents by or on behalf of a person other than the Board. (e) "Good Cause" shall be deemed to exist if, and only if: (i) Executive engages in acts or omissions constituting dishonesty, intentional breach of fiduciary obligation or intentional wrongdoing or malfeasance, in each case that results in substantial harm to Premier or any Affiliate; or (ii) Executive is convicted of a criminal violation involving fraud or dishonesty. (e) "Good Reason" shall be deemed to exist if, and only if, Executive terminates his employment because, without his express written consent: (i) Premier assigns to Executive duties of a nonexecutive nature or for which Executive is not reasonably equipped by his skills and experience; (ii) Premier reduces the salary of Executive, or materially reduces the amount of paid vacation to which he is entitled, or his fringe benefits and perquisites; (iii) Premier requires Executive to relocate his principal business office or his principal place of residence, or assign to Executive duties that would reasonably require such relocation; (iv) Premier requires Executive, or assign duties to Executive which would reasonably require him to spend more than 30 normal working days away from his principal business office or his principal place of residence during any consecutive twelve- month period; (v) Premier fails to provide office facilities, secretarial services, and other administrative services to Executive which are substantially equivalent to the facilities and services provided to Executive on the date hereof; or (vi) Premier terminates any Incentive, Retirement or Welfare Plans, or reduces or limits Executive's participation therein relative to the level of participation of other executives of similar rank, to such an extent as to materially reduce the aggregate value of Executive's incentive compensation and benefits below their aggregate value as of the date hereof. (f) "Retirement Plan" shall mean any qualified or supplemental employee pension benefit plan, as defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. Employee Savings and Stock Plan and Trust (the "Savings Plan") and the Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan (the "Deferred Compensation Plan"). (g) "Severance Period" shall mean the period beginning on the date Executive's employment with Premier terminates under circumstances described in subsection 3(a) and ending on the date 12 months thereafter. (h) "Substantial Portion of the Property of Premier" shall mean 50% of the aggregate book value of the assets of Premier and its Affiliates and Associates as set forth on the most recent balance sheet of Premier, prepared on a consolidated basis, by its regularly employed, independent, certified public accountants. (i) "Welfare Plan" shall mean any health and dental plan, disability plan, survivor income plan or life insurance plan, as defined in Section 3(1) of ERISA, currently or hereafter made available by Premier in which Executive is eligible to participate. (j) "Incentive Plan" shall mean any incentive or bonus plan currently or hereinafter made available by Premier in which Executive is eligible to participate, including, but not limited to, the Premier Financial Services, Inc. 1995 Stock Option Plan, and any successor thereto.. 3. Benefits Upon Termination of Employment. The following provisions will apply if a Change in Control occurs during the Term, and at any time during the 24 months after the Change in Control occurs (whether during or after the expiration of the Term), the employment of Executive with Premier is terminated by Premier for any reason other than Good Cause, or Executive terminates his employment with Premier for Good Reason: (a) Premier shall pay Executive an amount equal to Executive's Base Salary multiplied by 12. Such amount shall be paid to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payment on any date that is no earlier than the later to occur of: (i) the date 10 days after the date of termination; and (ii) the date 10 days after receipt of such notice. (b) During the Severance Period Executive and his spouse and other dependents will continue to be covered by all Welfare Plans maintained by Premier in which he and his spouse and other dependents were participating immediately prior to the date of his termination, as if he continued to be an employee of Premier, and Premier will continue to pay the costs of coverage of Executive and his spouse and other dependents under such Welfare Plans on the same basis as is applicable to active employees covered thereunder; provided that, if participation in any one or more of such Welfare Plans is not possible under the terms thereof, Premier will provide substantially identical benefits. Coverage under any such Welfare Plan will cease if and when Executive obtains employment with another employer during the Severance Period, and becomes eligible for coverage under any substantially similar Welfare Plan provided by his new employer. (c) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment: (i) a bonus in the amount that would have been payable under any Incentive Plan for the year of such employment termination had he not terminated employment, but pro rated according to the number of months the Executive was employed by Premier for that year; and (ii) an additional bonus amount that is equal to the average of the annual bonus amount paid to Executive during the three years preceding the year of his employment termination. (d) Premier shall pay to Executive in a lump sum within 90 days after his termination of employment an amount equal to the amount that would have been contributed by Premier on behalf of the Executive under the Savings Plan and under the Deferred Compensation Plan for the 12 month period following the Executive's employment termination had he not terminated employment and had he made contributions and deferrals under the Plans at the same level as he made during the 12 month preceding his employment termination. (e) Executive shall receive any and all benefits accrued under any Retirement Plan, Welfare Plan, Incentive Plan or other plan or program in which he participates at the date of termination of employment, to the date of termination of employment, the amount, form and time of payment of such benefits to be determined by the terms of such Retirement Plan, Welfare Plan, Incentive Plan and other plan or program. Executive's employment shall be deemed to have terminated by reason of retirement, and without regard to vesting limitations in all such Plans and other plans or programs not subject to the qualification requirements of Section 401(a) of the Internal Revenue Code of 1986 ("Code"), under circumstances that have the most favorable result for Executive thereunder for all purposes of such Plans and other plans or programs. Payment shall be made at the earliest date permitted under any such Plan. (f) If upon the date of termination of Executive's employment, Executive holds any options with respect to stock of Premier, all such options will immediately become fully vested and exercisable upon such date and will be exercisable for 200 days thereafter. Any restrictions on stock of Premier owned by Executive on the date of termination of his employment will lapse on such date. To the extent such acceleration of exercise of such options, or such lapse of restrictions, is not permissible under the terms of any plan pursuant to which the options or restricted stock were granted, Premier will pay to Executive: (i) an amount equal to the excess, if any, of the aggregate fair market value of all stock of Premier subject to such options, determined on the date of termination of employment, over the aggregate exercise price of such stock, and Executive will surrender all such options unexercised; and (ii) the aggregate fair market value on the date of termination of employment of all such restricted stock and Executive shall transfer such stock to Premier. Payments pursuant to the preceding sentence will be made to Executive in a lump sum within 90 days after his date of termination of employment; provided, however, Executive, by written notice to Premier, may elect to receive such payments on any date that is not earlier than the later to occur of (i) the date 10 days after the date of termination, and (ii) the date 10 days after receipt of such notice. If the employment of Executive with Premier is terminated by Premier for Good Cause or by Executive other than for Good Reason, Executive's Base Salary shall be paid through the date of his termination, and Premier shall have no further obligation to Executive or any other person under this Agreement. Such termination shall have no effect upon Executive's other rights, including but not limited to rights under the Retirement, Welfare and Incentive Plans. Notwithstanding anything herein to the contrary, in the event Premier or an Affiliate shall terminate the employment of Executive for Good Cause hereunder, Premier shall give Executive at least thirty (30) days prior written notice specifying in detail the reason or reasons for Executive's termination. This Agreement shall have no effect, and Premier shall have no obligations hereunder, if Executive's employment terminates for any reason at any time other than during the 24 months following a Change in Control. 4. Excise Tax. It is the intention of Premier and Executive that no portion of any payment under this Agreement, or payments to or for the benefit of Executive under any other agreement or plan, be deemed to be an "Excess Parachute Payment" as defined in Section 280G of the Code, or its successors. It is agreed that the present value of and payments to or for the benefit of Executive in the nature of compensation, receipt of which is contingent on the Change in Control of Premier, and to which Section 280G of the Code applies (in the aggregate "Total Payments") shall not exceed an amount equal to one dollar less than the maximum amount that Premier may pay without loss of deduction under Section 280G(a) of the Code. Present value for purposes of this Agreement shall be calculated in accordance with Section 280G(d)(4) of the Code. Within sixty (60) days following the earlier of (i) the giving of the notice of termination or (ii) the giving of notice by Premier to Executive of its belief that there is a payment or benefit due Executive which will result in an excess parachute payment as defined in Section 280G of the Code, Executive and Premier, at Premier's expense, shall obtain the opinion of such legal counsel and certified public accountants as Executive may choose (notwithstanding the fact that such persons have acted or may also be acting as the legal counsel or certified public accountants for Premier), which opinions need not be unqualified, which sets forth: (i) the amount of the Base Period Income of Executive (as defined in Code Section 280G), (ii) the present value of Total Payments; and (iii) the amount and present value of any excess parachute payments. In the event that such opinion determines that there would be an excess parachute payment, the payment hereunder or any other payment determined by such counsel to be includable in Total Payments shall be modified, reduced or eliminated as specified by Executive in writing delivered to Premier within thirty (30) days of his receipt of such opinions or, if Executive fails to so notify Premier, then as Premier shall reasonably determine, so that under the bases of calculation set forth in such opinions there will be no excess parachute payment. In the event that the provisions of Sections 280G and 4999 of the Code are repealed without succession, this Section shall be of no further force or effect. 5. Set-Off. No payments or benefits payable to or with respect to Executive pursuant to this Agreement shall be reduced by any amount that: (i) Executive or his spouse or Beneficiary, or any other beneficiary under the Retirement and Welfare Plans, may earn or receive from employment with another employer or from any other source, except as expressly provided in subsection 3(b); or (ii) Premier claims is owed to Premier or an Affiliate by Executive. 6. Death. Upon Executive's death following his termination of employment: (i) all unpaid amounts payable to Executive under subsections 3(a), (b), (c), (d) and (f), if any, shall be paid to his Beneficiary, all amounts payable under subsection 3(e) shall be paid pursuant to the terms of said subsection to his spouse or other beneficiary under the Retirement Plan; and (ii) the Executive's spouse and other dependents shall continue to be covered under all applicable Welfare Plans during the remainder of the Severance Period, if any, pursuant to subsection 3(b). 7. No Solicitation of Representatives and Employees. Executive agrees that he shall not, during the Term or the Severance Period, directly or indirectly, in his individual capacity or otherwise, induce, cause, persuade (or attempt to induce or persuade), any representative, agent or employee of Premier or any of its Affiliates to terminate such person's employment relationship with Premier or any of its Affiliates, or to violate the terms of any agreement between said representative, agent or employee and Premier or any of its Affiliates. 8. Confidentiality. Executive acknowledges that preservation of a continuing business relationship between Premier or its Affiliates and their respective customers, representatives, and employees is of critical importance to the continued business success of Premier and its Affiliates and that it is the active policy of Premier and its Affiliates to guard as confidential certain information not available to the public and relating to the business affairs of Premier and its Affiliates. In view of the foregoing, Executive agrees that he shall not during the Term and at any time thereafter, without the prior written consent of Premier, disclose to any person or entity any such confidential information that was obtained by Executive in the course of his employment by Premier or any of its Affiliates. This section shall not be applicable if and to the extent Executive is required to testify in a legislative, judicial or regulatory proceeding pursuant to an order of Congress, any state or local legislature, a judge, or an administrative law judge or is otherwise required by law to disclose such information. 9. Forfeiture. If Executive shall at any time violate any obligation of his under Sections 7 or 8 in a manner that results in material damage to the Premier or its business, he shall immediately forfeit his right to any benefits under this Agreement, and Premier thereafter shall have no further obligation hereunder to Executive or his spouse, Beneficiary or any other person. 10. Executive Assignment. No interest of Executive, his spouse or any Beneficiary, or any other beneficiary under the Retirement, Welfare or Incentive Plans, or under this Agreement, or any right to receive any payment or distribution hereunder, shall be subject in any manner to sale, transfer, assignment, pledge, attachment, garnishment, or other alienation or encumbrance of any kind, nor may such interest or right to receive a payment or distribution be taken, voluntarily or involuntarily, for the satisfaction of the obligations or debts of, or other claims against, Executive or his spouse, Beneficiary or other beneficiary, including claims for alimony, support, separate maintenance, and claims in bankruptcy proceedings. 11. Benefits Unfunded. All rights under this Agreement of Executive and his spouse, Beneficiary or other beneficiary shall at all times be entirely unfunded, and no provision shall at any time be made with respect to segregating any assets of Premier for payment of any amounts due hereunder. None of Executive, his spouse, Beneficiary or any other beneficiary under the Retirement, Welfare or Incentive Plans shall have any interest in or rights against any specific assets of Premier, and Executive and his spouse, Beneficiary or other beneficiary shall have only the rights of a general unsecured creditor of Premier. Notwithstanding the preceding provisions of this Section, the parties hereto may at any time mutually agree that amounts payable to Executive or his Beneficiary hereunder be paid to the trustee of a trust established by Premier for the benefit of Executive and his Beneficiary that contains terms and conditions mutually satisfactory to the parties. 12. Waiver. No waiver by any party at any time of any breach by the other party of, or compliance with, any condition or provision of this Agreement to be performed by such other party shall be deemed a waiver of any other provisions or conditions at the same time or at any prior or subsequent time. 13. Litigation Expenses. Premier shall pay Executive's reasonable attorneys' fees and legal expenses in connection with any judicial proceeding to enforce this Agreement, or to construe or determine the validity of this Agreement or otherwise in connection therewith, if Executive is successful in such litigation. 14. Applicable Law. This Agreement shall be construed and interpreted pursuant to the laws of Illinois. 15. Entire Agreement. This Agreement contains the entire Agreement between Premier and the Executive and supersedes any and all previous agreements, written or oral, between the parties relating to the subject matter hereof. No amendment or modification of the terms of this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by Premier and Executive. 16. No Employment Contract. Nothing contained in this Agreement shall be construed to be an employment contract between Executive and Premier. 17. Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed an original. 18. Severability. In the event any provision of this Agreement is held illegal or invalid, the remaining provisions of this Agreement shall not be affected thereby. 19. Successors. This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective heirs, representatives and successors. In the event of a Change in Control of Premier, Premier shall cause its purchaser, transferee or successor to adopt and assume this Agreement. This Agreement shall not be terminated by a transfer or sale of assets of Premier, or by the merger or consolidation of Premier into or with any other corporation or other entity, rather this Agreement shall be continued after such sale, merger or consolidation by the transferee, purchaser or successor entity. 20. Employment with an Affiliate. For purposes of this Agreement: (i) employment or termination of employment of Executive shall mean employment or termination of employment with Premier and all Affiliates; (ii) Base Salary shall include remuneration received by Executive from Premier and all Affiliates; and (iii) the terms Incentive Plan, Retirement Plan and Welfare Plan maintained or made available by Premier shall include any such plans of any Affiliate of Premier. 21. Notice. Notices required under this Agreement shall be in writing and sent by registered mail, return receipt requested, to the following addresses or to such other address as the party being notified may have previously furnished to the other party by written notice: If to Premier: Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 Attention: Director of Human Resources If to Executive: Richard L. Geach c/o Premier Financial Services, Inc. 27 West Main Street Suite 101 Freeport, IL 61032 IN WITNESS WHEREOF, Executive has hereunto set his hand, and Premier has caused these presents to be executed in its name on its behalf, all as of the day and year first above written. PREMIER FINANCIAL SERVICES, INC. By: /s/ Richard L. Geach Title: President & CEO /s/ Steven E. Flahaven Executive -----END PRIVACY-ENHANCED MESSAGE-----