UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported): May 31, 2018
BYLINE BANCORP, INC.
(Exact Name of Registrant as Specified in Its Charter)
Delaware
(State or Other Jurisdiction of Incorporation)
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001-38139 |
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36-3012593 |
(Commission File Number) |
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(I.R.S. Employer Identification No.) |
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180 North LaSalle Street, Suite 300 Chicago, Illinois |
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60601 |
(Address of Principal Executive Offices) |
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(Zip Code) |
(773) 244-7000
Registrant’s Telephone Number, Including Area Code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
☐ |
Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
☐ |
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
☐ |
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
☐ |
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 ( § 230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 ( § 240.12b-2 of this chapter)
Emerging growth company ☒
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
On June 1, 2018, Byline Bancorp, Inc. (“Byline”) filed a Current Report on Form 8-K dated May 31, 2018 (“the Form 8-K”) to report, among other things, under Item 2.01, the completion of its acquisition of First Evanston Bancorp, Inc. (“First Evanston”), which occurred on May 31, 2018. In that filing, Byline indicated that it would amend the Form 8-K at a later date to include the financial information required by Item 9.01 of Form 8-K. This amendment is being filed to provide such financial information.
Item 9.01. |
Financial Statements and Exhibits. |
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(a) |
Financial Statements of Business Acquired . |
The audited consolidated balance sheets as of December 31, 2017 and 2016, and the audited consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the years ended December 31, 2017 and 2016, and the accompanying notes thereto, of First Evanston Bancorp, Inc. and related Independent Auditor’s Report, are filed as Exhibit 99.1hereto and incorporated herein by reference.
The unaudited condensed consolidated balance sheet as of March 31, 2018, and the unaudited condensed consolidated statements of income, comprehensive income, stockholders’ equity and cash flows for the three months ended March 31, 2018 and 2017, and the accompanying notes thereto, of First Evanston Bancorp, Inc., are filed as Exhibit 99.2 hereto and incorporated herein by reference.
(b) Pro Forma Financial Information .
The unaudited pro forma combined condensed consolidated financial information of Byline Bancorp, Inc. required by this item is filed as Exhibit 99.3 hereto and incorporated herein by reference.
(d) Exhibits.
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Exhibit No. |
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Description |
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23.1 Consent of Crowe LLP
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
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BYLINE BANCORP, INC. |
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Date: August 10, 2018 |
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By: |
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/s/ Alberto J. Paracchini |
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Name: |
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Alberto J. Paracchini |
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Title: |
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President and Chief Executive Officer |
EXHIBIT 23.1
CONSENT OF INDEPENDENT AUDITOR
We consent to the inclusion in the Current Report on Form 8-K/A (No. 001-38139) and consent to the incorporation by reference in the Registration Statements on Form S-8 (File numbers 333-219143 and 333-222935) of Byline Bancorp, Inc. of our report dated March 23, 2018 on the consolidated financial statements of First Evanston Bancorp, Inc., which is included in this Current Report on Form 8-K/A.
/s/ Crowe LLP
Crowe LLP
Oak Brook, Illinois
August 10, 2018
EXHIBIT 99.1
FIRST EVANSTON BANCORP, INC.
Evanston, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
Evanston, Illinois
CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
CONTENTS
INDEPENDENT AUDITOR’S REPORT |
1 |
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FINANCIAL STATEMENTS |
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CONSOLIDATED BALANCE SHEETS |
2 |
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CONSOLIDATED STATEMENTS OF INCOME |
3 |
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CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME |
4 |
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CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY |
5 |
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CONSOLIDATED STATEMENTS OF CASH FLOWS |
6 |
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS |
7 |
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Crowe LLP Independent Member Crowe Global |
INDEPENDENT AUDITOR ’ S REPORT
Board of Directors
First Evanston Bancorp, Inc.
Evanston, Illinois
Report on the Financial Statements
We have audited the accompanying consolidated financial statements of First Evanston Bancorp, Inc., which comprise the consolidated balance sheets as of December 31, 2017 and 2016, and the related consolidated statements of income, comprehensive income, stockholders’ equity, and cash flows for the years then ended, and the related notes to the financial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on the auditor’s judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of First Evanston Bancorp, Inc. as of December 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended in accordance with accounting principles generally accepted in the United States of America.
/s/ Crowe LLP
Crowe LLP
Oak Brook, Illinois
March 23, 2018
1 .
FIRST EVANSTON BANCORP, INC.
December 31, 2017 and 2016
(Dollars in thousands)
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2017 |
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2016 |
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ASSETS |
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Cash and due from banks |
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$ |
80,113 |
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$ |
83,863 |
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Securities available for sale |
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139,426 |
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140,813 |
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Other investments |
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3,345 |
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3,304 |
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Loans, net of allowance for loan losses |
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903,369 |
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820,135 |
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Premises and equipment, net |
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10,277 |
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9,724 |
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Accrued interest and other assets |
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10,846 |
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9,415 |
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$ |
1,147,376 |
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$ |
1,067,254 |
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LIABILITIES AND STOCKHOLDERS’ EQUITY |
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Liabilities |
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Deposits |
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Demand non-interest bearing |
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$ |
386,989 |
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$ |
373,059 |
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Demand-interest bearing |
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22,173 |
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27,105 |
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NOW and money market accounts |
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313,834 |
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313,029 |
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Savings |
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52,608 |
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54,034 |
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Time deposits |
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262,777 |
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196,509 |
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1,038,381 |
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963,736 |
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Subordinated debentures |
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10,000 |
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10,000 |
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Accrued interest and other liabilities |
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2,955 |
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3,192 |
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1,051,336 |
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976,928 |
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Stockholders’ equity |
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Common stock - no par value: 2,000,000 shares authorized; 1,868,825 and 1,758,845 shares issued in 2017 and 2016 |
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417 |
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421 |
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Paid-in surplus |
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45,650 |
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35,121 |
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Retained earnings |
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67,249 |
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59,394 |
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Treasury stock, at cost – 199,017 shares in 2017 and 74,521 shares in 2016 |
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(16,277 |
) |
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(4,088 |
) |
Accumulated other comprehensive income (loss) |
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(999 |
) |
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(522 |
) |
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96,040 |
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90,326 |
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$ |
1,147,376 |
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$ |
1,067,254 |
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See accompanying notes to consolidated financial statements.
2 .
FIRST EVANSTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF INCOME
Years ended December 31, 2017 and 2016
(Dollars in thousands, except per share data)
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2017 |
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2016 |
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Interest income |
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Loans, including fees |
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$ |
37,665 |
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$ |
31,588 |
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Taxable securities |
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1,627 |
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1,378 |
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Tax-exempt securities |
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470 |
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477 |
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Interest bearing deposits |
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876 |
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634 |
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40,638 |
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34,077 |
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Interest expense |
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Deposits |
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3,865 |
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2,803 |
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Subordinated debentures |
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301 |
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250 |
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FHLB advances and other |
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98 |
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5 |
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4,264 |
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3,058 |
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Net interest income |
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36,374 |
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31,019 |
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Provision for loan losses |
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900 |
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900 |
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Net interest income after provision for loan losses |
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35,474 |
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30,119 |
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Other income |
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Deposit service charges and fees |
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1,917 |
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1,922 |
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Loan brokerage and other fees |
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189 |
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194 |
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Trust department income |
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2,408 |
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2,104 |
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Rental income |
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162 |
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152 |
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Other income |
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905 |
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870 |
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5,581 |
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5,242 |
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Other expense |
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Salaries and benefits |
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20,739 |
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16,624 |
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Occupancy expense |
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1,829 |
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1,629 |
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Furniture and equipment expense |
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698 |
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717 |
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Marketing expense |
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990 |
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|
951 |
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Data processing |
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2,374 |
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|
2,199 |
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FDIC insurance expense |
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|
725 |
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|
600 |
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Legal and professional fees |
|
|
770 |
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|
|
425 |
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Other expenses |
|
|
2,631 |
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|
|
2,152 |
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|
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|
30,756 |
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|
25,297 |
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|
|
|
|
|
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Income before income taxes |
|
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10,299 |
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|
10,064 |
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Provision for income taxes |
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2,444 |
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3,787 |
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Net income |
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$ |
7,855 |
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$ |
6,277 |
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Basic income per share |
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$ |
4.69 |
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$ |
3.81 |
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Diluted income per share |
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$ |
4.59 |
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$ |
3.75 |
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See accompanying notes to consolidated financial statements.
3 .
FIRST EVANSTON BANCORP, INC.
CONSOLIDATED S TATEMENTS OF COMPREHENSIVE INCOME
Years ended December 31, 2017 and 2016
(Dollar amounts in thousands)
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2017 |
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2016 |
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Net income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
|
|
|
|
|
|
|
|
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Other comprehensive income (loss): |
|
|
|
|
|
|
|
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Unrealized gains/losses on securities: |
|
|
|
|
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Unrealized holding gain/(loss) arising during the period |
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|
(546 |
) |
|
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(563 |
) |
Reclassification adjustment for (gains) losses included in net income |
|
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- |
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(29 |
) |
Tax effect |
|
|
69 |
|
|
|
247 |
|
Total other comprehensive income (loss) |
|
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(477 |
) |
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|
(345 |
) |
|
|
|
|
|
|
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|
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Comprehensive income |
|
$ |
7,378 |
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$ |
5,932 |
|
See accompanying notes to consolidated financial statements.
4 .
FIRST EVANSTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS ’ EQUITY
Years ended December 31, 2017 and 2016
(Dollars in thousands)
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Accumulated |
|
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Total |
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|
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Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Other |
|
|
Stock- |
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Shares |
|
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Common |
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Paid-In |
|
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Retained |
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Treasury |
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Comprehensive |
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holders’ |
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|
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Outstanding |
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Stock |
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Surplus |
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Earnings |
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Stock |
|
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Income (loss) |
|
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Equity |
|
|||||||
Balance at January 1, 2016 |
|
|
1,656,665 |
|
|
$ |
414 |
|
|
$ |
31,625 |
|
|
$ |
53,117 |
|
|
$ |
(2,176 |
) |
|
$ |
(177 |
) |
|
$ |
82,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
6,277 |
|
|
|
- |
|
|
|
- |
|
|
|
6,277 |
|
Total other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(345 |
) |
|
|
(345 |
) |
Stock option expense |
|
|
- |
|
|
|
- |
|
|
|
403 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
403 |
|
Exercise of stock options |
|
|
20,990 |
|
|
|
5 |
|
|
|
941 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
946 |
|
Issuance of restricted performance shares (net of forfeitures) |
|
|
40,250 |
|
|
|
10 |
|
|
|
(10 |
) |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Expense from earned restricted performance shares |
|
|
- |
|
|
|
- |
|
|
|
2,062 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,062 |
|
Tax benefit related to stock options and restricted performance shares |
|
|
- |
|
|
|
- |
|
|
|
100 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
100 |
|
Purchase of treasury stock |
|
|
(33,581 |
) |
|
|
(8 |
) |
|
|
- |
|
|
|
- |
|
|
|
(1,912 |
) |
|
|
- |
|
|
|
(1,920 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2016 |
|
|
1,684,324 |
|
|
|
421 |
|
|
|
35,121 |
|
|
|
59,394 |
|
|
|
(4,088 |
) |
|
|
(522 |
) |
|
|
90,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
7,855 |
|
|
|
- |
|
|
|
- |
|
|
|
7,855 |
|
Total other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(477 |
) |
|
|
(477 |
) |
Stock option expense |
|
|
- |
|
|
|
- |
|
|
|
799 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
799 |
|
Exercise of stock options |
|
|
109,980 |
|
|
|
27 |
|
|
|
5,727 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
5,754 |
|
Expense from earned restricted performance shares |
|
|
- |
|
|
|
- |
|
|
|
4,003 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
4,003 |
|
Purchase of treasury stock |
|
|
(124,496 |
) |
|
|
(31 |
) |
|
|
- |
|
|
|
- |
|
|
|
(12,189 |
) |
|
|
- |
|
|
|
(12,220 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2017 |
|
|
1,669,808 |
|
|
$ |
417 |
|
|
$ |
45,650 |
|
|
$ |
67,249 |
|
|
$ |
(16,277 |
) |
|
$ |
(999 |
) |
|
$ |
96,040 |
|
See accompanying notes to consolidated financial statements.
5 .
FIRST EVANSTON BANCORP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years ended December 31, 2017 and 2016
(Dollars in thousands)
|
|
2017 |
|
|
2016 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
589 |
|
|
|
760 |
|
Net securities and other amortization |
|
|
420 |
|
|
|
551 |
|
Gain on sale of securities available for sale |
|
|
- |
|
|
|
(29 |
) |
Provision for loan losses |
|
|
900 |
|
|
|
900 |
|
Stock compensation expense |
|
|
4,802 |
|
|
|
2,465 |
|
Change in accrued interest and other assets |
|
|
(1,363 |
) |
|
|
(1,009 |
) |
Change in accrued interest and other liabilities |
|
|
(237 |
) |
|
|
1,735 |
|
Net cash from operating activities |
|
|
12,966 |
|
|
|
11,650 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
(48,022 |
) |
|
|
(54,678 |
) |
Purchase of other investments |
|
|
(1,014 |
) |
|
|
(515 |
) |
Redemption of other investments |
|
|
973 |
|
|
|
37 |
|
Proceeds from calls and maturities of securities available for sale |
|
|
48,444 |
|
|
|
70,554 |
|
Proceeds from sale of securities available for sale |
|
|
- |
|
|
|
301 |
|
Net change in loans |
|
|
(84,134 |
) |
|
|
(92,406 |
) |
Premises and equipment expenditures |
|
|
(1,142 |
) |
|
|
(1,073 |
) |
Net cash used in investing activities |
|
|
(84,895 |
) |
|
|
(77,780 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
74,645 |
|
|
|
67,053 |
|
Purchase of treasury stock |
|
|
(12,220 |
) |
|
|
(1,920 |
) |
Proceeds from issuance of common stock from exercise of options, including tax benefit in 2016 |
|
|
5,754 |
|
|
|
1,046 |
|
Net cash from financing activities |
|
|
68,179 |
|
|
|
66,179 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(3,750 |
) |
|
|
49 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
83,863 |
|
|
|
83,814 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
80,113 |
|
|
$ |
83,863 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
4,258 |
|
|
$ |
2,770 |
|
Taxes paid |
|
|
3,316 |
|
|
|
4,200 |
|
See accompanying notes to consolidated financial statements.
6 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations : The consolidated financial statements include the accounts of First Evanston Bancorp, Inc. and its wholly owned subsidiary, First Bank & Trust (“the Bank”) (together referred to as “the Company”). All significant intercompany transactions and balances have been eliminated in consolidation.
The Company provides banking and trust services through its offices in the Chicago suburbs. The Company’s primary source of funding is deposit products including checking, savings, and certificates of deposits. The Company also has funding capacity through the Federal Home Loan Bank, Federal Reserve Bank, and federal funds lines available with other financial institutions. The Company’s primary lending products are commercial business and commercial real estate loans. Substantially all loans are secured by various forms of collateral, including business assets, consumer property, real estate, and other items, although borrower cash flow is the primary source of repayment. The Company’s exposure to credit risk is significantly affected by changes in the economy in the greater Chicago area. While the loan portfolio is substantially commercial based, the Bank is not dependent on any single borrower.
Use of Estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of income and expenses, and disclosures concerning reported amounts of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
Cash Flow Reporting : Cash and cash equivalents are defined as cash on hand, non-interest-bearing amounts due from banks, and federal funds transactions. Net cash flows are reported for customer loan and deposit transactions.
Securities : Securities are classified as available for sale since management may decide to sell those securities before maturity. Securities available for sale are carried at fair value. Unrealized gains and losses on securities available for sale are included as a separate component of stockholders’ equity, net of income taxes. Premium amortization is deducted from and discount accretion is added to interest income from securities using the interest method. Realized gains and losses on the sale of securities available for sale are based on the net proceeds and the adjusted carrying amount of the securities sold, using the specific identification method.
Management evaluates securities for other-than-temporary impairment on at least a quarterly basis, and more frequently when economic or market conditions warrant such an evaluation. For securities in an unrealized loss position, management considers the extent and duration of the unrealized loss, and the financial condition and near-term prospects of the issuer. Management also assesses whether it intends to sell, or it is more likely than not that it will be required to sell, a security in an unrealized loss position before recovery of its amortized cost basis. If either of the criteria regarding intent or requirement to sell is met, the entire difference between amortized cost and fair value is recognized as impairment through earnings. For debt securities that do not meet the aforementioned criteria, the amount of impairment is split into two components, other-than-temporary impairment related to credit loss, which must be recognized in the income statement, and other-than-temporary impairment related to other factors, which is recognized in other comprehensive income. The credit loss is defined as the difference between the present value of the cash flows expected to be collected and the amortized cost basis.
(Continued)
7 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Other Investments : The Bank is a member of the Federal Home Loan Bank (“FHLB”) and Federal Reserve Bank (“FRB”) systems. Members are required to own a certain amount of stock based on the level of borrowings and other factors, and may invest in additional amounts. FHLB and FRB stock are restricted securities, carried at cost and are periodically evaluated for impairment based on ultimate recovery of par value. Both cash and stock dividends are reported as income. At year-end 2017 and 2016, the Company had the following balances included in other investments:
|
|
2017 |
|
|
2016 |
|
||
FHLB stock |
|
$ |
575 |
|
|
$ |
1,428 |
|
FRB stock |
|
|
788 |
|
|
|
774 |
|
Other investments accounted for under the equity method |
|
|
1,982 |
|
|
|
1,102 |
|
Loans : Loans that management has the intent and ability to hold for the foreseeable future or until maturity or payoff are reported at the principal balance outstanding, net of deferred loan fees and costs and an allowance for loan losses. Interest income is accrued on the unpaid principal balance. Loan origination fees, net of certain direct origination costs, are deferred and recognized in interest income using the level-yield method without anticipating prepayments.
Nonaccrual Loans . Generally, commercial and loans secured by real estate are designated as nonaccrual when either principal or interest payments are 90 days or more past due based on contractual terms unless the loan is well secured and in the process of collection. Consumer loans are typically charged off no later than 180 days past due. In all cases, loans are placed on nonaccrual or charged off at an earlier date if collection of principal or interest is considered doubtful. When a loan is placed on nonaccrual status, unpaid interest credited to income is reversed against income. Interest received on such loans is accounted for on the cash-basis or cost-recovery method, until qualifying for return to accrual. Future interest income may be recorded on a cash basis after recovery of principal is reasonably assured. Nonaccrual loans are returned to accrual status when all the principal and interest amounts contractually due are brought current and future payments are reasonably assured.
Impaired Loans . A loan is considered impaired when, based on current information and events, it is probable that the Company will be unable to collect all contractual principal and interest due according to the terms of the loan agreement. Impaired loans are measured based on the present value of expected future cash flows discounted at the loan’s effective interest rate or the value of the underlying collateral if collateral dependent. The Company evaluates the collectability of both principal and interest when assessing the need for loss accrual.
Troubled Debt Restructurings . In cases where a borrower experiences financial difficulties and the Company makes certain concessionary modifications to contractual terms, the loan is classified as a troubled debt restructured loan and classified as impaired. Loans restructured at a rate equal to or greater than that of a new loan with comparable risk at the time the contract is modified may be excluded from restructured loans in the calendar years subsequent to the restructuring if they are in compliance with modified terms. Generally, a nonaccrual loan that is a troubled debt restructuring remains on nonaccrual until such time that repayment of the remaining principal and interest is not in doubt, and the borrower has a period of satisfactory repayment performance.
(Continued)
8 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Allowance for Loan Losses : The allowance for loan losses is a valuation allowance for probable incurred credit losses. Loan losses are charged against the allowance when management believes that the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. Management estimates the allowance balance required using past loan loss experience; the nature and volume of the portfolio; information about specific borrower situations; and estimated collateral values, economic conditions, and other factors. Allocations of the allowance may be made for specific loans, but the entire allowance is available for any loan that, in management’s judgment, should be charged off. The allowance consists of specific and general components. The specific component relates to loans that are individually classified as impaired.
If a loan is impaired, a portion of the allowance is allocated so that the loan is reported, net, at the present value of estimated future cash flows using the loan’s existing rate or at the fair value of collateral if repayment is expected solely from the collateral. Large groups of smaller balance homogeneous loans, such as consumer and residential real estate loans, are collectively evaluated for impairment, and accordingly, they are not separately identified for impairment disclosures. Troubled debt restructurings are separately identified for impairment disclosures and are measured at the present value of estimated future cash flows using the loan’s effective rate at inception. If a troubled debt restructuring is considered to be a collateral dependent loan, the loan is reported, net, at the fair value of the collateral. For troubled debt restructurings that subsequently default, the Company determines the amount of reserve in accordance with the accounting policy for the allowance for loan losses.
The general component covers non‑impaired loans and is based on historical loss experience adjusted for current factors. The historical loss experience is determined by portfolio segment and is based on the actual loss history experienced by the Company over the most recent two years. This actual loss experience is supplemented with other economic factors based on the risks present for each portfolio segment. These economic factors include consideration of the following: levels of and trends in delinquencies and impaired loans; levels of and trends in charge-offs and recoveries; effects of any changes in risk selection, underwriting standards and lending policies; experience and ability of lending management; national and local economic trends and conditions; trends in collateral values and effects of changes in credit concentrations.
The Company considers loan performance and collateral values in assessing risk for each segment in the loan portfolio, as follows:
|
• |
Commercial business loans are dependent on the strength of the industries of the related borrowers and the success of their businesses. Commercial business loans are advanced for equipment purchases or to provide working capital or meet other financing needs of the business. These loans may be secured by accounts receivable, inventory, equipment or other business assets. Financial information is obtained from the borrower to evaluate the debt service coverage and ability to repay the loans. |
|
• |
Commercial real estate loans are dependent on the industries tied to these loans as well as the local commercial real estate market, including available commercial real estate inventories, market demand and time to sell. The loans are secured by the real estate, and appraisals are obtained to support the loan amount. An evaluation of the entities cash flows is performed to evaluate the borrower’s ability to repay the loan. |
|
• |
Residential real estate and home equity loans are affected by the local residential real estate market, the local economy, and movement in interest rates. The Company evaluates the borrower’s repayment ability through a review of credit reports and debt to income ratios. Appraisals are obtained to support the loan amount. |
(Continued)
9 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
|
• |
Installment and other loans are consumer loans dependent on the local economy. Consumer loans are generally secured by consumer assets, but may be unsecured. The Company evaluates the borrower’s repayment ability through a review of credit reports and an evaluation of debt to income ratios. |
Premises and Equipment : Premises and equipment are stated at cost less accumulated depreciation. Depreciation is computed on the straight-line method over the lease term or the estimated useful lives of the assets.
Other Real Estate Owned : Assets acquired through or instead of loan foreclosure are initially recorded at fair value less costs to sell when acquired, establishing a new cost basis. If fair value declines subsequent to foreclosure, a valuation allowance is recorded through expense. Operating costs after acquisition are expensed. At December 31, 2017 and 2016 there was no other real estate owned.
At December 31, 2017 and 2016, the recorded investment of residential mortgage loans secured by residential real estate properties in process of foreclosure totaled $156,000 and $484,000 respectively.
Long-Term Assets : Premises and equipment and other long-term assets are reviewed for impairment when events indicate that their carrying amount may not be recoverable from future undiscounted cash flows. If impaired, the assets are recorded at fair value.
Loan Commitments and Related Financial Instruments : Financial instruments include off‑balance-sheet credit instruments, such as commitments to make loans and standby letters of credit, issued to meet customer financing needs. The face amount for these items represents the exposure to loss, before considering customer collateral or ability to repay. Such financial instruments are recorded when they are funded.
Stock-Based Compensation : Compensation cost is recognized for stock options and restricted stock awards issued to employees, based on the fair value of these awards at the date of grant. A Black-Scholes model is utilized to estimate the fair value of stock options, while the fair value of the Company’s common stock at the date of grant is used for restricted stock awards. Compensation cost is recognized over the required service period, generally defined as the vesting period. For awards with graded vesting, compensation cost is recognized on a straight-line basis over the requisite service period for the entire award.
Income Taxes : Income tax expense is the total of the current year income tax due or refundable and the change in deferred tax assets and liabilities. Deferred tax assets and liabilities are the expected future tax amounts for the temporary differences between carrying amounts and tax bases of assets and liabilities, computed using enacted tax rates. A tax position is recognized as a benefit only if it is “more likely than not” that the tax position will be sustained in a tax examination, with a tax examination being presumed to occur. The amount recognized is the largest amount of tax benefit that is greater than 50% likely of being realized on examination. For tax positions not meeting the “more likely than not” test, no tax benefit is recorded.
The Company is subject to U.S. federal income tax as well as income tax of the state of Illinois. The Company is no longer subject to examination by taxing authorities for years before 2014. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next 12 months. The Company recognizes interest and/or penalties related to income tax matters in income tax expense. No expense has been accrued for year-end 2017 and 2016 for interest and penalties.
Income Per Share : Basic income per share is net income divided by the weighted average number of common shares outstanding during the year. As more fully discussed in a separate note, unvested restricted shares have nonforfeitable rights to dividends and as such have been included in basic weighted average common shares outstanding. Diluted earnings per share include the dilutive effect of additional potential common shares issuable upon exercise of outstanding stock options.
(Continued)
10 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Dividend Restriction : Banking regulations require maintaining certain capital levels and may limit the dividends paid by the bank to the holding company or by the holding company to stockholders.
Comprehensive Income : Comprehensive income consists of net income and other comprehensive income. Other comprehensive income includes unrealized gains and losses on securities available for sale which are also recognized as separate components of equity.
Operating Segments: While the chief operating decision maker monitors the revenue streams of the various products and services, operations are managed and the financial performance is evaluated on a Company-wide basis. Operating segments are aggregated into one as operating results for all segments are similar. Accordingly, all of the financial service operations are considered to be aggregated in one reportable operating segment.
Fair Value of Financial Instruments : Fair values of financial instruments are estimated using relevant market information and other assumptions, as more fully disclosed in a separate note. Fair value estimates involve uncertainties and matters of significant judgment regarding interest rates, credit risk, prepayments, and other factors, especially in the absence of broad markets for particular items. Changes in assumptions or in market conditions could significantly affect the estimates.
Derivative: The Company has entered into mirror interest rate swap arrangements, whereby separate assets and liabilities are recognized at fair value in the consolidated balance sheet. Initial changes in the fair value of both components of the mirror interest rate swap are recorded in other noninterest income. The Company’s interest rate swaps have not been designated as hedging instruments.
Subsequent Events : The Company has evaluated subsequent events for recognition, measurement, and disclosures through March 23, 2018, which is the date the financial statements were available to be issued.
Reclassifications : Some items in the prior year financial statements were reclassified to conform to the current presentation.
Accounting Pronouncement Adopted: In March 2016, the FASB issued an update, ASU No. 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance in this update affects any entity that issues share-based payment awards including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption was permitted. The Company adopted ASU 2016-09 in 2017. During the fourth quarter of 2017, the Company recorded an income tax benefit of $2.53 million as a result of the adoption. This amount would have been recorded in paid-in surplus under previous guidance.
(Continued)
11 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Impact of Recent Accounting Pronouncements: In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The main provisions of the update require the identification of performance obligations within a contract and require the recognition of revenue based on a stand-alone allocation of contract revenue to each performance obligation. Performance obligations may be satisfied and revenue recognized over a period of time if: 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs, or 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. For public entities the amendments of the update are effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. The Company’s revenue is primarily comprised of net interest income on financial asset and liabilities, which are excluded from the scope of ASU 2014-09. Management has concluded that the adoption of ASU 2014-09 will not have a material impact on the Company’s financial position, results of operations or cash flows. The most significant impact of ASU 2014-09 will be additional disclosures required for non-interest income.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities. The main provisions of the update are to eliminate the available for sale classification of accounting for equity securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update will require that equity securities be carried at fair market value on the balance sheet and any periodic changes in value will be adjustments to the income statement. A practical expedient is provided for equity securities without a readily determinable fair value, such that these securities can be carried at cost less any impairment. The provisions of this update become effective for interim and annual periods beginning after December 15, 2017. Upon the effective date of the update, changes in the value of the Company's common stock investments will be adjustments to the income statement. Additionally, the disclosure of fair value of the loan portfolio will be presented using an exit price method instead of the current discounted cash flow. Management has concluded that the remaining requirements of this update are not expected to have a material impact on the Company’s financial position, results of operations or cash flows.
In February 2016, the FASB issued an update (ASU No. 2016-02, Leases) creating FASB Topic 842, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Management has concluded that based on the Company’s current operating leases, the adoption of ASU 2016-02 will not have a material impact on the Company’s consolidated financial statements and related disclosures.
(Continued)
12 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), commonly referred to as “CECL.” The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the expected term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity debt securities. Under the provisions of the update, credit losses recognized on available for sale debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL oblige organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. For public entities, the amendments of the update are effective beginning January 1, 2020. Management has initiated an implementation committee to assist in assessing data and system needs for the new standard. Management anticipates the effect will be an increase to the allowance for loan losses upon adoption. However, the size of the overall increase is uncertain at this time.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The provisions of this update become effective for interim and annual periods beginning after December 15, 2018. Management has concluded that based on the Company’s current portfolio of investment securities that the adoption of these amendments will result in shorter amortization period for investment security premiums; however, the impact will not be material to interest income on investment securities.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, which among other things reduced the maximum federal corporate tax rate from 35% to 21%. This Update addresses concerns about the guidance in current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in income from continuing operations). As a result of the adjustment of deferred taxes being required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects for purposes of this Update) do not reflect the appropriate tax rate. This Update allows for an election to reclass between retained earnings and AOCI the impact of the federal income tax rate change. The amendments in this Update are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption of the amendments of this Update is permitted. The adoption of the standard is not expected to have a material impact to the financial statements.
(Continued)
13 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
26,912 |
|
|
$ |
- |
|
|
$ |
(112 |
) |
|
$ |
26,800 |
|
U.S. government-sponsored entities |
|
|
85,095 |
|
|
|
- |
|
|
|
(957 |
) |
|
|
84,138 |
|
States and political subdivisions |
|
|
28,817 |
|
|
|
2 |
|
|
|
(331 |
) |
|
|
28,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
140,824 |
|
|
$ |
2 |
|
|
$ |
(1,400 |
) |
|
$ |
139,426 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
31,841 |
|
|
$ |
109 |
|
|
$ |
(30 |
) |
|
$ |
31,920 |
|
U.S. government-sponsored entities |
|
|
75,188 |
|
|
|
3 |
|
|
|
(580 |
) |
|
|
74,611 |
|
States and political subdivisions |
|
|
34,636 |
|
|
|
11 |
|
|
|
(365 |
) |
|
|
34,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
141,665 |
|
|
$ |
123 |
|
|
$ |
(975 |
) |
|
$ |
140,813 |
|
The fair value of securities available for sale at year-end 2017 by contractual maturity was as follows:
|
|
Amortized |
|
|
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
||
Due in one year or less |
|
$ |
26,854 |
|
|
$ |
26,800 |
|
Due from one to five years |
|
|
113,346 |
|
|
|
112,018 |
|
Due from five years through ten years |
|
|
624 |
|
|
|
608 |
|
Due more than ten years |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
140,824 |
|
|
$ |
139,426 |
|
Securities with a carrying value of $103,157,000 and $111,718,000 at year-end 2017 and 2016 were pledged to secure public deposits and for other purposes.
At year-end 2017 and 2016, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
(Continued)
14 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
Securities with unrealized losses at year-end 2017 and 2016 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
20,834 |
|
|
$ |
(72 |
) |
|
$ |
4,967 |
|
|
$ |
(40 |
) |
|
$ |
25,801 |
|
|
$ |
(112 |
) |
U.S. government-sponsored entities |
|
|
31,672 |
|
|
|
(334 |
) |
|
|
52,466 |
|
|
|
(623 |
) |
|
|
84,138 |
|
|
|
(957 |
) |
State and political subdivisions |
|
|
19,805 |
|
|
|
(217 |
) |
|
|
4,394 |
|
|
|
(114 |
) |
|
|
24,199 |
|
|
|
(331 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
72,311 |
|
|
$ |
(623 |
) |
|
$ |
61,827 |
|
|
$ |
(777 |
) |
|
$ |
134,138 |
|
|
$ |
(1,400 |
) |
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
||||||
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
5,987 |
|
|
$ |
(30 |
) |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
5,987 |
|
|
$ |
(30 |
) |
U.S. government-sponsored entities |
|
|
62,619 |
|
|
|
(574 |
) |
|
|
1,994 |
|
|
|
(6 |
) |
|
|
64,613 |
|
|
|
(580 |
) |
State and political subdivisions |
|
|
23,947 |
|
|
|
(361 |
) |
|
|
908 |
|
|
|
(4 |
) |
|
|
24,855 |
|
|
|
(365 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
92,553 |
|
|
$ |
(965 |
) |
|
$ |
2,902 |
|
|
$ |
(10 |
) |
|
$ |
95,455 |
|
|
$ |
(975 |
) |
The unrealized losses at year-end 2017 and 2016 have not been recognized into income because the issuers’ bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to the current and projected rate environment and lower market liquidity.
U.S. government-sponsored entities primarily include bonds issued by the Federal Farm Credit Bank, Federal Home Loan Bank, Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. State and political subdivisions include taxable and tax-exempt bonds issued by various municipalities.
(Continued)
15 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Year-end loans were as follows:
|
|
2017 |
|
|
2016 |
|
||
Commercial business |
|
$ |
373,503 |
|
|
$ |
329,180 |
|
Commercial real estate |
|
|
388,817 |
|
|
|
348,102 |
|
Residential real estate |
|
|
68,341 |
|
|
|
72,687 |
|
Home equity - first liens |
|
|
46,878 |
|
|
|
44,967 |
|
Home equity - second liens |
|
|
27,741 |
|
|
|
26,040 |
|
Installment and other |
|
|
9,605 |
|
|
|
10,395 |
|
Total gross loans |
|
$ |
914,885 |
|
|
$ |
831,371 |
|
Deferred loan fees |
|
|
(772 |
) |
|
|
(565 |
) |
Allowance for loan losses |
|
|
(10,744 |
) |
|
|
(10,671 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
903,369 |
|
|
$ |
820,135 |
|
The Company has sold portions of certain loans to other unrelated entities; however, the sales do not qualify for sale accounting treatment. Therefore, the Company has recorded the entire loan balance on the consolidated balance sheet and has recorded the sold portion as borrowings included in other liabilities on the consolidated balance sheet in a total amount of $1,270,000 and $1,482,000 at December 31, 2017 and 2016.
Loans to related parties including commitments were $6,186,000 and $3,927,000 at year-end 2017 and 2016.
(Continued)
16 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Activity in the allowance for loan losses by portfolio segment was as follows for the years ended 2017 and 2016:
|
|
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Home Equity |
|
|
|
|
|
|
|
|
|
||
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
- First |
|
|
- Second |
|
|
Installment |
|
|
|
|
|
||||||
|
|
Business |
|
|
Real Estate |
|
|
Real Estate |
|
|
Liens |
|
|
Liens |
|
|
and Other |
|
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
5,251 |
|
|
$ |
4,641 |
|
|
$ |
247 |
|
|
$ |
238 |
|
|
$ |
159 |
|
|
$ |
135 |
|
|
$ |
10,671 |
|
Provision for loan losses |
|
|
14 |
|
|
|
421 |
|
|
|
(57 |
) |
|
|
135 |
|
|
|
228 |
|
|
|
159 |
|
|
|
900 |
|
Loans charged-off |
|
|
(429 |
) |
|
|
(158 |
) |
|
|
(4 |
) |
|
|
(78 |
) |
|
|
(165 |
) |
|
|
(167 |
) |
|
|
(1,001 |
) |
Recoveries |
|
|
62 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1 |
|
|
|
111 |
|
|
|
174 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance |
|
$ |
4,898 |
|
|
$ |
4,904 |
|
|
$ |
186 |
|
|
$ |
295 |
|
|
$ |
223 |
|
|
$ |
238 |
|
|
$ |
10,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Home Equity |
|
|
|
|
|
|
|
|
|
||
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
- First |
|
|
- Second |
|
|
Installment |
|
|
|
|
|
||||||
|
|
Business |
|
|
Real Estate |
|
|
Real Estate |
|
|
Liens |
|
|
Liens |
|
|
and Other |
|
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning balance |
|
$ |
5,035 |
|
|
$ |
4,230 |
|
|
$ |
430 |
|
|
$ |
337 |
|
|
$ |
392 |
|
|
$ |
167 |
|
|
$ |
10,591 |
|
Provision for loan losses |
|
|
797 |
|
|
|
532 |
|
|
|
(183 |
) |
|
|
(88 |
) |
|
|
(289 |
) |
|
|
131 |
|
|
|
900 |
|
Loans charged-off |
|
|
(625 |
) |
|
|
(129 |
) |
|
|
- |
|
|
|
(13 |
) |
|
|
(17 |
) |
|
|
(205 |
) |
|
|
(989 |
) |
Recoveries |
|
|
44 |
|
|
|
8 |
|
|
|
- |
|
|
|
2 |
|
|
|
73 |
|
|
|
42 |
|
|
|
169 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total ending allowance balance |
|
$ |
5,251 |
|
|
$ |
4,641 |
|
|
$ |
247 |
|
|
$ |
238 |
|
|
$ |
159 |
|
|
$ |
135 |
|
|
$ |
10,671 |
|
(Continued)
17 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
The balance in the allowance for loan losses and the recorded investment in loans based on impairment method were as follows as of year-end 2017 and 2016:
|
|
Loan Balances |
|
|
Allowance for Loan Losses |
|
||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Individually |
|
|
Collectively |
|
|
Total |
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|||||
|
|
Evaluated for |
|
|
Evaluated for |
|
|
Recorded |
|
|
Evaluated for |
|
|
Evaluated for |
|
|
|
|
|
|||||
|
|
Impairment |
|
|
Impairment |
|
|
Investment |
|
|
Impairment |
|
|
Impairment |
|
|
Total |
|
||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
649 |
|
|
$ |
372,854 |
|
|
$ |
373,503 |
|
|
$ |
148 |
|
|
$ |
4,750 |
|
|
$ |
4,898 |
|
Commercial real estate |
|
|
400 |
|
|
|
388,417 |
|
|
|
388,817 |
|
|
|
28 |
|
|
|
4,876 |
|
|
|
4,904 |
|
Residential real estate |
|
|
129 |
|
|
|
68,212 |
|
|
|
68,341 |
|
|
|
- |
|
|
|
186 |
|
|
|
186 |
|
Home equity - first liens |
|
|
- |
|
|
|
46,878 |
|
|
|
46,878 |
|
|
|
- |
|
|
|
295 |
|
|
|
295 |
|
Home equity - second liens |
|
|
90 |
|
|
|
27,651 |
|
|
|
27,741 |
|
|
|
- |
|
|
|
223 |
|
|
|
223 |
|
Installment and other |
|
|
136 |
|
|
|
9,469 |
|
|
|
9,605 |
|
|
|
123 |
|
|
|
115 |
|
|
|
238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,404 |
|
|
$ |
913,481 |
|
|
$ |
914,885 |
|
|
$ |
299 |
|
|
$ |
10,445 |
|
|
$ |
10,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
3,099 |
|
|
$ |
326,081 |
|
|
$ |
329,180 |
|
|
$ |
972 |
|
|
$ |
4,279 |
|
|
$ |
5,251 |
|
Commercial real estate |
|
|
1,647 |
|
|
|
346,455 |
|
|
|
348,102 |
|
|
|
57 |
|
|
|
4,584 |
|
|
|
4,641 |
|
Residential real estate |
|
|
66 |
|
|
|
72,621 |
|
|
|
72,687 |
|
|
|
- |
|
|
|
247 |
|
|
|
247 |
|
Home equity - first liens |
|
|
194 |
|
|
|
44,773 |
|
|
|
44,967 |
|
|
|
42 |
|
|
|
196 |
|
|
|
238 |
|
Home equity - second liens |
|
|
290 |
|
|
|
25,750 |
|
|
|
26,040 |
|
|
|
3 |
|
|
|
156 |
|
|
|
159 |
|
Installment and other |
|
|
156 |
|
|
|
10,239 |
|
|
|
10,395 |
|
|
|
56 |
|
|
|
79 |
|
|
|
135 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,452 |
|
|
$ |
825,919 |
|
|
$ |
831,371 |
|
|
$ |
1,130 |
|
|
$ |
9,541 |
|
|
$ |
10,671 |
|
The loan balances above do not include accrued interest receivable or deferred loan fees.
(Continued)
18 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Troubled Debt Restructurings:
As of December 31, 2017, the Company has a recorded investment in troubled debt restructurings of $570,000. The Company has allocated $100,000 of specific reserves for those loans at year-end 2017, and has committed to lend no additional amounts.
As of December 31, 2016, the Company has a recorded investment in troubled debt restructurings of $3,876,000. The Company has allocated $905,000 of specific reserves for those loans at year-end 2016, and has committed to lend no additional amounts
During 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of 1 loan included one or a combination of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.
Loans modified as troubled debt restructurings, by class of loan, occurring during 2017 were as follows:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding Recorded |
|
|
Outstanding Recorded |
|
||
|
|
Number of Loans |
|
|
Investment |
|
|
Investment |
|
|||
Troubled Debt Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1 |
|
|
$ |
35 |
|
|
$ |
35 |
|
The troubled debt restructuring described above did not increase the allowance for loan losses during 2017 and resulted in no charge-offs during 2017.
During 2016, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of 3 loans included one or a combination of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.
Loans modified as troubled debt restructurings, by class of loan, occurring during 2016 were as follows:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding Recorded |
|
|
Outstanding Recorded |
|
||
|
|
Number of Loans |
|
|
Investment |
|
|
Investment |
|
|||
Troubled Debt Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
3 |
|
|
$ |
808 |
|
|
$ |
593 |
|
The troubled debt restructurings described above increased the allowance for loan losses by $80,000 during 2016 and resulted in charge-offs of $215,000 during 2016.
No loans modified as troubled debt restructurings experienced payment default during 2017 or 2016 within 12 months of the modification.
(Continued)
19 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Loans individually evaluated for impairment were as follows as of year-end 2017 and 2016:
|
|
Unpaid |
|
|
|
|
|
|
Allowance for |
|
|
Average |
|
|
Interest |
|
|
Cash Basis |
|
|||||
|
|
Principal |
|
|
Recorded |
|
|
Loan Losses |
|
|
Recorded |
|
|
Income |
|
|
Interest |
|
||||||
|
|
Balance |
|
|
Investment |
|
|
Allocated |
|
|
Investment |
|
|
Recognized |
|
|
Recognized |
|
||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
261 |
|
|
$ |
230 |
|
|
$ |
- |
|
|
$ |
418 |
|
|
$ |
- |
|
|
$ |
- |
|
Commercial real estate |
|
|
213 |
|
|
|
213 |
|
|
|
- |
|
|
|
390 |
|
|
|
5 |
|
|
|
- |
|
Residential real estate |
|
|
134 |
|
|
|
129 |
|
|
|
- |
|
|
|
72 |
|
|
|
4 |
|
|
|
- |
|
Home equity - first liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - second liens |
|
|
130 |
|
|
|
90 |
|
|
|
- |
|
|
|
246 |
|
|
|
- |
|
|
|
- |
|
Installment and other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
723 |
|
|
|
419 |
|
|
|
148 |
|
|
|
1,434 |
|
|
|
- |
|
|
|
- |
|
Commercial real estate |
|
|
205 |
|
|
|
187 |
|
|
|
28 |
|
|
|
194 |
|
|
|
- |
|
|
|
- |
|
Residential real estate |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - first liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - second liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Installment and other |
|
|
185 |
|
|
|
136 |
|
|
|
123 |
|
|
|
119 |
|
|
|
1 |
|
|
|
- |
|
Total |
|
$ |
1,851 |
|
|
$ |
1,404 |
|
|
$ |
299 |
|
|
$ |
2,873 |
|
|
$ |
10 |
|
|
$ |
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
277 |
|
|
$ |
259 |
|
|
$ |
- |
|
|
$ |
442 |
|
|
$ |
- |
|
|
$ |
- |
|
Commercial real estate |
|
|
1,844 |
|
|
|
1,249 |
|
|
|
- |
|
|
|
1,375 |
|
|
|
9 |
|
|
|
- |
|
Residential real estate |
|
|
76 |
|
|
|
66 |
|
|
|
- |
|
|
|
54 |
|
|
|
1 |
|
|
|
- |
|
Home equity - first liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - second liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
64 |
|
|
|
- |
|
|
|
- |
|
Installment and other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
4,449 |
|
|
|
2,840 |
|
|
|
972 |
|
|
|
3,307 |
|
|
|
3 |
|
|
|
- |
|
Commercial real estate |
|
|
516 |
|
|
|
398 |
|
|
|
57 |
|
|
|
316 |
|
|
|
4 |
|
|
|
- |
|
Residential real estate |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - first liens |
|
|
205 |
|
|
|
194 |
|
|
|
42 |
|
|
|
246 |
|
|
|
- |
|
|
|
- |
|
Home equity - second liens |
|
|
295 |
|
|
|
290 |
|
|
|
3 |
|
|
|
152 |
|
|
|
10 |
|
|
|
- |
|
Installment and other |
|
|
265 |
|
|
|
156 |
|
|
|
56 |
|
|
|
174 |
|
|
|
3 |
|
|
|
- |
|
Total |
|
$ |
7,927 |
|
|
$ |
5,452 |
|
|
$ |
1,130 |
|
|
$ |
6,130 |
|
|
$ |
30 |
|
|
$ |
- |
|
(Continued)
20 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
The aging of the recorded investment in past due loans as of year-end 2017 and 2016 were as follows:
|
|
|
|
|
|
|
|
|
|
Greater Than |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 – 59 |
|
|
60 – 89 |
|
|
90 Days Past |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Days |
|
|
Days |
|
|
Due Still |
|
|
|
|
|
|
Loans Not |
|
|
|
|
|
||||
|
|
Past Due |
|
|
Past Due |
|
|
On Accrual |
|
|
Nonaccrual |
|
|
Past Due |
|
|
Total |
|
||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
649 |
|
|
$ |
372,854 |
|
|
$ |
373,503 |
|
Commercial real estate |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
400 |
|
|
|
388,417 |
|
|
|
388,817 |
|
Residential real estate |
|
|
47 |
|
|
|
- |
|
|
|
- |
|
|
|
129 |
|
|
|
68,165 |
|
|
|
68,341 |
|
Home equity – first liens |
|
|
- |
|
|
|
280 |
|
|
|
- |
|
|
|
- |
|
|
|
46,598 |
|
|
|
46,878 |
|
Home equity – second liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
90 |
|
|
|
27,651 |
|
|
|
27,741 |
|
Installment and other |
|
|
154 |
|
|
|
39 |
|
|
|
- |
|
|
|
136 |
|
|
|
9,276 |
|
|
|
9,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
201 |
|
|
$ |
319 |
|
|
$ |
- |
|
|
$ |
1,404 |
|
|
$ |
912,961 |
|
|
$ |
914,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
2 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
3,099 |
|
|
$ |
326,079 |
|
|
$ |
329,180 |
|
Commercial real estate |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,647 |
|
|
|
346,455 |
|
|
|
348,102 |
|
Residential real estate |
|
|
- |
|
|
|
125 |
|
|
|
- |
|
|
|
66 |
|
|
|
72,496 |
|
|
|
72,687 |
|
Home equity – first liens |
|
|
145 |
|
|
|
- |
|
|
|
- |
|
|
|
194 |
|
|
|
44,628 |
|
|
|
44,967 |
|
Home equity – second liens |
|
|
230 |
|
|
|
167 |
|
|
|
- |
|
|
|
290 |
|
|
|
25,353 |
|
|
|
26,040 |
|
Installment and other |
|
|
167 |
|
|
|
40 |
|
|
|
1 |
|
|
|
156 |
|
|
|
10,031 |
|
|
|
10,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
544 |
|
|
$ |
332 |
|
|
$ |
1 |
|
|
$ |
5,452 |
|
|
$ |
825,042 |
|
|
$ |
831,371 |
|
(Continued)
21 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Credit Quality Indicators:
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed generally on a monthly basis but no less than quarterly. The risk category of homogeneous loans is evaluated when a loan becomes delinquent.
Special Mention . Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date.
Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected.
Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable.
(Continued)
22 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Loans not meeting the criteria above that are analyzed individually as part of the above-described process are considered to be pass rated loans. As of year-end 2017 and 2016, and based on the most recent analysis performed, the risk category of loans is as follows:
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
358,123 |
|
|
$ |
14,800 |
|
|
$ |
240 |
|
|
$ |
340 |
|
|
$ |
373,503 |
|
Commercial real estate |
|
|
370,499 |
|
|
|
10,804 |
|
|
|
7,514 |
|
|
|
- |
|
|
|
388,817 |
|
Residential real estate |
|
|
68,028 |
|
|
|
62 |
|
|
|
251 |
|
|
|
- |
|
|
|
68,341 |
|
Home equity - first liens |
|
|
46,703 |
|
|
|
175 |
|
|
|
- |
|
|
|
- |
|
|
|
46,878 |
|
Home equity - second liens |
|
|
27,480 |
|
|
|
261 |
|
|
|
- |
|
|
|
- |
|
|
|
27,741 |
|
Installment and other |
|
|
9,470 |
|
|
|
- |
|
|
|
126 |
|
|
|
9 |
|
|
|
9,605 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
880,303 |
|
|
$ |
26,102 |
|
|
$ |
8,131 |
|
|
$ |
349 |
|
|
$ |
914,885 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
318,367 |
|
|
$ |
7,225 |
|
|
$ |
885 |
|
|
$ |
2,703 |
|
|
$ |
329,180 |
|
Commercial real estate |
|
|
340,455 |
|
|
|
6,000 |
|
|
|
734 |
|
|
|
913 |
|
|
|
348,102 |
|
Residential real estate |
|
|
72,093 |
|
|
|
200 |
|
|
|
394 |
|
|
|
- |
|
|
|
72,687 |
|
Home equity - first liens |
|
|
44,773 |
|
|
|
- |
|
|
|
- |
|
|
|
194 |
|
|
|
44,967 |
|
Home equity - second liens |
|
|
25,598 |
|
|
|
275 |
|
|
|
167 |
|
|
|
- |
|
|
|
26,040 |
|
Installment and other |
|
|
10,238 |
|
|
|
- |
|
|
|
140 |
|
|
|
17 |
|
|
|
10,395 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
811,524 |
|
|
$ |
13,700 |
|
|
$ |
2,320 |
|
|
$ |
3,827 |
|
|
$ |
831,371 |
|
(Continued)
23 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 4 - PREMISES AND EQUIPMENT
Year-end premises and equipment were as follows:
|
|
2017 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
Land |
|
$ |
3,365 |
|
|
$ |
3,365 |
|
Building and improvements |
|
|
5,412 |
|
|
|
5,354 |
|
Leasehold improvements |
|
|
6,371 |
|
|
|
5,591 |
|
Furniture and equipment |
|
|
5,148 |
|
|
|
5,002 |
|
Total cost |
|
|
20,296 |
|
|
|
19,312 |
|
Accumulated depreciation |
|
|
(10,019 |
) |
|
|
(9,588 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
10,277 |
|
|
$ |
9,724 |
|
The Bank’s noncancelable operating leases include the following terms at year-end 2017:
Facility |
|
Term |
|
Next Maturity |
|
Renewal Options |
Central Street |
|
5 years |
|
2022 |
|
None |
Emerson Street |
|
10 years |
|
2018 |
|
One 5-year |
Skokie |
|
5 years |
|
2022 |
|
Two 5-year |
Itasca |
|
8 years |
|
2020 |
|
Three 5-year |
Naperville |
|
5 years |
|
2022 |
|
Two 5-year |
Main Street & Chicago Ave |
|
10 years |
|
2026 |
|
Three 5-year |
Libertyville |
|
5 years |
|
2022 |
|
Two 5-year |
The Skokie lease includes a purchase option after the amended lease term, which runs until July 31, 2022 and after option periods which end July 31, 2022 and July 31, 2027.
Total rent expense for facilities and equipment was $754,000 and $617,000 in 2017 and 2016.
Minimum rental commitments under these leases, excluding remaining renewal periods, are as follows:
2018 |
|
$ |
567 |
|
2019 |
|
|
584 |
|
2020 |
|
|
563 |
|
2021 |
|
|
512 |
|
2022 |
|
|
351 |
|
Thereafter |
|
|
318 |
|
|
|
$ |
2,895 |
|
At year-end 2017, the Company, as a lessor, had noncancelable operating leases outstanding for portions of the main building which will expire in 2020. Total rental income for leases outstanding was $162,000 and $152,000 in 2017 and 2016. Future minimum rental receipts from these leases are as follows:
2018 |
|
$ |
162 |
|
2019 |
|
|
165 |
|
2020 |
|
|
168 |
|
|
|
$ |
495 |
|
(Continued)
24 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Time deposits that meet or exceed the FDIC insurance limit of $250,000 at year-end 2017 and 2016 were $108,865,000 and $86,562,000.
At year-end 2017, stated maturities of time deposits were as follows:
2018 |
|
$ |
164,425 |
|
2019 |
|
|
59,433 |
|
2020 |
|
|
9,514 |
|
2021 |
|
|
24,209 |
|
2022 |
|
|
5,196 |
|
Thereafter |
|
|
- |
|
|
|
$ |
262,777 |
|
Deposits held by the Bank from related parties were $5,066,000 and $6,472,000 at year-end 2017 and 2016.
NOTE 6 - BORROWINGS
In 2017, the Company entered into a $5,000,000 revolving line of credit with another institution. The line of credit has a maturity date of March 28, 2018, and a LIBOR or a prime rate option. If the line of credit is drawn on, the Company may elect to pay interest at a rate of LIBOR plus 2% using LIBOR in effect at date of election, or the variable rate option which is the lender’s prime rate. The line of credit is secured by the Bank’s stock. There was no outstanding balance at year-end 2017. The Company was in compliance with all related loan covenants as of December 31, 2017. A similar line of credit existed in 2016 and had no outstanding balance at December 31, 2016.
The Company has an available line of credit with the Federal Home Loan Bank (FHLB) with no outstanding advances at year-end 2017 and 2016. Based on collateral of $304,570,000 and $289,531,000 which consists of commercial real estate loans, residential real estate loans, home equity loans, and small business loans under a blanket lien agreement, the Company is able to borrow up to a total of $177,566,000 and $186,976,000 at year-end 2017 and 2016. At December 31, 2017, the remaining available FHLB credit after $66,039,000 in letters of credit issued was $111,527,000. The letters of credit are issued for the benefit of commercial and municipal deposit customers.
NOTE 7 - SUBORDINATED DEBENTURES
In 2004, the Company formed First Evanston Bancorp Trust I (“the Trust”). The Trust is a statutory business trust formed under the laws of the state of Delaware and is wholly owned by the Company. In 2004, the Trust issued floating rate capital trust preferred securities with an aggregate liquidation amount of $10,000,000 ($1,000 per capital security) to a third-party investor. The Company then issued fixed-rate junior subordinated debentures aggregating $10,000,000 to the Trust. The junior subordinated debentures are the sole assets of the Trust. The junior subordinated debentures and the preferred securities pay interest and dividends, respectively, on a quarterly basis. The rate was 5.85% fixed for five years then became variable in March 2010 at three-month LIBOR plus 1.78%, which was 3.37% at year-end 2017. The subordinated debentures will mature in 2035, at which time the preferred securities must be redeemed. The subordinated debentures and preferred securities can be redeemed at par contemporaneously, in whole or in part. The Company’s financial statements do not reflect the accounts of the Trust. The Company has the option to defer interest payments on the subordinated debentures from time to time for a period not to exceed five consecutive years.
(Continued)
25 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 7 - SUBORDINATED DEBENTURES (Continued)
The subordinated debentures may be included in Tier I capital (with certain limitations applicable) under current regulatory guidelines and interpretations.
NOTE 8 - 401(k) PLAN
A 401(k) salary reduction plan allows participants to make tax-deferred contributions to the plan within specific ranges, which are matched at two-thirds of the first 6% of an employee’s contribution. The Company made contributions of $357,000 and $332,516 during 2017 and 2016.
NOTE 9 - INCOME TAXES
The provision for income taxes consists of:
|
|
2017 |
|
|
2016 |
|
||
Current |
|
$ |
1,056 |
|
|
$ |
3,681 |
|
Deferred |
|
|
(145 |
) |
|
|
106 |
|
Remeasurement due to Tax Cuts and Jobs Act |
|
|
1,533 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
2,444 |
|
|
$ |
3,787 |
|
On December 22, 2017, H.R.1, commonly known as the Tax Cuts and Jobs Act (the “Act”), was signed into law. Among other things, the Act reduces the Company’s corporate federal and tax rate from 35% to 21% effective January 1, 2018. As a result the Company is required to remeasure, through income tax expense, deferred tax assets and liabilities using the enacted rate at which these items are expected to recover or settle. The remeasurement of the Company’s net deferred tax asset resulted in additional income tax expense of approximately $1.5 million.
Year-end net deferred taxes include the following amounts of deferred tax assets and liabilities:
|
|
2017 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
Deferred tax assets: |
|
|
|
|
|
|
|
|
Allowance for loan losses |
|
$ |
2,900 |
|
|
$ |
4,232 |
|
Non-qualifying stock plans |
|
|
381 |
|
|
|
736 |
|
Unrealized loss on securities available for sale |
|
|
398 |
|
|
|
331 |
|
Total deferred tax assets |
|
|
3,679 |
|
|
|
5,299 |
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
(46 |
) |
|
|
(139 |
) |
FHLB stock dividends |
|
|
(13 |
) |
|
|
(123 |
) |
Prepaids |
|
|
(70 |
) |
|
|
(149 |
) |
Other, net |
|
|
(17 |
) |
|
|
(35 |
) |
Total deferred tax liabilities |
|
|
(146 |
) |
|
|
(446 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
3,533 |
|
|
|
4,853 |
|
(Continued)
26 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 9 - INCOME TAXES (Continued)
The table below reconciles the total income tax provision with the amounts computed at the current statutory income tax rate of 34%:
|
|
2017 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
Tax provision at federal statutory rate |
|
$ |
3,502 |
|
|
$ |
3,422 |
|
Increase (decrease) from: |
|
|
|
|
|
|
|
|
State income tax expense |
|
|
7 |
|
|
|
471 |
|
Restricted stock awards and options |
|
|
(2,530 |
) |
|
|
- |
|
Remeasurement due to Tax Cuts and Jobs Act |
|
|
1,533 |
|
|
|
- |
|
Other, net |
|
|
(68 |
) |
|
|
(106 |
) |
|
|
|
|
|
|
|
|
|
|
|
$ |
2,444 |
|
|
$ |
3,787 |
|
No valuation allowance has been recorded on deferred tax assets as management believes it is more likely than not that such assets will be realized.
In March 2016, the FASB issued ASU 2016-09, Compensation – Stock Compensation (Topic 718): Improvement to Employee Share-Based Payment Accounting. The new standard contains several amendments that will simplify the accounting for employee share-based payment transactions, including the accounting for income taxes, forfeitures, statutory tax withholding requirements, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The changes in the new standard eliminate the accounting for excess tax benefits from the vesting of awards or the exercise of options to be recognized in additional paid-in capital and tax deficiencies recognized either in the income tax provision or in additional paid-in capital. The Company adopted the ASU in 2017 and as such an income tax benefit of $2.53 million was recognized in income tax expense.
NOTE 10 - STOCK-BASED COMPENSATION
The Company has a stock incentive plan (“the Plan”) that permits the issuance of stock options and restricted performance shares in order to attract and retain talented executives to manage the Company and the Bank. The Plan also provides for option grants to members of the Board of Directors of the Company and the Bank. At year-end 2017, 1,240,000 shares of common stock have been authorized for issuance, of which 104,818 shares remain available for future grant as either stock options or restricted performance shares.
Stock Options : Options may be granted in the form of incentive stock options, non-qualified stock options, or a combination of both. The exercise price equals the fair value of a share of common stock as determined by the Compensation Committee on the grant date. Option exercise is subject to certain conditions, and options expire no later than ten years after the grant date. The option’s vesting period is determined by the Compensation Committee with each grant and has generally been from six months to five years.
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
(Continued)
27 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 0 - STOCK-BASED COMPENSATION (Continued)
The fair value of options granted was determined using the following weighted‑average assumptions as of grant date.
|
|
2017 |
|
|
2016 |
|
||
Risk-free interest rate |
|
|
- |
|
|
|
2.57 |
% |
Expected term |
|
|
- |
|
|
10 years |
|
|
Expected stock price volatility |
|
|
- |
|
|
|
9.83 |
% |
Dividend yield |
|
|
- |
|
|
|
0 |
% |
A summary of the activity in the stock option plan for 2017 follows:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
||
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|||
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
of Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, beginning of year |
|
|
263,230 |
|
|
$ |
52.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(109,980 |
) |
|
|
52.32 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
(200 |
) |
|
|
50.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, end of year |
|
|
153,050 |
|
|
$ |
53.02 |
|
|
|
5.60 |
|
|
$ |
8,401 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest |
|
|
106,740 |
|
|
$ |
51.56 |
|
|
|
4.58 |
|
|
$ |
6,015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at end of year |
|
|
46,310 |
|
|
$ |
56.38 |
|
|
|
7.96 |
|
|
$ |
2,386 |
|
Information related to the stock option plan follows:
|
|
2017 |
|
|
2016 |
|
||
Intrinsic value of options exercised |
|
$ |
5,450 |
|
|
$ |
309 |
|
Cash received from options exercised |
|
|
5,754 |
|
|
|
946 |
|
Tax benefit realized from options exercised |
|
|
1,338 |
|
|
|
(15 |
) |
Weighted average fair value of options granted |
|
|
- |
|
|
|
15.41 |
|
Total compensation cost from stock options that has been charged against income was $799,000 for 2017 and $403,000 for 2016. The total income tax benefit was $317,000 and $158,000 for 2017 and 2016.
As of year-end 2017, there was $649,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.02 years.
Restricted Performance Shares : Restricted performance shares carry voting and dividend rights; however, sale of the shares is restricted prior to vesting, which is five years and subject to continued employment. Compensation expense is recognized over the vesting period of the shares based on the market value of the shares at issue date. Compensation expense related to the vesting of restricted performance shares totaled $4,003,000 and $2,062,000 for 2017 and 2016.
(Continued)
28 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 0 - STOCK-BASED COMPENSATION (Continued)
A summary of changes in the Company’s nonvested restricted performance shares for 2017 follows:
|
|
|
|
|
|
Weighted - Average |
|
|
|
|
|
|
|
|
Grant-Date |
|
|
Nonvested Shares |
|
Shares |
|
|
Fair Value |
|
||
|
|
|
|
|
|
|
|
|
Nonvested at beginning of year |
|
|
128,150 |
|
|
$ |
55.49 |
|
Granted |
|
|
- |
|
|
|
- |
|
Vested |
|
|
(72,570 |
) |
|
|
54.94 |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Nonvested at end of year |
|
|
55,580 |
|
|
$ |
56.20 |
|
As of year-end 2017, there was $3,040,000 of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 2.07 years. The total fair value of shares vested during 2017 and 2016 was $7,378,000 and $2,317,200. The tax benefit realized from restricted stock performance shares vested during 2017 and 2016 was $1,192,000 and $906,000.
NOTE 11 - COMMITMENTS, CONTINGENT LIABILITIES, AND CONCENTRATIONS OF CREDIT RISK
At year-end 2017 and 2016, reserves of $40,374,000 and $43,792,000 were required as cash on hand or on deposit with the Federal Reserve Bank.
Some financial instruments, such as loan commitments, credit lines, letters of credit, and overdraft protection, are issued to meet customer financing needs. These are agreements to provide credit or to support the credit of others, as long as conditions established in the contract are met, and usually have expiration dates. Commitments may expire without being used. Off-balance-sheet risk to credit loss exists up to the face amount of these instruments, although material losses are not anticipated. The same credit policies are used to make such commitments as are those used for loans, including obtaining collateral at exercise of the commitment.
The contractual amount of financial instruments with off-balance-sheet risk was as follows at year end:
|
|
December 31, 2017 |
|
|
December 31, 2016 |
|
||||||||||
|
|
Fixed Rate |
|
|
Variable Rate |
|
|
Fixed Rate |
|
|
Variable Rate |
|
||||
Unused lines of credit |
|
$ |
2,432 |
|
|
|
340,268 |
|
|
$ |
5,499 |
|
|
|
328,086 |
|
Standby letters of credit |
|
|
- |
|
|
|
20,664 |
|
|
|
50 |
|
|
|
22,154 |
|
Financial instruments that potentially subject the Company to concentrations of credit risk include non-interest-bearing deposits in and federal funds sold to other financial institutions.
The Company has executed change in control agreements with certain officers of the Company. Upon a change of control as defined in the agreements, the certain officers will be entitled to benefits as specified in the agreements.
(Continued)
29 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 2 - REGULATORY CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2017 is 1.25% and 0.625% in 2016. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of December 31, 2017, the Company and Bank meet all capital adequacy requirements to which they are subject.
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At year-end 2017 and 2016, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
(Continued)
30 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 1 2 - REGULATORY CAPITAL MATTERS (Continued)
Actual and required capital amounts (in thousands) and ratios are presented below at year-end.
|
|
|
|
|
|
|
|
|
|
Minimum Required for |
|
|
Minimum Required |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Capital Adequacy |
|
|
To Be Well Capitalized |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Purposes Plus Capital |
|
|
Under Prompt Corrective |
|
||||||||||
|
|
Actual |
|
|
Conservation Buffer |
|
|
Action Regulations |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
117,783 |
|
|
|
11.79 |
% |
|
$ |
92,431 |
|
|
|
9.250 |
% |
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
108,377 |
|
|
|
10.92 |
|
|
|
91,831 |
|
|
|
9.250 |
|
|
$ |
99,277 |
|
|
|
10.00 |
% |
Tier 1 (Core) capital to risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
107,039 |
|
|
|
10.71 |
|
|
|
72,446 |
|
|
|
7.250 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
97,633 |
|
|
|
9.83 |
|
|
|
71,976 |
|
|
|
7.250 |
|
|
|
79,422 |
|
|
|
8.00 |
|
Common Tier 1 (CET1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
97,039 |
|
|
|
9.71 |
|
|
|
57,457 |
|
|
|
5.750 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
97,633 |
|
|
|
9.83 |
|
|
|
57,084 |
|
|
|
5.750 |
|
|
|
64,530 |
|
|
|
6.50 |
|
Tier 1 (Core) capital to average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
107,039 |
|
|
|
9.37 |
|
|
|
45,713 |
|
|
|
4.00 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
97,633 |
|
|
|
8.59 |
|
|
|
45,453 |
|
|
|
4.00 |
|
|
|
56,816 |
|
|
|
5.00 |
|
2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capital to risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
111,519 |
|
|
|
12.36 |
% |
|
$ |
77,792 |
|
|
|
8.625 |
% |
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
99,629 |
|
|
|
11.13 |
|
|
|
77,220 |
|
|
|
8.625 |
|
|
$ |
89,531 |
|
|
|
10.00 |
% |
Tier 1 (Core) capital to risk-weighted assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
100,848 |
|
|
|
11.18 |
|
|
|
59,753 |
|
|
|
6.625 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
88,958 |
|
|
|
9.94 |
|
|
|
59,314 |
|
|
|
6.625 |
|
|
|
71,624 |
|
|
|
8.00 |
|
Common Tier 1 (CET1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
90,848 |
|
|
|
10.07 |
|
|
|
46,224 |
|
|
|
5.125 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
88,958 |
|
|
|
9.94 |
|
|
|
45,884 |
|
|
|
5.125 |
|
|
|
58,195 |
|
|
|
6.50 |
|
Tier 1 (Core) capital to average assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
100,848 |
|
|
|
8.60 |
|
|
|
46,931 |
|
|
|
4.00 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
88,958 |
|
|
|
7.63 |
|
|
|
46,665 |
|
|
|
4.00 |
|
|
|
58,331 |
|
|
|
5.00 |
|
The primary source of funds to allow the Company to pay dividends to its stockholders is from dividends received from its bank subsidiary. Under provisions of the Illinois Banking Act, dividends may not be declared by a bank except out of retained net profits. In addition, all dividends paid by the Bank are restricted by the capital adequacy guidelines of the FDIC. The Bank’s retained earnings available for dividends approximated $20,164,000 at year-end 2017.
NOTE 13 - DERIVATIVES
During 2012, 2013 and 2016, the Company, entered into loan and interest rate swap transactions with customers whereby the Company receives interest at a fixed rate and pays interest at a variable rate indexed to LIBOR. Simultaneous with the execution of the swap agreement with its customers the Company entered into an interest rate swap agreement, indexed to LIBOR, with a correspondent bank whereby the
(Continued)
31 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 13 - DERIVATIVE S (Continued)
Bank pays interest at a fixed rate and receives interest at a variable rate. The notional amounts of the customer derivative instrument and the offsetting counterparty derivative instrument was $4,230,000 and $7,097,000 at year-end 2017 and 2016, respectively. These derivative contracts do not qualify for hedge accounting. These instruments are interest rate swaps .
At year-end 2017 and 2016, the information pertaining to outstanding interest rate swap agreements whereby the Bank makes payments at a variable rate determined by a specified index (1 month LIBOR) in exchange for receiving payments at a fixed rate is as follows:
|
|
2017 |
|
|
2016 |
|
||
|
|
|
|
|
|
|
|
|
Included in other assets |
|
$ |
18 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
Included in other liabilities |
|
$ |
18 |
|
|
$ |
20 |
|
|
|
|
|
|
|
|
|
|
Included in other income |
|
$ |
- |
|
|
$ |
- |
|
NOTE 14 - EARNINGS PER SHARE
The following table presents a reconciliation of the components used to compute basic and diluted income per share for the years ended:
|
|
2017 |
|
|
2016 |
|
||
Basic income per share |
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
1,675,204 |
|
|
|
1,648,609 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
Basic income per share |
|
|
4.69 |
|
|
|
3.81 |
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
1,675,204 |
|
|
|
1,648,609 |
|
Dilutive effect of stock options |
|
|
35,414 |
|
|
|
23,851 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
1,710,618 |
|
|
|
1,672,460 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
Diluted income per share |
|
|
4.59 |
|
|
|
3.75 |
|
There were 20,800 and 110,690 potential common shares that were antidilutive for the years ended 2017 and 2016, respectively.
The Company periodically repurchases its shares as they become available. The Company repurchased 124,496 shares in 2017 and 33,581 shares in 2016 under these repurchase authorizations. During 2017, a total of 113,142 shares of common stock were repurchased related to the cashless exercise of stock options by officers and directors and the buyback of vested restricted performance shares from officers for tax withholding purposes.
(Continued)
32 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
F air value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Securities Available for Sale : The fair value of securities are determined by quoted market prices, if available (Level 1 inputs). For securities where quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Impaired Loans : At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available. Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Derivative : The fair value of the interest rate swap is based on valuation model using observable market data as of the measurement date (Level 2).
Assets and (Liabilities) Measured on a Recurring Basis : Assets and (liabilities) measured at fair value at year end on a recurring basis are summarized below:
|
|
Level 1 |
|
|
Level 2 |
|
||||||||||
|
|
2017 |
|
|
2016 |
|
|
2017 |
|
|
2016 |
|
||||
Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
26,800 |
|
|
$ |
31,920 |
|
|
$ |
- |
|
|
$ |
- |
|
U.S. government-sponsored entities |
|
|
- |
|
|
|
- |
|
|
|
84,138 |
|
|
|
74,611 |
|
States and political subdivisions |
|
|
- |
|
|
|
- |
|
|
|
28,488 |
|
|
|
34,282 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
- |
|
|
$ |
- |
|
|
$ |
18 |
|
|
$ |
(20 |
) |
Mirror interest rate swap |
|
|
- |
|
|
|
- |
|
|
|
(18 |
) |
|
|
20 |
|
There were no transfers between Level 1 and Level 2 during 2017 or 2016.
(Continued)
33 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 15 - FAIR VALUES (Continued)
Assets Measured on a Non-Recurring Basis : Assets measured at fair value at year end on a non-recurring basis are summarized below:
|
|
Level 3 |
|
|||||
|
|
2017 |
|
|
2016 |
|
||
Impaired loans: |
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
271 |
|
|
$ |
1,868 |
|
Commercial real estate |
|
|
159 |
|
|
|
341 |
|
Home equity - first liens |
|
|
- |
|
|
|
152 |
|
Home equity - second liens |
|
|
- |
|
|
|
287 |
|
Installment and other |
|
|
13 |
|
|
|
100 |
|
For impaired loans carried at fair value, the following represents impaired loan balances and valuation allowances on those impaired loans at year-end and the provision recorded on the loans during the years then ended:
|
|
2017 |
|
|
2016 |
|
||
Impaired loans with allowance for loan losses allocated |
|
$ |
742 |
|
|
$ |
3,878 |
|
Valuation allowance on impaired loans |
|
|
(299 |
) |
|
|
(1,130 |
) |
Net carrying balance of impaired loans |
|
$ |
443 |
|
|
$ |
2,748 |
|
Additional provision recognized during the year |
|
$ |
- |
|
|
$ |
116 |
|
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value non-recurring basis at year-end 2017 was as follows:
|
|
|
|
|
|
|
|
|
|
Range |
|
|
|
|
|
|
Valuation |
|
|
|
(Weighted |
|
|
Fair value |
|
|
Technique(s) |
|
Unobservable Input(s) |
|
Average) |
|
Impaired loans: |
|
|
|
|
|
Sales comparison |
|
Adjustment for differences |
|
|
|
|
|
|
|
|
approach |
|
between comparable sales |
|
|
Commercial business |
|
$ |
271 |
|
|
|
|
|
|
10%-40% (25%) |
Commercial real estate |
|
|
159 |
|
|
|
|
|
|
0-25% (11%) |
Home equity - first liens |
|
|
- |
|
|
|
|
|
|
0-25% (11%) |
Home equity - second liens |
|
|
- |
|
|
|
|
|
|
0-25% (11%) |
Installment and other |
|
|
13 |
|
|
|
|
|
|
0-20% (7%) |
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value non-recurring basis at year-end 2016 was as follows:
|
|
|
|
|
|
|
|
|
|
Range |
|
|
|
|
|
|
Valuation |
|
|
|
(Weighted |
|
|
Fair value |
|
|
Technique(s) |
|
Unobservable Input(s) |
|
Average) |
|
Impaired loans: |
|
|
|
|
|
Sales comparison |
|
Adjustment for differences |
|
|
|
|
|
|
|
|
approach |
|
between comparable sales |
|
|
Commercial business |
|
$ |
1,868 |
|
|
|
|
|
|
10%-40% (25%) |
Commercial real estate |
|
|
341 |
|
|
|
|
|
|
0-25% (11%) |
Home equity - first liens |
|
|
152 |
|
|
|
|
|
|
0-25% (11%) |
Home equity - second liens |
|
|
287 |
|
|
|
|
|
|
0-25% (11%) |
Installment and other |
|
|
100 |
|
|
|
|
|
|
0-20% (7%) |
(Continued)
34 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 15 - FAIR VALUES (Continued)
Fair Value of Financial Instruments : At year-end 2017 and 2016, the carrying amount and estimated fair value of the financial instruments not previously presented are as follows:
|
|
|
|
|
|
Fair Value Measurements at December 31, 2017 |
|
|||||||||||||
|
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
80,113 |
|
|
$ |
80,113 |
|
|
|
- |
|
|
|
- |
|
|
$ |
80,113 |
|
Other investments |
|
|
3,345 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Loans, net (less impaired loans at fair value) |
|
|
902,926 |
|
|
|
- |
|
|
|
- |
|
|
|
903,386 |
|
|
|
903,386 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrued interest receivable |
|
|
3,163 |
|
|
|
- |
|
|
|
- |
|
|
|
3,163 |
|
|
|
3,163 |
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,038,381 |
|
|
|
- |
|
|
$ |
1,037,007 |
|
|
|
- |
|
|
$ |
1,037,007 |
|
Subordinated debentures |
|
|
10,000 |
|
|
|
- |
|
|
|
9,600 |
|
|
|
- |
|
|
|
9,600 |
|
Accrued interest payable |
|
|
662 |
|
|
|
- |
|
|
|
662 |
|
|
|
- |
|
|
|
662 |
|
|
|
|
|
|
|
Fair Value Measurements at December 31, 2016 |
|
|||||||||||||
|
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
83,863 |
|
|
$ |
83,863 |
|
|
|
- |
|
|
|
- |
|
|
$ |
83,863 |
|
Other investments |
|
|
3,304 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Loans, net (less impaired loans at fair value) |
|
|
817,387 |
|
|
|
- |
|
|
|
- |
|
|
|
817,861 |
|
|
|
817,861 |
|
Accrued interest receivable |
|
|
2,570 |
|
|
|
- |
|
|
|
- |
|
|
|
2,570 |
|
|
|
2,570 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
963,736 |
|
|
|
- |
|
|
$ |
964,059 |
|
|
|
- |
|
|
$ |
964,059 |
|
Subordinated debentures |
|
|
10,000 |
|
|
|
- |
|
|
|
8,200 |
|
|
|
- |
|
|
|
8,200 |
|
Accrued interest payable |
|
|
656 |
|
|
|
- |
|
|
|
656 |
|
|
|
- |
|
|
|
656 |
|
The following assumptions were used. The estimated fair values for cash and cash equivalents; accrued interest receivable; demand, NOW, money market, and savings deposits; variable rate loans; and accrued interest payable are considered to approximate their carrying values. The estimated fair value for loans is based on estimates of the rate the Company would charge for similar loans applied for the time period until estimated payment and considering recent third party loan portfolio sales. The fair value estimate of loans does not represent an exit price. The estimated fair value of certificates of deposit is based on estimates of the rate the Company pays on such deposits, applied for the time period until maturity. Fair value of subordinated debentures is based on current rates for similar financing arrangements and with consideration to change in interest rate structure from a fixed rate to a variable rate in March 2010. It was not practicable to determine the fair value of FHLB or FRB stock due to restrictions placed on its transferability. Loan commitments are not included in the table above as their estimated fair value is immaterial.
Other assets and liabilities of the Company that are not defined as financial instruments, such as property and equipment, are not included in the above disclosures.
(Continued)
35 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Note 16 – PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The following are the condensed balance sheets and statements of income and cash flows for First Evanston Bancorp, Inc. as of and for the year ended December 31, 2017 and 2016.
CONDENSED BALANCE SHEETS
December 31, 2017 and 2016
(Dollars in thousands)
|
|
2017 |
|
|
2016 |
|
||
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
3,382 |
|
|
$ |
5,704 |
|
Investment in Bank Subsidiary |
|
|
96,634 |
|
|
|
88,436 |
|
Premises and equipment, net |
|
|
6,490 |
|
|
|
6,607 |
|
Accrued interest and other assets |
|
|
- |
|
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
106,506 |
|
|
$ |
100,769 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Subordinated debentures |
|
$ |
10,000 |
|
|
$ |
10,000 |
|
Accrued interest and other liabilities |
|
|
466 |
|
|
|
443 |
|
Total Liabilities |
|
|
10,466 |
|
|
|
10,433 |
|
|
|
|
|
|
|
|
|
|
Stockholders’ equity |
|
|
96,040 |
|
|
|
90,326 |
|
|
|
|
|
|
|
|
|
|
Total Liabilities and stockholders’ equity |
|
$ |
106,506 |
|
|
$ |
100,769 |
|
(Continued)
36 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Note 16 – PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF INCOME
December 31, 2017 and 2016
(Dollars in thousands)
|
|
2017 |
|
|
2016 |
|
||
Income |
|
|
|
|
|
|
|
|
Rental income |
|
$ |
916 |
|
|
$ |
916 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
301 |
|
|
|
250 |
|
Other |
|
|
649 |
|
|
|
610 |
|
|
|
|
950 |
|
|
|
860 |
|
Income (loss) before income tax and undistributed subsidiary income |
|
|
(34 |
) |
|
|
56 |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(13 |
) |
|
|
22 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before undistributed subsidiary income |
|
|
(21 |
) |
|
|
34 |
|
|
|
|
|
|
|
|
|
|
Equity in earnings of bank subsidiary |
|
|
7,876 |
|
|
|
6,243 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
(Continued)
37 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
Note 16 – PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
CONDENSED STATEMENTS OF CASH FLOWS
December 31, 2017 and 2016
(Dollars in thousands)
|
|
2017 |
|
|
2016 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,855 |
|
|
$ |
6,277 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
174 |
|
|
|
174 |
|
Equity in earnings of bank subsidiary |
|
|
(7,876 |
) |
|
|
(6,243 |
) |
Change in accrued interest and other assets |
|
|
22 |
|
|
|
(22 |
) |
Change in accrued interest and other liabilities |
|
|
23 |
|
|
|
(77 |
) |
Net cash from operating activities |
|
|
198 |
|
|
|
109 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Payments for investments in bank subsidiary |
|
|
(799 |
) |
|
|
(503 |
) |
Premises and equipment expenditures |
|
|
(57 |
) |
|
|
- |
|
Net cash used in investing activities |
|
|
(856 |
) |
|
|
(503 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock from |
|
|
|
|
|
|
|
|
exercise of options, including tax benefit |
|
|
10,557 |
|
|
|
3,512 |
|
Purchase of treasury stock |
|
|
(12,221 |
) |
|
|
(1,920 |
) |
Net cash from financing activities |
|
|
(1,664 |
) |
|
|
1,592 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
(2,322 |
) |
|
|
1,198 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
5,704 |
|
|
|
4,506 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
3,382 |
|
|
$ |
5,704 |
|
(Continued)
38 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 17 – UNAUDITED QUARTERLY RESULTS OF OPERATIONS
|
|
2017 Quarters Ended |
|
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
|
||||
Interest income |
|
$ |
9,562 |
|
|
$ |
9,857 |
|
|
$ |
10,503 |
|
|
$ |
10,716 |
|
|
Interest expense |
|
|
811 |
|
|
|
954 |
|
|
|
1,192 |
|
|
|
1,307 |
|
|
Net interest income |
|
|
8,751 |
|
|
|
8,903 |
|
|
|
9,311 |
|
|
|
9,409 |
|
|
Provision for loan losses |
|
|
300 |
|
|
|
300 |
|
|
|
150 |
|
|
|
150 |
|
|
Net interest income after provision for loan losses |
|
|
8,451 |
|
|
|
8,603 |
|
|
|
9,161 |
|
|
|
9,259 |
|
|
Non-interest income |
|
|
1,347 |
|
|
|
1,416 |
|
|
|
1,419 |
|
|
|
1,399 |
|
|
Non-interest expense |
|
|
6,796 |
|
|
|
6,830 |
|
|
|
7,135 |
|
|
|
9,995 |
|
1 |
Income before income taxes |
|
|
3,002 |
|
|
|
3,189 |
|
|
|
3,445 |
|
|
|
663 |
|
|
Income tax expense (benefit) |
|
|
1,128 |
|
|
|
1,226 |
|
|
|
1,366 |
|
|
(1,276) |
|
2 |
|
Net income |
|
$ |
1,874 |
|
|
$ |
1,963 |
|
|
$ |
2,079 |
|
|
$ |
1,939 |
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.11 |
|
|
$ |
1.18 |
|
|
$ |
1.24 |
|
|
$ |
1.16 |
|
|
Diluted |
|
$ |
1.10 |
|
|
$ |
1.15 |
|
|
$ |
1.22 |
|
|
$ |
1.12 |
|
|
|
|
2016 Quarters Ended |
|
|||||||||||||
|
|
March 31 |
|
|
June 30 |
|
|
September 30 |
|
|
December 31 |
|
||||
Interest income |
|
$ |
8,189 |
|
|
$ |
8,259 |
|
|
$ |
8,691 |
|
|
$ |
8,938 |
|
Interest expense |
|
|
685 |
|
|
|
730 |
|
|
|
802 |
|
|
|
841 |
|
Net interest income |
|
|
7,504 |
|
|
|
7,529 |
|
|
|
7,889 |
|
|
|
8,097 |
|
Provision for loan losses |
|
|
225 |
|
|
|
225 |
|
|
|
225 |
|
|
|
225 |
|
Net interest income after provision for loan losses |
|
|
7,279 |
|
|
|
7,304 |
|
|
|
7,664 |
|
|
|
7,872 |
|
Non-interest income |
|
|
1,254 |
|
|
|
1,338 |
|
|
|
1,266 |
|
|
|
1,384 |
|
Non-interest expense |
|
|
5,968 |
|
|
|
6,047 |
|
|
|
6,242 |
|
|
|
7,040 |
|
Income before income taxes |
|
|
2,565 |
|
|
|
2,595 |
|
|
|
2,688 |
|
|
|
2,216 |
|
Income tax expense |
|
|
962 |
|
|
|
972 |
|
|
|
1,011 |
|
|
|
842 |
|
Net income |
|
$ |
1,603 |
|
|
$ |
1,623 |
|
|
$ |
1,677 |
|
|
$ |
1,374 |
|
Earnings per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.97 |
|
|
$ |
0.99 |
|
|
$ |
1.01 |
|
|
$ |
0.84 |
|
Diluted |
|
$ |
0.96 |
|
|
$ |
0.97 |
|
|
$ |
1.01 |
|
|
$ |
0.81 |
|
1 Includes the accelerated vesting of restricted performance shares and the accelerated vesting of certain stock options under the merger agreement.
2 Income tax benefit recognized due to $2.5 million in tax benefits related to the vesting of restricted performance shares and the exercise of stock options, offset by $1.5 million from the re-measurement of net deferred tax assets resulting from the change in the federal tax rate.
(Continued)
39 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2017 and 2016
(Table dollars in thousands, except per share data)
NOTE 18 – DEFINITIVE AGREEMENT
On November 27, 2017 the Company executed a definitive agreement with Byline Bancorp, Inc. (“Byline”). Byline will pay an aggregate of $27 million in cash and issue 3.994 shares of Byline common stock for each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the merger. The transaction is expected to close in the first half of 2018, subject to regulatory approvals, the approval of the Company’s and Byline’s shareholders and the satisfaction of customary closing conditions.
Under the merger agreement, the Company has agreed to certain operating limitations on its activities and the activities of its subsidiaries until the merger is completed or the merger agreement is terminated. In general, the Company is required to conduct business in the ordinary and usual course of business consistent with past practices. In certain instances, the Company may be required to obtain Byline’s prior written consent as specified in the merger agreement.
Under certain circumstances, the Company may be required to pay Byline a fee with respect to termination of the merger agreement in the amount of $6.35 million, plus all reasonable out-of-pocket expenses incurred by Byline up to $1.5 million. The Company may be required to reimburse Byline for its reasonable out-of-pocket expenses up to $1.5 million in the event that Byline terminates the merger agreement because the Company breaches its obligation to meet the minimum tangible common equity threshold as defined and specified in the merger agreement.
The Company is responsible for the payment of legal, professional and investment banking fees incurred on its behalf related to the merger. In 2017, the Company incurred $162,000 in merger related expenses.
40 .
EXHIBIT 99.2
FIRST EVANSTON BANCORP, INC.
Evanston, Illinois
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
FIRST EVANSTON BANCORP, INC.
CONDENSED CONSOLIDATED BALANCE SHEET
March 31, 2018
(UNAUDITED)
(Dollars in thousands)
See accompanying notes to condensed consolidated financial statements.
1 .
FIRST EVANSTON BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENT S OF INCOME
(UNAUDITED)
(Dollars in thousands, except per share data)
|
|
Three months ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Interest income |
|
|
|
|
|
|
|
|
Loans, including fees |
|
$ |
10,177 |
|
|
$ |
8,889 |
|
Taxable securities |
|
|
445 |
|
|
|
361 |
|
Tax-exempt securities |
|
|
109 |
|
|
|
112 |
|
Interest bearing deposits |
|
|
326 |
|
|
|
200 |
|
|
|
|
11,057 |
|
|
|
9,562 |
|
Interest expense |
|
|
|
|
|
|
|
|
Deposits |
|
|
1,348 |
|
|
|
734 |
|
Subordinated debentures |
|
|
87 |
|
|
|
69 |
|
FHLB advances and other |
|
|
- |
|
|
|
8 |
|
|
|
|
1,435 |
|
|
|
811 |
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
9,622 |
|
|
|
8,751 |
|
|
|
|
|
|
|
|
|
|
Provision for loan losses |
|
|
300 |
|
|
|
300 |
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
9,322 |
|
|
|
8,451 |
|
|
|
|
|
|
|
|
|
|
Other income |
|
|
|
|
|
|
|
|
Deposit service charges and fees |
|
|
484 |
|
|
|
486 |
|
Loan brokerage and other fees |
|
|
34 |
|
|
|
37 |
|
Trust department income |
|
|
661 |
|
|
|
563 |
|
Rental income |
|
|
40 |
|
|
|
41 |
|
Other income |
|
|
233 |
|
|
|
221 |
|
|
|
|
1,452 |
|
|
|
1,348 |
|
|
|
|
|
|
|
|
|
|
Other expense |
|
|
|
|
|
|
|
|
Salaries and benefits |
|
|
4,290 |
|
|
|
4,369 |
|
Occupancy expense |
|
|
494 |
|
|
|
467 |
|
Furniture and equipment expense |
|
|
168 |
|
|
|
179 |
|
Marketing expense |
|
|
239 |
|
|
|
214 |
|
Data processing |
|
|
624 |
|
|
|
581 |
|
FDIC insurance expense |
|
|
200 |
|
|
|
165 |
|
Legal and professional fees |
|
|
44 |
|
|
|
229 |
|
Other expenses |
|
|
909 |
|
|
|
593 |
|
|
|
|
6,968 |
|
|
|
6,797 |
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
3,806 |
|
|
|
3,002 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
1,051 |
|
|
|
1,128 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
|
|
|
|
|
|
|
|
|
Basic income per share |
|
$ |
1.65 |
|
|
$ |
1.12 |
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
$ |
1.60 |
|
|
$ |
1.10 |
|
See accompanying notes to condensed consolidated financial statements.
2 .
FIRST EVANSTON BANCORP, INC.
CONDENSED CONSOLIDATED S TATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(Dollars in thousands)
|
|
Three months ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
|
|
|
|
|
|
|
|
|
Other comprehensive income: |
|
|
|
|
|
|
|
|
Unrealized gains/losses on securities: |
|
|
|
|
|
|
|
|
Unrealized holding gain/(loss) arising during the period |
|
|
(578 |
) |
|
|
316 |
|
Reclassification adjustment for (gains) losses included in net income |
|
|
- |
|
|
|
- |
|
Tax effect |
|
|
164 |
|
|
|
(122 |
) |
Total other comprehensive income (loss) |
|
|
(414 |
) |
|
|
194 |
|
Comprehensive income |
|
$ |
2,341 |
|
|
$ |
2,068 |
|
See accompanying notes to condensed consolidated financial statements.
3 .
FIRST EVANSTON BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Three months ended March 31, 2018 and 2017
(UNAUDITED)
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Total |
|
||
|
|
Common |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
Stock- |
|
|||
|
|
Shares |
|
|
Common |
|
|
Paid-In |
|
|
Retained |
|
|
Treasury |
|
|
Comprehensive |
|
|
holders’ |
|
|||||||
|
|
Outstanding |
|
|
Stock |
|
|
Surplus |
|
|
Earnings |
|
|
Stock |
|
|
Income (loss) |
|
|
Equity |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018 |
|
|
1,669,808 |
|
|
$ |
417 |
|
|
$ |
45,650 |
|
|
$ |
67,249 |
|
|
$ |
(16,277 |
) |
|
$ |
(999 |
) |
|
$ |
96,040 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
2,755 |
|
|
|
- |
|
|
|
- |
|
|
|
2,755 |
|
Total other comprehensive loss |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(414 |
) |
|
|
(414 |
) |
Stock option expense |
|
|
- |
|
|
|
- |
|
|
|
63 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
63 |
|
Exercise of stock options |
|
|
8,960 |
|
|
|
2 |
|
|
|
452 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
454 |
|
Expense from earned restricted performance shares |
|
|
- |
|
|
|
- |
|
|
|
290 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
290 |
|
Purchase of treasury stock |
|
|
(5,500 |
) |
|
|
(1 |
) |
|
|
- |
|
|
|
- |
|
|
|
(592 |
) |
|
|
- |
|
|
|
(593 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018 |
|
|
1,673,268 |
|
|
$ |
418 |
|
|
$ |
46,455 |
|
|
$ |
70,004 |
|
|
$ |
(16,869 |
) |
|
$ |
(1,413 |
) |
|
$ |
98,595 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017 |
|
|
1,684,324 |
|
|
$ |
421 |
|
|
$ |
35,121 |
|
|
$ |
59,394 |
|
|
$ |
(4,088 |
) |
|
$ |
(522 |
) |
|
$ |
90,326 |
|
Net income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,874 |
|
|
|
- |
|
|
|
- |
|
|
|
1,874 |
|
Total other comprehensive income |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
194 |
|
|
|
194 |
|
Stock option expense |
|
|
- |
|
|
|
- |
|
|
|
109 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
109 |
|
Expense from earned restricted performance shares |
|
|
- |
|
|
|
- |
|
|
|
552 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
552 |
|
Purchase of treasury stock |
|
|
(8,644 |
) |
|
|
(2 |
) |
|
|
- |
|
|
|
- |
|
|
|
(516 |
) |
|
|
- |
|
|
|
(518 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017 |
|
|
1,675,680 |
|
|
$ |
419 |
|
|
$ |
35,782 |
|
|
$ |
61,268 |
|
|
$ |
(4,604 |
) |
|
$ |
(328 |
) |
|
$ |
92,537 |
|
See accompanying notes to condensed consolidated financial statements.
4 .
FIRST EVANSTON BANCORP, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
|
|
Three months ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
193 |
|
|
|
108 |
|
Net securities and other amortization |
|
|
67 |
|
|
|
106 |
|
Provision for loan losses |
|
|
300 |
|
|
|
300 |
|
Stock compensation expense |
|
|
353 |
|
|
|
661 |
|
Change in accrued interest and other assets |
|
|
1,206 |
|
|
|
508 |
|
Change in accrued interest and other liabilities |
|
|
392 |
|
|
|
(947 |
) |
Net cash from operating activities |
|
|
5,266 |
|
|
|
2,610 |
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Purchases of securities available for sale |
|
|
- |
|
|
|
(14,257 |
) |
Redemption of other investments |
|
|
58 |
|
|
|
470 |
|
Proceeds from calls and maturities of securities available for sale |
|
|
3,565 |
|
|
|
11,290 |
|
Net change in loans |
|
|
4,295 |
|
|
|
(17,170 |
) |
Premises and equipment expenditures |
|
|
(41 |
) |
|
|
(24 |
) |
Net cash from investing activities |
|
|
7,877 |
|
|
|
(19,691 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Net change in deposits |
|
|
3,359 |
|
|
|
38,747 |
|
Borrowings on FHLB advances |
|
|
- |
|
|
|
10,000 |
|
Purchase of treasury stock |
|
|
(593 |
) |
|
|
(518 |
) |
Proceeds from issuance of common stock from exercise of options |
|
|
454 |
|
|
|
- |
|
Net cash from financing activities |
|
|
3,220 |
|
|
|
48,229 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
16,363 |
|
|
|
31,148 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
80,113 |
|
|
|
83,863 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
96,476 |
|
|
$ |
115,011 |
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
1,340 |
|
|
$ |
702 |
|
Taxes paid |
|
|
- |
|
|
|
400 |
|
See accompanying notes to condensed consolidated financial statements.
5 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Nature of Operations : The unaudited condensed financial statements include the accounts of First Evanston Bancorp, Inc. and its wholly owned subsidiary, First Bank & Trust (“the Bank”) (together referred to as “the Company”). All significant intercompany transactions and balances have been eliminated in consolidation.
These interim financial statements do not include all the information and footnotes required by generally accepted accounting principles for the complete financial statements and should be read in conjunction with the Company’s most recent annual financial statements. The condensed consolidated financial statements have not been audited by an independent auditor, but in the opinion of management, all adjustments, consisting of normal recurring accruals, considered necessary for a fair presentation of financial statements, have been reflected herein. The results for the three months ended March 31, 2018 are not necessarily indicative of the results expected for the year ending December 31, 2018 or for any other future time period.
The Company provides banking and trust services through its offices in the Chicago suburbs. The Company’s primary source of funding is deposit products including checking, savings, and certificates of deposits. The Company also has funding capacity through the Federal Home Loan Bank, Federal Reserve Bank, and federal funds lines available with other financial institutions. The Company’s primary lending products are commercial business and commercial real estate loans. Substantially all loans are secured by various forms of collateral, including business assets, consumer property, real estate, and other items, although borrower cash flow is the primary source of repayment. The Company’s exposure to credit risk is significantly affected by changes in the economy in the greater Chicago area. While the loan portfolio is substantially commercial based, the Bank is not dependent on any single borrower.
Use of Estimates : The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, reported amounts of income and expenses, and disclosures concerning reported amounts of contingent assets and liabilities at the date of the financial statements and during the reporting period. Actual results could differ from those estimates.
Subsequent Events: The Company has evaluated subsequent events for recognition, measurement, and disclosures.
Reclassifications: Some items were reclassified to conform to the current presentation.
Accounting Pronouncements Adopted:
In January 2016, the FASB issued ASU 2016-01, Financial Instruments (Topic 825): Recognition and Measurement of Financial Assets and Liabilities. The main provisions of the update are to eliminate the available for sale classification of accounting for equity securities and to adjust the fair value disclosures for financial instruments carried at amortized costs such that the disclosed fair values represent an exit price as opposed to an entry price. The provisions of this update will require that equity securities be carried at fair market value on the balance sheet and any periodic changes in value will be adjustments to the income statement. A practical expedient is provided for equity securities without a readily determinable fair value, such that these securities can be carried at cost less any impairment. The provisions of this update become effective for interim and annual periods beginning after December 15, 2017. Management has concluded that the requirements of this update do not have a material impact on the Company’s financial position, results of operations or cash flows.
(Continued)
6 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In March 2016, the FASB issued an update, ASU No. 2016-09, Stock Compensation: Improvements to Employee Share-Based Payment Accounting. The guidance in this update affects any entity that issues share-based payment awards including income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flow. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. Early adoption was permitted. The Company adopted ASU 2016-09 in 2017. The impact of the adoption for the three month period ended March 31, 2017 was not material. During the fourth quarter of 2017, the Company recorded an income tax benefit of $2.53 million as a result of the adoption. This amount would have been recorded in paid-in surplus under previous guidance.
Impact of Recent Accounting Pronouncements:
In May 2014, the Financial Accounting Standards Board (“FASB”) issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The main provisions of the update require the identification of performance obligations within a contract and require the recognition of revenue based on a stand-alone allocation of contract revenue to each performance obligation. Performance obligations may be satisfied and revenue recognized over a period of time if: 1) the customer simultaneously receives and consumes the benefits provided by the entity’s performance as the entity performs, or 2) the entity’s performance creates or enhances an asset that the customer controls as the asset is created or enhanced, or 3) the entity’s performance does not create an asset with an alternative use to the entity, and the entity has an enforceable right to payment for performance completed to date. For public entities the amendments of the update are effective for annual reporting periods beginning after December 15, 2017 including interim periods within that reporting period. As codified in ASU 2017-13, in an SEC staff announcement at the July 20, 2017, EITF meeting, specifically related to PBEs that qualify as a PBE solely due to the requirement to include or the inclusion of its financial statements or financial information in another entity’s SEC filing (certain PBEs), the SEC stated that it will allow certain PBEs to elect to apply the non-PBE effective dates for the revenue recognition and lease accounting standards only. For certain PBEs, the revenue recognition guidance is effective for Dec. 31, 2019, annual financial statements for calendar year-end entities. The Company made that election and did not adopt ASU 2014-09 on January 1, 2018. The Company’s revenue is primarily comprised of net interest income on financial asset and liabilities, which are excluded from the scope of ASU 2014-09. Management has concluded that the adoption of ASU 2014-09 will not have a material impact on the Company’s financial position, results of operations or cash flows. The most significant impact of ASU 2014-09 will be additional disclosures required for non-interest income.
In February 2016, the FASB issued an update (ASU No. 2016-02, Leases) creating FASB Topic 842, Leases. The guidance is intended to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and requiring more disclosures related to leasing transactions. The amendments in this update are effective for fiscal years, and interim periods within those years, beginning after December 15, 2018. Early adoption is permitted. Management has concluded that based on the Company’s current operating leases, the adoption of ASU 2016-02 will not have a material impact on the Company’s consolidated financial statements and related disclosures.
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326), commonly referred to as “CECL.” The provisions of the update eliminate the probable initial recognition threshold under current GAAP which requires reserves to be based on an incurred loss methodology. Under CECL, reserves required for financial assets measured at amortized cost will reflect an organization’s estimate of all expected credit losses over the expected term of the financial asset and thereby require the use of reasonable and supportable forecasts to estimate future credit losses. Because CECL encompasses all financial assets carried at amortized cost, the requirement that reserves be established based on an organization’s reasonable and supportable estimate of expected credit losses extends to held to maturity
(Continued)
7 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
debt securities. Under the provisions of the update, credit losses recognized on available for sale debt securities will be presented as an allowance as opposed to a write-down. In addition, CECL will modify the accounting for purchased loans, with credit deterioration since origination, so that reserves are established at the date of acquisition for purchased loans. Under current GAAP a purchased loan’s contractual balance is adjusted to fair value through a credit discount and no reserve is recorded on the purchased loan upon acquisition. Since under CECL reserves will be established for purchased loans at the time of acquisition, the accounting for purchased loans is made more comparable to the accounting for originated loans. Finally, increased disclosure requirements under CECL oblige organizations to present the currently required credit quality disclosures disaggregated by the year of origination or vintage. FASB expects that the evaluation of underwriting standards and credit quality trends by financial statement users will be enhanced with the additional vintage disclosures. For public entities, the amendments of the update are effective beginning January 1, 2020. Management has initiated an implementation committee to assist in assessing data and system needs for the new standard. Management anticipates the effect will be an increase to the allowance for loan losses upon adoption. However, the size of the overall increase is uncertain at this time.
In March 2017, the FASB issued ASU 2017-08, Receivables - Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities. The amendments in this Update shorten the amortization period for certain callable debt securities held at a premium. Specifically, the amendments require the premium to be amortized to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The provisions of this update become effective for interim and annual periods beginning after December 15, 2018. Management has concluded that based on the Company’s current portfolio of investment securities that the adoption of these amendments will result in shorter amortization period for investment security premiums; however, the impact will not be material to interest income on investment securities.
In February 2018, the FASB issued ASU 2018-02, Income Statement-Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. On December 22, 2017, the Tax Cuts and Jobs Act of 2017 was signed into law, which among other things reduced the maximum federal corporate tax rate from 35% to 21%. This Update addresses concerns about the guidance in current GAAP that requires deferred tax liabilities and assets to be adjusted for the effect of a change in tax laws or rates with the effect included in income from continuing operations in the reporting period that includes the enactment date. That guidance is applicable even in situations in which the related income tax effects of items in accumulated other comprehensive income were originally recognized in other comprehensive income (rather than in income from continuing operations). As a result of the adjustment of deferred taxes being required to be included in income from continuing operations, the tax effects of items within accumulated other comprehensive income (referred to as stranded tax effects for purposes of this Update) do not reflect the appropriate tax rate. This Update allows for an election to reclass between retained earnings and AOCI the impact of the federal income tax rate change. The amendments in this Update are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early adoption of the amendments of this Update is permitted. The adoption of the standard is not expected to have a material impact to the financial statements.
(Continued)
8 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 2 - SECURITIES AVAILABLE FOR SALE
The fair value of securities available for sale and the related gross unrealized gains and losses recognized in accumulated other comprehensive income were as follows:
|
|
|
|
|
|
Gross |
|
|
Gross |
|
|
|
|
|
||
|
|
Amortized |
|
|
Unrealized |
|
|
Unrealized |
|
|
Fair |
|
||||
|
|
Cost |
|
|
Gains |
|
|
Losses |
|
|
Value |
|
||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
26,929 |
|
|
$ |
- |
|
|
$ |
(197 |
) |
|
$ |
26,732 |
|
U.S. government-sponsored entities |
|
|
83,088 |
|
|
|
- |
|
|
|
(1,383 |
) |
|
|
81,705 |
|
States and political subdivisions |
|
|
27,174 |
|
|
|
1 |
|
|
|
(397 |
) |
|
|
26,778 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
137,191 |
|
|
$ |
1 |
|
|
$ |
(1,977 |
) |
|
$ |
135,215 |
|
The fair value of securities available for sale at March 31, 2018 by contractual maturity was as follows:
|
|
Amortized |
|
|
|
|
|
|
|
|
Cost |
|
|
Fair Value |
|
||
Due in one year or less |
|
$ |
30,975 |
|
|
$ |
30,864 |
|
Due from one to five years |
|
|
105,905 |
|
|
|
104,052 |
|
Due from five years through ten years |
|
|
311 |
|
|
|
299 |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
137,191 |
|
|
$ |
135,215 |
|
Securities with a carrying value of $101,753,000 at March 31, 2018 were pledged to secure public deposits and for other purposes.
At March 31, 2018, there were no holdings of securities of any one issuer, other than the U.S. Government and its agencies, in an amount greater than 10% of stockholders’ equity.
Securities with unrealized losses at March 31, 2018 aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position are as follows:
|
|
Less Than 12 Months |
|
|
12 Months or More |
|
|
Total |
|
|||||||||||||||
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
|
Fair |
|
|
Unrealized |
|
||||||
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
|
Value |
|
|
Loss |
|
||||||
March 31, 2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
19,784 |
|
|
$ |
(140 |
) |
|
$ |
5,948 |
|
|
$ |
(57 |
) |
|
$ |
25,732 |
|
|
$ |
(197 |
) |
U.S. government-sponsored entities |
|
|
31,370 |
|
|
|
(636 |
) |
|
|
50,335 |
|
|
|
(747 |
) |
|
|
81,705 |
|
|
|
(1,383 |
) |
State and political subdivisions |
|
|
20,427 |
|
|
|
(274 |
) |
|
|
4,374 |
|
|
|
(123 |
) |
|
|
24,801 |
|
|
|
(397 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total temporarily impaired |
|
$ |
72,311 |
|
|
$ |
(1,050 |
) |
|
$ |
60,657 |
|
|
$ |
(927 |
) |
|
$ |
132,238 |
|
|
$ |
(1,977 |
) |
The unrealized losses at March 31, 2018 have not been recognized into income because the issuers’ bonds are of high credit quality, management does not intend to sell and it is not more likely than not that management would be required to sell the securities prior to their anticipated recovery, and the decline in fair value is largely due to the current and projected rate environment and lower market liquidity.
(Continued)
9 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 2 - SECURITIES AVAILABLE FOR SALE (Continued)
U.S. government-sponsored entities primarily include bonds issued by the Federal Farm Credit Bank, Federal Home Loan Bank, Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. State and political subdivisions include taxable and tax-exempt bonds issued by various municipalities.
NOTE 3 - LOANS
Loans were as follows:
|
|
March 31, |
|
|
|
|
2018 |
|
|
|
|
|
|
|
Commercial business |
|
$ |
366,722 |
|
Commercial real estate |
|
|
395,696 |
|
Residential real estate |
|
|
67,168 |
|
Home equity - first liens |
|
|
45,537 |
|
Home equity - second liens |
|
|
26,131 |
|
Installment and other |
|
|
9,314 |
|
Total gross loans |
|
$ |
910,568 |
|
Deferred loan fees |
|
|
(736 |
) |
Allowance for loan losses |
|
|
(11,058 |
) |
|
|
|
|
|
|
|
$ |
898,774 |
|
The Company has sold portions of certain loans to other unrelated entities; however, the sales do not qualify for sale accounting treatment. Therefore, the Company has recorded the entire loan balance on the consolidated balance sheet and has recorded the sold portion as borrowings included in other liabilities on the consolidated balance sheet in a total amount of $1,215,000 as of March 31, 2018.
Loans to related parties including commitments were $6,186,000 at March 31, 2018.
(Continued)
10 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
Activity in the allowance for loan losses by portfolio segment was as follows for the three month periods ended March 31, 2018 and 2017:
|
|
Three months ended March 31, 2018 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Home Equity |
|
|
|
|
|
|
|
|
|
||
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
- First |
|
|
- Second |
|
|
Installment |
|
|
|
|
|
||||||
|
|
Business |
|
|
Real Estate |
|
|
Real Estate |
|
|
Liens |
|
|
Liens |
|
|
and Other |
|
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018 |
|
$ |
4,898 |
|
|
$ |
4,904 |
|
|
$ |
186 |
|
|
$ |
295 |
|
|
$ |
223 |
|
|
$ |
238 |
|
|
$ |
10,744 |
|
Charge-offs |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(6 |
) |
|
|
(6 |
) |
Recoveries |
|
|
5 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
15 |
|
|
|
20 |
|
Provision for loan losses |
|
|
(39 |
) |
|
|
136 |
|
|
|
25 |
|
|
|
185 |
|
|
|
16 |
|
|
|
(23 |
) |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2018 |
|
$ |
4,864 |
|
|
$ |
5,040 |
|
|
$ |
211 |
|
|
$ |
480 |
|
|
$ |
239 |
|
|
$ |
224 |
|
|
$ |
11,058 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended March 31, 2017 |
|
|||||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Home Equity |
|
|
Home Equity |
|
|
|
|
|
|
|
|
|
||
|
|
Commercial |
|
|
Commercial |
|
|
Residential |
|
|
- First |
|
|
- Second |
|
|
Installment |
|
|
|
|
|
||||||
|
|
Business |
|
|
Real Estate |
|
|
Real Estate |
|
|
Liens |
|
|
Liens |
|
|
and Other |
|
|
Total |
|
|||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for loan losses: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2017 |
|
$ |
5,251 |
|
|
$ |
4,641 |
|
|
$ |
247 |
|
|
$ |
238 |
|
|
$ |
159 |
|
|
$ |
135 |
|
|
$ |
10,671 |
|
Charge-offs |
|
|
(250 |
) |
|
|
(100 |
) |
|
|
- |
|
|
|
(78 |
) |
|
|
- |
|
|
|
(57 |
) |
|
|
(485 |
) |
Recoveries |
|
|
48 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
46 |
|
|
|
94 |
|
Provision for loan losses |
|
|
50 |
|
|
|
(13 |
) |
|
|
(5 |
) |
|
|
20 |
|
|
|
259 |
|
|
|
(11 |
) |
|
|
300 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2017 |
|
$ |
5,099 |
|
|
$ |
4,528 |
|
|
$ |
242 |
|
|
$ |
180 |
|
|
$ |
418 |
|
|
$ |
113 |
|
|
$ |
10,580 |
|
(Continued)
11 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
The balance in the allowance for loan losses and the recorded investment in loans based on impairment method were as follows as of March 31, 2018:
|
|
Loan Balances |
|
|
Allowance for Loan Losses |
|
||||||||||||||||||
|
|
Individually |
|
|
Collectively |
|
|
Total |
|
|
Individually |
|
|
Collectively |
|
|
|
|
|
|||||
|
|
Evaluated for |
|
|
Evaluated for |
|
|
Recorded |
|
|
Evaluated for |
|
|
Evaluated for |
|
|
|
|
|
|||||
|
|
Impairment |
|
|
Impairment |
|
|
Investment |
|
|
Impairment |
|
|
Impairment |
|
|
Total |
|
||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
622 |
|
|
$ |
366,100 |
|
|
$ |
366,722 |
|
|
$ |
132 |
|
|
$ |
4,732 |
|
|
$ |
4,864 |
|
Commercial real estate |
|
|
395 |
|
|
|
395,301 |
|
|
|
395,696 |
|
|
|
7 |
|
|
|
5,033 |
|
|
|
5,040 |
|
Residential real estate |
|
|
115 |
|
|
|
67,053 |
|
|
|
67,168 |
|
|
|
14 |
|
|
|
197 |
|
|
|
211 |
|
Home equity - first liens |
|
|
1,021 |
|
|
|
44,516 |
|
|
|
45,537 |
|
|
|
89 |
|
|
|
391 |
|
|
|
480 |
|
Home equity - second liens |
|
|
- |
|
|
|
26,131 |
|
|
|
26,131 |
|
|
|
- |
|
|
|
239 |
|
|
|
239 |
|
Installment and other |
|
|
146 |
|
|
|
9,168 |
|
|
|
9,314 |
|
|
|
107 |
|
|
|
117 |
|
|
|
224 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,299 |
|
|
$ |
908,269 |
|
|
$ |
910,568 |
|
|
$ |
349 |
|
|
$ |
10,709 |
|
|
$ |
11,058 |
|
The loan balances above do not include accrued interest receivable or deferred loan fees.
(Continued)
12 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
Troubled Debt Restructurings:
As of March 31, 2018, the Company has a recorded investment in troubled debt restructurings of $583,000. The Company has allocated $86,000 of specific reserves for those loans at March 31, 2018, and has committed to lend no additional amounts.
During 2018, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of 1 loan included one or a combination of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.
Loans modified as troubled debt restructurings, by class of loan, occurring during 2018 were as follows:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding Recorded |
|
|
Outstanding Recorded |
|
||
|
|
Number of Loans |
|
|
Investment |
|
|
Investment |
|
|||
Troubled Debt Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1 |
|
|
$ |
75 |
|
|
$ |
75 |
|
The troubled debt restructuring described above did not increase the allowance for loan losses during 2018 and resulted in no charge-offs during 2018.
During 2017, the terms of certain loans were modified as troubled debt restructurings. The modification of the terms of 1 loan included one or a combination of the following: a reduction of the stated interest rate of the loan; or an extension of the maturity date at a stated rate of interest lower than the current market rate for new debt with similar risk.
Loans modified as troubled debt restructurings, by class of loan, occurring during 2017 were as follows:
|
|
|
|
|
|
Pre-Modification |
|
|
Post-Modification |
|
||
|
|
|
|
|
|
Outstanding Recorded |
|
|
Outstanding Recorded |
|
||
|
|
Number of Loans |
|
|
Investment |
|
|
Investment |
|
|||
Troubled Debt Restructuring: |
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
1 |
|
|
$ |
35 |
|
|
$ |
35 |
|
The troubled debt restructurings described above did not increase the allowance for loan losses during 2017 and resulted in no charge-offs during 2017.
No loans modified as troubled debt restructurings experienced payment default during 2018 or 2017 within 12 months of the modification.
(Continued)
13 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
Loans individually evaluated for impairment were as follows as of March 31, 2018:
|
|
Unpaid |
|
|
|
|
|
|
Allowance for |
|
|
Average |
|
|
Interest |
|
|
Cash Basis |
|
|||||
|
|
Principal |
|
|
Recorded |
|
|
Loan Losses |
|
|
Recorded |
|
|
Income |
|
|
Interest |
|
||||||
|
|
Balance |
|
|
Investment |
|
|
Allocated |
|
|
Investment |
|
|
Recognized |
|
|
Recognized |
|
||||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With no related allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
266 |
|
|
$ |
231 |
|
|
$ |
- |
|
|
$ |
236 |
|
|
$ |
- |
|
|
$ |
- |
|
Commercial real estate |
|
|
212 |
|
|
|
212 |
|
|
|
- |
|
|
|
213 |
|
|
|
- |
|
|
|
- |
|
Residential real estate |
|
|
64 |
|
|
|
57 |
|
|
|
- |
|
|
|
60 |
|
|
|
2 |
|
|
|
- |
|
Home equity - first liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Home equity - second liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Installment and other |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
With an allowance recorded: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
|
703 |
|
|
|
391 |
|
|
|
132 |
|
|
|
401 |
|
|
|
- |
|
|
|
- |
|
Commercial real estate |
|
|
204 |
|
|
|
183 |
|
|
|
7 |
|
|
|
185 |
|
|
|
- |
|
|
|
- |
|
Residential real estate |
|
|
61 |
|
|
|
58 |
|
|
|
14 |
|
|
|
61 |
|
|
|
2 |
|
|
|
- |
|
Home equity - first liens |
|
|
1,027 |
|
|
|
1,021 |
|
|
|
89 |
|
|
|
632 |
|
|
|
6 |
|
|
|
- |
|
Home equity - second liens |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
Installment and other |
|
|
179 |
|
|
|
146 |
|
|
|
107 |
|
|
|
145 |
|
|
|
1 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,716 |
|
|
$ |
2,299 |
|
|
$ |
349 |
|
|
$ |
1,933 |
|
|
$ |
11 |
|
|
$ |
- |
|
(Continued)
14 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
The following table presents the aging of the recorded investment in past due loans as of March 31, 2018 by class of loans:
|
|
|
|
|
|
|
|
|
|
Greater Than |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30 – 59 |
|
|
60 – 89 |
|
|
90 Days Past |
|
|
|
|
|
|
|
|
|
|
|
|
|
|||
|
|
Days |
|
|
Days |
|
|
Due Still |
|
|
|
|
|
|
Loans Not |
|
|
|
|
|
||||
|
|
Past Due |
|
|
Past Due |
|
|
On Accrual |
|
|
Nonaccrual |
|
|
Past Due |
|
|
Total |
|
||||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
79 |
|
|
$ |
- |
|
|
$ |
- |
|
|
$ |
622 |
|
|
$ |
366,021 |
|
|
$ |
366,722 |
|
Commercial real estate |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
395 |
|
|
|
395,301 |
|
|
|
395,696 |
|
Residential real estate |
|
|
318 |
|
|
|
- |
|
|
|
- |
|
|
|
115 |
|
|
|
66,735 |
|
|
|
67,168 |
|
Home equity – first liens |
|
|
25 |
|
|
|
- |
|
|
|
- |
|
|
|
1,021 |
|
|
|
44,491 |
|
|
|
45,537 |
|
Home equity – second liens |
|
|
302 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
25,829 |
|
|
|
26,131 |
|
Installment and other |
|
|
56 |
|
|
|
13 |
|
|
|
4 |
|
|
|
146 |
|
|
|
9,095 |
|
|
|
9,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
780 |
|
|
$ |
13 |
|
|
$ |
4 |
|
|
$ |
2,299 |
|
|
$ |
907,472 |
|
|
$ |
910,568 |
|
(Continued)
15 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
Credit Quality Indicators:
The Bank categorizes loans into risk categories based on relevant information about the ability of borrowers to service their debt such as: current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. The Bank analyzes loans individually by classifying the loans as to credit risk. This analysis includes non-homogeneous loans, such as commercial and commercial real estate loans. This analysis is performed generally on a monthly basis but no less than quarterly. The risk category of homogeneous loans is evaluated when a loan becomes delinquent.
|
Special Mention . Loans classified as special mention have a potential weakness that deserves management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or of the institution’s credit position at some future date. |
|
Substandard . Loans classified as substandard are inadequately protected by the current net worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified have a well-defined weakness or weaknesses that jeopardize the liquidation of the debt. They are characterized by the distinct possibility that the institution will sustain some loss if the deficiencies are not corrected. |
|
Doubtful . Loans classified as doubtful have all the weaknesses inherent in those classified as substandard, with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of currently existing facts, conditions, and values, highly questionable and improbable. |
Loans not meeting the criteria above that are analyzed individually as part of the above described process are considered to be pass rated loans.
(Continued)
16 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 3 - LOANS (Continued)
As of March 31, 2018, and based on the most recent analysis performed, the risk category of loans by class of loans is as follows:
|
|
|
|
|
|
Special |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pass |
|
|
Mention |
|
|
Substandard |
|
|
Doubtful |
|
|
Total |
|
|||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
357,095 |
|
|
$ |
9,069 |
|
|
$ |
244 |
|
|
$ |
314 |
|
|
$ |
366,722 |
|
Commercial real estate |
|
|
381,499 |
|
|
|
6,712 |
|
|
|
7,485 |
|
|
|
- |
|
|
|
395,696 |
|
Residential real estate |
|
|
66,963 |
|
|
|
60 |
|
|
|
145 |
|
|
|
- |
|
|
|
67,168 |
|
Home equity - first liens |
|
|
43,947 |
|
|
|
569 |
|
|
|
1,021 |
|
|
|
- |
|
|
|
45,537 |
|
Home equity - second liens |
|
|
25,872 |
|
|
|
259 |
|
|
|
- |
|
|
|
- |
|
|
|
26,131 |
|
Installment and other |
|
|
9,168 |
|
|
|
- |
|
|
|
137 |
|
|
|
9 |
|
|
|
9,314 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
884,544 |
|
|
$ |
16,669 |
|
|
$ |
9,032 |
|
|
$ |
323 |
|
|
$ |
910,568 |
|
(Continued)
17 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 4 - STOCK-BASED COMPENSATION
The Company has a stock incentive plan (“the Plan”) that permits the issuance of stock options and restricted performance shares in order to attract and retain talented executives to manage the Company and the Bank. The Plan also provides for option grants to members of the Board of Directors of the Company and the Bank. At March 31, 2018, 1,240,000 shares of common stock have been authorized for issuance, of which 104,818 shares remain available for future grant as either stock options or restricted performance shares.
Stock Options : Options may be granted in the form of incentive stock options, non-qualified stock options, or a combination of both. The exercise price equals the fair value of a share of common stock as determined by the Compensation Committee on the grant date. Option exercise is subject to certain conditions, and options expire no later than ten years after the grant date. The option’s vesting period is determined by the Compensation Committee with each grant and has generally been from six months to five years.
The fair value of each option award is estimated on the date of grant using a closed form option valuation (Black-Scholes) model that uses the assumptions noted in the following table. Expected volatilities are based on historical volatilities of the Company’s common stock. The Company uses historical data to estimate option exercise and post-vesting termination behavior. The expected term of options granted is based on historical data and represents the period of time that options granted are expected to be outstanding, which takes into account that the options are not transferable. The risk-free interest rate for the expected term of the option is based on the U.S. Treasury yield curve in effect at the time of the grant.
There were no options granted for the three months ended March 31, 2018 or 2017.
A summary of the activity in the stock option plan for 2018 follows:
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
Average |
|
|
|
|
|
||
|
|
|
|
|
|
Average |
|
|
Remaining |
|
|
Aggregate |
|
|||
|
|
Number |
|
|
Exercise |
|
|
Contractual |
|
|
Intrinsic |
|
||||
|
|
of Options |
|
|
Price |
|
|
Term (Years) |
|
|
Value |
|
||||
Outstanding, beginning of year |
|
|
153,050 |
|
|
$ |
53.02 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
(8,960 |
) |
|
|
50.70 |
|
|
|
|
|
|
|
|
|
Expired |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2018 |
|
|
144,090 |
|
|
$ |
53.16 |
|
|
|
5.57 |
|
|
$ |
7,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested or expected to vest |
|
|
144,090 |
|
|
$ |
53.16 |
|
|
|
5.57 |
|
|
$ |
7,861 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at March 31, 2018 |
|
|
97,780 |
|
|
$ |
51.64 |
|
|
|
4.55 |
|
|
$ |
5,484 |
|
Information related to the stock option plan follows:
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Intrinsic value of options exercised |
|
$ |
507 |
|
|
$ |
- |
|
Cash received from options exercised |
|
|
454 |
|
|
|
- |
|
Tax benefit realized from options exercised |
|
|
- |
|
|
|
- |
|
Weighted average fair value of options granted |
|
|
- |
|
|
|
- |
|
(Continued)
18 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 4 - STOCK-BASED COMPENSATION (Continued)
Total compensation cost from stock options that has been charged against income was $63,000 and $109,000 for three months ended March 31, 2018 and 2017.
As of March 31, 2018, there was $586,000 of total unrecognized compensation cost related to nonvested stock options granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.88 years.
Restricted Performance Shares : Restricted performance shares carry voting and dividend rights; however, sale of the shares is restricted prior to vesting, which is five years and subject to continued employment. Compensation expense is recognized over the vesting period of the shares based on the market value of the shares at issue date. Compensation expense related to the vesting of restricted performance shares totaled $290,000 and $552,000 for the three months ended March 31, 2018 and 2017.
A summary of changes in the Company’s nonvested restricted performance shares through March 31, 2018 follows:
|
|
|
|
|
|
Weighted-Average |
|
|
|
|
|
|
|
|
Grant-Date |
|
|
Nonvested Shares |
|
Shares |
|
|
Fair Value |
|
||
|
|
|
|
|
|
|
|
|
Nonvested at beginning of year |
|
|
55,580 |
|
|
$ |
56.20 |
|
Granted |
|
|
- |
|
|
|
- |
|
Vested |
|
|
- |
|
|
|
- |
|
Forfeited |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Nonvested at March 31, 2018 |
|
|
55,580 |
|
|
$ |
56.20 |
|
As of March 31, 2018, there was $2,750,000 of total unrecognized compensation cost related to nonvested shares granted under the Plan. The cost is expected to be recognized over a weighted-average period of 1.88 years. The total fair value of shares vested as of March 31, 2018 was $0. The tax benefit realized from restricted stock performance shares vested $0 for the three months ended March 31, 2018.
NOTE 5 - REGULATORY CAPITAL MATTERS
Banks and bank holding companies are subject to regulatory capital requirements administered by federal banking agencies. Capital adequacy guidelines and, additionally for banks, prompt corrective action regulations, involve quantitative measures of assets, liabilities, and certain off-balance-sheet items calculated under regulatory accounting practices. Capital amounts and classifications are also subject to qualitative judgments by regulators. Failure to meet capital requirements can initiate regulatory action. The final rules implementing Basel Committee on Banking Supervision’s capital guidelines for U.S. banks (Basel III rules) became effective for the Company on January 1, 2015 with full compliance with all of the requirements being phased in over a multi-year schedule, and fully phased in by January 1, 2019. Under the Basel III rules, the Company must hold a capital conservation buffer above the adequately capitalized risk-based capital ratios. The capital conservation buffer is being phased in from 0.0% for 2015 to 2.50% by 2019. The capital conservation buffer for 2018 is 1.875%. The net unrealized gain or loss on available for sale securities is not included in computing regulatory capital. Management believes as of March 31, 2018, the Company and Bank meet all capital adequacy requirements to which they are subject.
(Continued)
19 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 5 - REGULATORY CAPITAL MATTERS (Continued)
Prompt corrective action regulations provide five classifications: well capitalized, adequately capitalized, undercapitalized, significantly undercapitalized, and critically undercapitalized, although these terms are not used to represent overall financial condition. If adequately capitalized, regulatory approval is required to accept brokered deposits. If undercapitalized, capital distributions are limited, as is asset growth and expansion, and capital restoration plans are required. At March 31, 2018, the most recent regulatory notifications categorized the Bank as well capitalized under the regulatory framework for prompt corrective action. There are no conditions or events since that notification that management believes have changed the institution’s category.
Actual and required capital amounts (in thousands) and ratios are presented below at March 31, 2018.
|
|
|
|
|
|
|
|
|
|
Minimum Required for |
|
|
Minimum Required |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Capital Adequacy |
|
|
To Be Well Capitalized |
|
||||||||||
|
|
|
|
|
|
|
|
|
|
Purposes Plus Capital |
|
|
Under Prompt Corrective |
|
||||||||||
|
|
Actual |
|
|
Conservation Buffer |
|
|
Action Regulations |
|
|||||||||||||||
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
|
Amount |
|
|
Ratio |
|
||||||
2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Capital (to RWA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
121,066 |
|
|
|
12.19 |
% |
|
$ |
98,059 |
|
|
|
9.875 |
% |
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
111,520 |
|
|
|
11.30 |
|
|
|
97,422 |
|
|
|
9.875 |
|
|
$ |
98,655 |
|
|
|
10.00 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tier 1 Capital (to RWA) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
110,008 |
|
|
|
11.08 |
|
|
|
78,199 |
|
|
|
7.875 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
100,462 |
|
|
|
10.18 |
|
|
|
77,691 |
|
|
|
7.875 |
|
|
|
78,924 |
|
|
|
8.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Tier 1 (CET1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
100,008 |
|
|
|
10.07 |
|
|
|
63,304 |
|
|
|
6.375 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
100,462 |
|
|
|
10.18 |
|
|
|
62,893 |
|
|
|
6.375 |
|
|
|
64,126 |
|
|
|
6.50 |
|
Tier 1 Capital (to average assets) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
|
110,008 |
|
|
|
9.43 |
|
|
|
46,648 |
|
|
|
4.00 |
|
|
N/A |
|
|
N/A |
|
||
Bank |
|
|
100,462 |
|
|
|
8.66 |
|
|
|
46,389 |
|
|
|
4.00 |
|
|
|
57,986 |
|
|
|
5.00 |
|
The primary source of funds to allow the Company to pay dividends to its stockholders is from dividends received from its bank subsidiary. Under provisions of the Illinois Banking Act, dividends may not be declared by a bank except out of retained net profits. In addition, all dividends paid by the Bank are restricted by the capital adequacy guidelines of the FDIC. The Bank’s retained earnings available for dividends approximated $21,525,000 at March 31, 2018.
NOTE 6 - EARNINGS PER SHARE
The following table presents a reconciliation of the components used to compute basic and diluted income per share for the periods ended:
|
|
Three months ended |
|
|||||
|
|
March 31, |
|
|||||
|
|
2018 |
|
|
2017 |
|
||
Basic income per share |
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
1,672,625 |
|
|
|
1,679,986 |
|
(Continued)
20 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 6 – EARNING PER SHARE (Continued)
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
Basic income per share |
|
|
1.65 |
|
|
|
1.12 |
|
|
|
|
|
|
|
|
|
|
Diluted income per share |
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding |
|
|
1,672,625 |
|
|
|
1,679,986 |
|
Dilutive effect of stock options |
|
|
54,313 |
|
|
|
26,318 |
|
|
|
|
|
|
|
|
|
|
Diluted weighted average common shares outstanding |
|
|
1,726,938 |
|
|
|
1,706,304 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
Diluted income per share |
|
|
1.60 |
|
|
|
1.10 |
|
There were 0 and 75,050 potential common shares that were antidilutive for the three months ended March 31, 2018 and 2017.
The Company periodically repurchases its shares as they become available. The Company repurchased 5,500 shares through March 31, 2018.
NOTE 7 - FAIR VALUES
F air value is the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. There are three levels of inputs that may be used to measure fair values:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets that the entity has the ability to access as of the measurement date.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about the assumptions that market participants would use in pricing an asset or liability.
Securities Available for Sale : The fair value of securities are determined by quoted market prices, if available (Level 1 inputs). For securities where quoted prices are not available, fair values are determined by matrix pricing, which is a mathematical technique widely used in the industry to value debt securities without relying exclusively on quoted prices for the specific securities but rather by relying on the securities’ relationship to other benchmark quoted securities (Level 2 inputs).
Impaired Loans : At the time a loan is considered impaired, it is valued at the lower of cost or fair value. Impaired loans carried at fair value generally receive specific allocations of the allowance for loan losses. For collateral dependent loans, fair value is commonly based on recent real estate appraisals. These appraisals may utilize a single valuation approach or a combination of approaches including comparable sales and the income approach. Adjustments are routinely made in the appraisal process by the independent appraisers to adjust for differences between the comparable sales and income data available.
(Continued)
21 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 7 – FAIR VALUES (Continued)
Such adjustments are usually significant and typically result in a Level 3 classification of the inputs for determining fair value. Non-real estate collateral may be valued using an appraisal, net book value per the borrower’s financial statements, or aging reports, adjusted or discounted based on management’s historical knowledge, changes in market conditions from the time of the valuation, and management’s expertise and knowledge of the client and client’s business, resulting in a Level 3 fair value classification. Impaired loans are evaluated on a quarterly basis for additional impairment and adjusted accordingly.
Derivative : The fair value of the interest rate swap is based on valuation model using observable market data as of the measurement date (Level 2).
Assets and (Liabilities) Measured on a Recurring Basis : Assets and (liabilities) measured at fair value at March 31, 2018 on a recurring basis are summarized below:
|
|
Level 1 |
|
|
Level 2 |
|
||
Securities: |
|
|
|
|
|
|
|
|
U.S. Treasury |
|
$ |
26,732 |
|
|
$ |
- |
|
U.S. government-sponsored entities |
|
|
- |
|
|
|
81,705 |
|
States and political subdivisions |
|
|
- |
|
|
|
26,778 |
|
|
|
|
|
|
|
|
|
|
Derivatives: |
|
|
|
|
|
|
|
|
Interest rate swap |
|
$ |
- |
|
|
$ |
32 |
|
Mirror interest rate swap |
|
|
- |
|
|
|
(32 |
) |
There were no transfers between Level 1 and Level 2 during the three months ended March 31, 2018.
Assets Measured on a Non-Recurring Basis : Assets measured at fair value at March 31, 2018 on a non-recurring basis are summarized below:
|
|
Level 3 |
|
|
Impaired loans: |
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
260 |
|
Commercial real estate |
|
|
175 |
|
Residential real estate |
|
|
44 |
|
Home equity - first liens |
|
|
932 |
|
Installment and other |
|
|
39 |
|
For impaired loans carried at fair value, the following represents impaired loan balances and valuation allowances on those impaired loans at year-end and the provision recorded on the loans during the period ended:
|
|
March 31, |
|
|
|
|
2018 |
|
|
|
|
|
|
|
Impaired loans with allowance for loan losses allocated |
|
$ |
1,799 |
|
Valuation allowance on impaired loans |
|
|
(349 |
) |
|
|
|
|
|
Net carrying balance of impaired loans |
|
$ |
1,450 |
|
Additional provision recognized during the period |
|
$ |
- |
|
(Continued)
22 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 7 – FAIR VALUES (Continued)
Quantitative information about level 3 fair value measurements for financial instruments measured at fair value non-recurring basis at March 31, 2018 was as follows:
|
|
|
|
|
|
|
|
|
|
Range |
|
|
|
|
|
|
Valuation |
|
|
|
(Weighted |
|
|
Fair value |
|
|
Technique(s) |
|
Unobservable Input(s) |
|
Average) |
|
Impaired loans: |
|
|
|
|
|
Sales comparison approach |
|
Adjustment for differences between comparable sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Commercial business |
|
$ |
260 |
|
|
|
|
|
|
10%-40% (25%) |
Commercial real estate |
|
|
175 |
|
|
|
|
|
|
0-25% (11%) |
Residential real estate |
|
|
44 |
|
|
|
|
|
|
0-25% (11%) |
Home equity - first liens |
|
|
932 |
|
|
|
|
|
|
0-25% (11%) |
Installment and other |
|
|
39 |
|
|
|
|
|
|
0-20% (7%) |
Fair Value of Financial Instruments : At March 31, 2018, the carrying amount and estimated fair value of the financial instruments not previously presented are as follows:
|
|
|
|
|
|
Fair Value Measurements at March 31, 2018 |
|
|||||||||||||
|
|
Carrying Amount |
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
|||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
96,476 |
|
|
$ |
96,476 |
|
|
|
- |
|
|
|
- |
|
|
$ |
96,476 |
|
Other investments |
|
|
3,287 |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
|
N/A |
|
||||
Loans, net (less impaired loans at fair value) |
|
|
897,324 |
|
|
|
- |
|
|
|
- |
|
|
|
898,123 |
|
|
|
898,123 |
|
Accrued interest receivable |
|
|
3,216 |
|
|
|
- |
|
|
|
- |
|
|
|
3,216 |
|
|
|
3,216 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
$ |
1,041,740 |
|
|
|
- |
|
|
$ |
1,040,438 |
|
|
|
- |
|
|
$ |
1,040,438 |
|
Subordinated debentures |
|
|
10,000 |
|
|
|
- |
|
|
|
9,600 |
|
|
|
- |
|
|
|
9,600 |
|
Accrued interest payable |
|
|
740 |
|
|
|
- |
|
|
|
740 |
|
|
|
- |
|
|
|
740 |
|
The following assumptions were used. The estimated fair values for cash and cash equivalents; accrued interest receivable; demand, NOW, money market, and savings deposits; variable rate loans; and accrued interest payable are considered to approximate their carrying values. The estimated fair value for loans is based on estimates of the rate the Company would charge for similar loans applied for the time period until estimated payment and considering recent third party loan portfolio sales. The fair value estimate of loans does not represent an exit price. The estimated fair value of certificates of deposit is based on estimates of the rate the Company pays on such deposits, applied for the time period until maturity. Fair value of subordinated debentures is based on current rates for similar financing arrangements and with consideration to change in interest rate structure from a fixed rate to a variable rate in March 2010. It was not practicable to determine the fair value of FHLB or FRB stock due to restrictions placed on its transferability. Loan commitments are not included in the table above as their estimated fair value is immaterial.
Other assets and liabilities of the Company that are not defined as financial instruments, such as property and equipment, are not included in the above disclosures.
(Continued)
23 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Table dollars in thousands, except per share data)
Note 8 – PARENT COMPANY CONDENSED FINANCIAL STATEMENTS
The following are the condensed balance sheets and statements of income and cash flows for First Evanston Bancorp, Inc. as of March 31, 2018 and for the three month periods ended March 31, 2018 and 2017.
Condensed Balance Sheet
Condensed Statements of Income |
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
March 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Income |
|
|
|
|
|
|
|
|
Rental income |
|
$ |
229 |
|
|
$ |
229 |
|
|
|
|
|
|
|
|
|
|
Expenses |
|
|
|
|
|
|
|
|
Interest Expense |
|
|
87 |
|
|
|
69 |
|
Other |
|
|
159 |
|
|
|
154 |
|
|
|
|
246 |
|
|
|
223 |
|
|
|
|
|
|
|
|
|
|
Income before income tax and undistributed subsidiary income: |
|
|
(17 |
) |
|
|
6 |
|
|
|
|
|
|
|
|
|
|
Income tax expense (benefit) |
|
|
(6 |
) |
|
|
2 |
|
|
|
|
|
|
|
|
|
|
Income (loss) before undistributed subsidiary income |
|
|
(11 |
) |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
Equity in earnings of bank subsidiary |
|
|
2,766 |
|
|
|
1,870 |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
(Continued)
24 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Table dollars in thousands, except per share data)
Note 8 – PARENT COMPANY CONDENSED FINANCIAL STATEMENTS (Continued)
Condensed Statements of Cash Flows
|
|
Three Months |
|
|
Three Months |
|
||
|
|
Ended |
|
|
Ended |
|
||
|
|
March 31, |
|
|
March 31, |
|
||
|
|
2018 |
|
|
2017 |
|
||
Cash flows from operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
2,755 |
|
|
$ |
1,874 |
|
Adjustments to reconcile net income to net cash from operating activities |
|
|
|
|
|
|
|
|
Depreciation |
|
|
41 |
|
|
|
43 |
|
Equity in earnings of bank subsidiary |
|
|
(2,766 |
) |
|
|
(1,870 |
) |
Change in accrued interest and other assets |
|
|
- |
|
|
|
(1 |
) |
Change in accrued interest and other liabilities |
|
|
(67 |
) |
|
|
(61 |
) |
Net cash from operating activities |
|
|
(37 |
) |
|
|
(15 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities |
|
|
|
|
|
|
|
|
Payments for investments in bank subsidiary |
|
|
(62 |
) |
|
|
(110 |
) |
Premises and equipment expenditures |
|
|
- |
|
|
|
(40 |
) |
Net cash used in investing activities |
|
|
(62 |
) |
|
|
(150 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing activities |
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock from |
|
|
|
|
|
|
|
|
exercise of options |
|
|
807 |
|
|
|
661 |
|
Purchase of treasury stock |
|
|
(593 |
) |
|
|
(518 |
) |
Net cash from financing activities |
|
|
214 |
|
|
|
143 |
|
|
|
|
|
|
|
|
|
|
Net change in cash and cash equivalents |
|
|
115 |
|
|
|
(22 |
) |
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at beginning of year |
|
|
3,382 |
|
|
|
5,704 |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of year |
|
$ |
3,497 |
|
|
$ |
5,682 |
|
(Continued)
25 .
FIRST EVANSTON BANCORP, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2018
(UNAUDITED)
(Table dollars in thousands, except per share data)
NOTE 9 – INCOME TAXES
The Company uses an estimated annual effective tax rate method in computing its interim tax provision. This effective tax rate is based on forecasted annual pre-tax income, permanent tax differences and statutory tax rates.
The effective tax rates for the three months ended March 31, 2018 and 2017 were 27.6% and 37.6% respectively. The reduction in the effective tax rate is primarily a result of the passage of the Tax Cuts and Jobs Act (the “Tax Act”), which was enacted on December 22, 2017. Among other things, the Tax Act reduces the corporate federal income tax rate from 35% to 21%, effective January 1, 2018. As a result the Company is required to remeasure, through income tax expense, deferred tax assets and liabilities using the enacted tax rate at which these items are expected to recover or settle. The remeasurement of the Company’s net deferred tax asset resulted in additional income tax expense of approximately $1.5 million in the fourth quarter of 2017.
Net deferred tax assets increased from $3.5 million at December 31, 2017 to $3.9 million at March 31, 2018.
NOTE 10 – MERGER
On November 27, the Company executed a definitive agreement with Byline Bancorp, Inc. (“Byline”). Byline will pay an aggregate of $27 million in cash and issue 3.994 shares of Byline common stock for each share of the Company’s common stock issued and outstanding immediately prior to the effective time of the merger. The transaction is expected to close in the first half of 2018, subject to regulatory approvals, the approval of the Company’s and Byline’s shareholders and the satisfaction of customary closing conditions.
Under the merger agreement, the Company agreed to certain operating limitations on its activities and the activities of its subsidiaries until the merger is completed or the merger agreement is terminated. In general, the Company is required to conduct business in the ordinary and usual course of business consistent with past practices. In certain instances, the Company may be required to obtain Byline’ prior written consent as specified in the merger agreement.
The Company is responsible for the payment of legal, professional and investment banking fees incurred on its behalf related to the merger. For the three months ended March 31, 2018 and 2017, the Company incurred $267,000 and $0 in merger related expenses.
On May 31, 2018, Byline completed its acquisition of the Company. In the aggregate, Byline paid $27.0 million in cash and issued approximately 6.7 million shares of its common stock in respect of the outstanding shares of the Company. The value of the total merger consideration at closing was approximately $178.6 million.
26 .
EXHIBIT 99.3
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The following is the unaudited pro forma combined condensed consolidated financial information for Byline Bancorp, Inc. (“Byline”) and First Evanston Bancorp, Inc. (“First Evanston”), giving effect to the merger of First Evanston with and into Byline. The unaudited pro forma combined condensed consolidated statement of financial condition as of March 31, 2018 gives effect to the merger as if it occurred on that date. The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2018 and the year ended December 31, 2017 give effect to the merger as if it occurred on January 1, 2017. The actual completion date of the merger was May 31, 2018.
The unaudited pro forma combined condensed consolidated financial statements have been prepared using the acquisition method of accounting for business combinations under accounting principles generally accepted in the United States of America (“GAAP”). Byline is the acquirer for accounting purposes. Certain immaterial reclassifications have been made to the historical financial statements of First Evanston to conform to the presentation in Byline’s financial statements.
As of May 31, 2018, the per share cash consideration was based on $27.0 million divided by the number of outstanding shares of First Evanston common stock as of that date, which equaled $16.136 per outstanding share. Based on the closing price of per share of Byline’s common stock of $21.62 on May 31, 2018, as reported by the New York Stock Exchange, and 6,682,850 shares of Byline common stock issued with respect to the outstanding shares of First Evanston common stock, the stock consideration was valued at $144.5 million. Options to acquire 144,090 shares of First Evanston common stock that were outstanding at the time of the merger were converted into options to acquire 680,787 shares of Byline common stock, resulting in a consideration value of $7.6 million. The value of the total merger consideration at closing was $179.1 million.
The unaudited pro forma combined condensed consolidated financial information is presented for illustrative purposes only and does not indicate the financial results or financial condition of the combined company had the companies actually been combined at the dates indicated. The selected unaudited pro forma condensed combined financial information also does not consider any integration expenses, expense efficiencies or other potential effects of the merger. In addition, as explained in more detail in the accompanying notes to the unaudited pro forma combined condensed consolidated financial information, the allocation of the pro forma purchase price is subject to adjustment and may vary significantly from the actual purchase price allocation that will be recorded upon completion of the merger.
1
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF CONDITION
As of March 31, 2018
(dollars in thousands) |
|
Byline |
|
|
First Evanston |
|
|
First Evanston Historical Reclassification Adjustments * |
|
|
Pro Forma Adjustments |
|
|
|
Byline and First Evanston Combined Pro Forma |
|
|||||
ASSETS |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
17,396 |
|
|
$ |
96,476 |
|
|
$ |
(78,760 |
) |
|
$ |
(27,004 |
) |
|
A |
$ |
8,108 |
|
Interest bearing deposits with other banks |
|
|
110,645 |
|
|
|
— |
|
|
|
78,760 |
|
|
|
— |
|
|
|
|
189,405 |
|
Cash and cash equivalents |
|
|
128,041 |
|
|
|
96,476 |
|
|
|
— |
|
|
|
(27,004 |
) |
|
|
|
197,513 |
|
Securities available-for-sale, at fair value |
|
|
626,057 |
|
|
|
135,215 |
|
|
|
— |
|
|
|
— |
|
|
|
|
761,272 |
|
Securities held-to-maturity, at amortized cost |
|
|
112,266 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
112,266 |
|
Other investments |
|
|
— |
|
|
|
3,287 |
|
|
|
(3,287 |
) |
|
|
— |
|
|
|
|
— |
|
Restricted stock, at cost |
|
|
17,177 |
|
|
|
— |
|
|
|
1,362 |
|
|
|
— |
|
|
|
|
18,539 |
|
Loans held for sale |
|
|
8,219 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
8,219 |
|
Loans and leases: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loans and leases |
|
|
2,280,418 |
|
|
|
909,832 |
|
|
|
— |
|
|
|
(27,308 |
) |
|
B |
|
3,162,942 |
|
Allowance for loan and lease losses |
|
|
(17,640 |
) |
|
|
(11,058 |
) |
|
|
— |
|
|
|
11,058 |
|
|
C |
|
(17,640 |
) |
Net loans and leases |
|
|
2,262,778 |
|
|
|
898,774 |
|
|
|
— |
|
|
|
(16,250 |
) |
|
|
|
3,145,302 |
|
Servicing assets, at fair value |
|
|
21,615 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
21,615 |
|
Premises and equipment, net |
|
|
94,014 |
|
|
|
10,125 |
|
|
|
— |
|
|
|
6,780 |
|
|
D |
|
110,919 |
|
Goodwill |
|
|
54,562 |
|
|
|
— |
|
|
|
— |
|
|
|
78,459 |
|
|
E |
|
133,021 |
|
Other intangible assets, net |
|
|
15,991 |
|
|
|
— |
|
|
|
— |
|
|
|
22,276 |
|
|
F |
|
38,267 |
|
Other assets |
|
|
121,652 |
|
|
|
9,805 |
|
|
|
1,925 |
|
|
|
(3,646 |
) |
|
G |
|
129,736 |
|
Total assets |
|
$ |
3,462,372 |
|
|
$ |
1,153,682 |
|
|
$ |
— |
|
|
$ |
60,615 |
|
|
|
$ |
4,676,669 |
|
LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-interest bearing demand deposits |
|
$ |
749,892 |
|
|
$ |
363,180 |
|
|
$ |
212 |
|
|
$ |
— |
|
|
|
$ |
1,113,284 |
|
Interest bearing deposits: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
NOW, savings accounts, and money market accounts |
|
|
1,018,361 |
|
|
|
407,858 |
|
|
|
(230 |
) |
|
|
— |
|
|
|
|
1,425,989 |
|
Time deposits |
|
|
756,294 |
|
|
|
270,702 |
|
|
|
— |
|
|
|
712 |
|
|
H |
|
1,027,708 |
|
Total deposits |
|
|
2,524,547 |
|
|
|
1,041,740 |
|
|
|
(18 |
) |
|
|
712 |
|
|
|
|
3,566,981 |
|
Federal Home Loan Bank advances |
|
|
380,000 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
380,000 |
|
Securities sold under agreements to repurchase |
|
|
27,815 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
27,815 |
|
Junior subordinated debentures issued to capital trusts, net |
|
|
27,800 |
|
|
|
10,000 |
|
|
|
— |
|
|
|
(1,503 |
) |
|
I |
|
36,297 |
|
Accrued expenses and other liabilities |
|
|
39,274 |
|
|
|
3,347 |
|
|
|
18 |
|
|
|
7,874 |
|
|
J |
|
50,513 |
|
Total liabilities |
|
|
2,999,436 |
|
|
|
1,055,087 |
|
|
|
— |
|
|
|
7,083 |
|
|
|
|
4,061,606 |
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Preferred stock |
|
|
10,438 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
10,438 |
|
Common stock |
|
|
293 |
|
|
|
418 |
|
|
|
— |
|
|
|
(351 |
) |
|
K |
|
360 |
|
Additional paid-in capital |
|
|
392,932 |
|
|
|
46,455 |
|
|
|
— |
|
|
|
105,605 |
|
|
K |
|
544,992 |
|
Treasury stock |
|
|
— |
|
|
|
(16,869 |
) |
|
|
— |
|
|
|
16,869 |
|
|
K |
|
— |
|
Retained earnings |
|
|
68,687 |
|
|
|
70,004 |
|
|
|
— |
|
|
|
(70,004 |
) |
|
K |
|
68,687 |
|
Accumulated other comprehensive loss, net of tax |
|
|
(9,414 |
) |
|
|
(1,413 |
) |
|
|
— |
|
|
|
1,413 |
|
|
K |
|
(9,414 |
) |
Total stockholders’ equity |
|
|
462,936 |
|
|
|
98,595 |
|
|
|
— |
|
|
|
53,532 |
|
|
|
|
615,063 |
|
Total liabilities and stockholders’ equity |
|
$ |
3,462,372 |
|
|
$ |
1,153,682 |
|
|
$ |
— |
|
|
$ |
60,615 |
|
|
|
$ |
4,676,669 |
|
2
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Three Months Ended March 31, 2018
(dollars in thousands, except share and per share data) |
|
Byline |
|
|
First Evanston |
|
|
First Evanston Historical Reclassification Adjustments * |
|
|
Pro Forma Adjustments |
|
|
|
Byline and First Evanston Combined Pro Forma |
|
|||||
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans and leases |
|
$ |
33,654 |
|
|
$ |
10,177 |
|
|
$ |
100 |
|
|
$ |
1,783 |
|
1 |
|
$ |
45,714 |
|
Interest on securities |
|
|
4,229 |
|
|
|
554 |
|
|
|
(27 |
) |
|
|
97 |
|
2 |
|
|
4,853 |
|
Other interest and dividend income |
|
|
259 |
|
|
|
326 |
|
|
|
27 |
|
|
|
— |
|
|
|
|
612 |
|
Total interest and dividend income |
|
|
38,142 |
|
|
|
11,057 |
|
|
|
100 |
|
|
|
1,880 |
|
|
|
|
51,179 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
2,498 |
|
|
|
1,348 |
|
|
|
— |
|
|
|
(39 |
) |
3 |
|
|
3,807 |
|
Federal Home Loan Bank advances |
|
|
1,358 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
1,358 |
|
Subordinated debentures and other borrowings |
|
|
591 |
|
|
|
87 |
|
|
|
— |
|
|
|
22 |
|
4 |
|
|
700 |
|
Total interest expense |
|
|
4,447 |
|
|
|
1,435 |
|
|
|
— |
|
|
|
(17 |
) |
|
|
|
5,865 |
|
Net interest income |
|
|
33,695 |
|
|
|
9,622 |
|
|
|
100 |
|
|
|
1,897 |
|
|
|
|
45,314 |
|
PROVISION FOR LOAN AND LEASE LOSSES |
|
|
5,115 |
|
|
|
300 |
|
|
|
— |
|
|
|
— |
|
|
|
|
5,415 |
|
Net interest income after provision for loan and lease losses |
|
|
28,580 |
|
|
|
9,322 |
|
|
|
100 |
|
|
|
1,897 |
|
|
|
|
39,899 |
|
NON-INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges on deposits |
|
|
1,312 |
|
|
|
484 |
|
|
|
(49 |
) |
|
|
— |
|
|
|
|
1,747 |
|
Net gains on sales of loans |
|
|
7,476 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
7,476 |
|
Wealth management and trust income |
|
|
— |
|
|
|
661 |
|
|
|
— |
|
|
|
— |
|
|
|
|
661 |
|
Other non-interest income |
|
|
2,640 |
|
|
|
307 |
|
|
|
(143 |
) |
|
|
— |
|
|
|
|
2,804 |
|
Total non-interest income |
|
|
11,428 |
|
|
|
1,452 |
|
|
|
(192 |
) |
|
|
— |
|
|
|
|
12,688 |
|
NON-INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
18,278 |
|
|
|
4,290 |
|
|
|
(19 |
) |
|
|
— |
|
5 |
|
|
22,549 |
|
Occupancy expense and equipment, net |
|
|
4,358 |
|
|
|
662 |
|
|
|
(77 |
) |
|
|
32 |
|
6 |
|
|
4,975 |
|
Loan and lease related expenses |
|
|
1,400 |
|
|
|
— |
|
|
|
43 |
|
|
|
— |
|
|
|
|
1,443 |
|
Legal, audit and other professional fees |
|
|
1,851 |
|
|
|
44 |
|
|
|
539 |
|
|
|
(399 |
) |
7 |
|
|
2,035 |
|
Data processing |
|
|
2,301 |
|
|
|
624 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2,925 |
|
Net gain recognized on other real estate owned and other related expenses |
|
|
(1 |
) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
(1 |
) |
Regulatory assessments |
|
|
241 |
|
|
|
200 |
|
|
|
— |
|
|
|
— |
|
|
|
|
441 |
|
Other intangible assets amortization expense |
|
|
767 |
|
|
|
— |
|
|
|
— |
|
|
|
968 |
|
8 |
|
|
1,735 |
|
Advertising and promotions |
|
|
249 |
|
|
|
239 |
|
|
|
(154 |
) |
|
|
— |
|
|
|
|
334 |
|
Other non-interest expense |
|
|
2,475 |
|
|
|
909 |
|
|
|
(424 |
) |
|
|
— |
|
5 |
|
|
2,960 |
|
Total non-interest expense |
|
|
31,919 |
|
|
|
6,968 |
|
|
|
(92 |
) |
|
|
601 |
|
|
|
|
39,396 |
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
|
8,089 |
|
|
|
3,806 |
|
|
|
— |
|
|
|
1,296 |
|
|
|
|
13,191 |
|
PROVISION FOR INCOME TAXES |
|
|
1,321 |
|
|
|
1,051 |
|
|
|
— |
|
|
|
361 |
|
9 |
|
|
2,733 |
|
NET INCOME |
|
|
6,768 |
|
|
|
2,755 |
|
|
|
— |
|
|
|
935 |
|
|
|
|
10,458 |
|
Dividends on preferred shares |
|
|
193 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
193 |
|
INCOME AVAILABLE TO COMMON STOCKHOLDERS |
|
$ |
6,575 |
|
|
$ |
2,755 |
|
|
$ |
— |
|
|
$ |
935 |
|
|
|
$ |
10,265 |
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.22 |
|
|
$ |
1.65 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.29 |
|
Diluted |
|
$ |
0.22 |
|
|
$ |
1.60 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.28 |
|
AVERAGE SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
29,291,179 |
|
|
|
1,672,625 |
|
|
|
|
|
|
|
6,682,850 |
|
10 |
|
|
35,974,029 |
|
Diluted |
|
|
29,913,633 |
|
|
|
1,726,938 |
|
|
|
|
|
|
|
6,936,404 |
|
10 |
|
|
36,850,037 |
|
3
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
UNAUDITED PRO FORMA COMBINED CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
For the Year Ended December 31, 2017
(dollars in thousands, except share and per share data) |
|
Byline |
|
|
First Evanston |
|
|
First Evanston Historical Reclassification Adjustments * |
|
|
Pro Forma Adjustments |
|
|
|
Byline and First Evanston Combined Pro Forma |
|
|||||
INTEREST AND DIVIDEND INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans and leases |
|
$ |
120,406 |
|
|
$ |
37,665 |
|
|
$ |
426 |
|
|
$ |
10,043 |
|
1 |
|
$ |
168,540 |
|
Interest on securities |
|
|
15,526 |
|
|
|
2,097 |
|
|
|
(105 |
) |
|
|
385 |
|
2 |
|
|
17,903 |
|
Other interest and dividend income |
|
|
871 |
|
|
|
876 |
|
|
|
105 |
|
|
|
— |
|
|
|
|
1,852 |
|
Total interest and dividend income |
|
|
136,803 |
|
|
|
40,638 |
|
|
|
426 |
|
|
|
10,428 |
|
|
|
|
188,295 |
|
INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deposits |
|
|
7,736 |
|
|
|
3,865 |
|
|
|
— |
|
|
|
(490 |
) |
3 |
|
|
11,111 |
|
Federal Home Loan Bank advances |
|
|
3,291 |
|
|
|
98 |
|
|
|
— |
|
|
|
— |
|
|
|
|
3,389 |
|
Subordinated debentures and other borrowings |
|
|
2,864 |
|
|
|
301 |
|
|
|
— |
|
|
|
88 |
|
4 |
|
|
3,253 |
|
Total interest expense |
|
|
13,891 |
|
|
|
4,264 |
|
|
|
— |
|
|
|
(402 |
) |
|
|
|
17,753 |
|
Net interest income |
|
|
122,912 |
|
|
|
36,374 |
|
|
|
426 |
|
|
|
10,830 |
|
|
|
|
170,542 |
|
PROVISION FOR LOAN AND LEASE LOSSES |
|
|
12,653 |
|
|
|
900 |
|
|
|
— |
|
|
|
— |
|
|
|
|
13,553 |
|
Net interest income after provision for loan and lease losses |
|
|
110,259 |
|
|
|
35,474 |
|
|
|
426 |
|
|
|
10,830 |
|
|
|
|
156,989 |
|
NON-INTEREST INCOME |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees and service charges on deposits |
|
|
5,289 |
|
|
|
1,917 |
|
|
|
(124 |
) |
|
|
— |
|
|
|
|
7,082 |
|
Net gains on sales of loans |
|
|
33,062 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
33,062 |
|
Wealth management and trust income |
|
|
— |
|
|
|
2,408 |
|
|
|
— |
|
|
|
— |
|
|
|
|
2,408 |
|
Other non-interest income |
|
|
11,707 |
|
|
|
1,256 |
|
|
|
(611 |
) |
|
|
— |
|
|
|
|
12,352 |
|
Total non-interest income |
|
|
50,058 |
|
|
|
5,581 |
|
|
|
(735 |
) |
|
|
— |
|
|
|
|
54,904 |
|
NON-INTEREST EXPENSE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
67,269 |
|
|
|
20,739 |
|
|
|
(87 |
) |
|
|
(12 |
) |
5 |
|
|
87,909 |
|
Occupancy expense and equipment, net |
|
|
16,550 |
|
|
|
2,527 |
|
|
|
(327 |
) |
|
|
127 |
|
6 |
|
|
18,877 |
|
Loan and lease related expenses |
|
|
3,685 |
|
|
|
— |
|
|
|
224 |
|
|
|
— |
|
|
|
|
3,909 |
|
Legal, audit and other professional fees |
|
|
7,027 |
|
|
|
770 |
|
|
|
658 |
|
|
|
(1,458 |
) |
7 |
|
|
6,997 |
|
Data processing |
|
|
9,539 |
|
|
|
2,374 |
|
|
|
— |
|
|
|
— |
|
|
|
|
11,913 |
|
Net gain recognized on other real estate owned and other related expenses |
|
|
(294 |
) |
|
|
— |
|
|
|
(12 |
) |
|
|
— |
|
|
|
|
(306 |
) |
Regulatory assessments |
|
|
1,193 |
|
|
|
725 |
|
|
|
— |
|
|
|
— |
|
|
|
|
1,918 |
|
Other intangible assets amortization expense |
|
|
3,074 |
|
|
|
— |
|
|
|
— |
|
|
|
4,150 |
|
8 |
|
|
7,224 |
|
Advertising and promotions |
|
|
1,035 |
|
|
|
990 |
|
|
|
(679 |
) |
|
|
— |
|
|
|
|
1,346 |
|
Other non-interest expense |
|
|
10,445 |
|
|
|
2,631 |
|
|
|
(86 |
) |
|
|
(6 |
) |
5 |
|
|
12,984 |
|
Total non-interest expense |
|
|
119,523 |
|
|
|
30,756 |
|
|
|
(309 |
) |
|
|
2,801 |
|
|
|
|
152,771 |
|
INCOME BEFORE PROVISION FOR INCOME TAXES |
|
|
40,794 |
|
|
|
10,299 |
|
|
|
— |
|
|
|
8,029 |
|
|
|
|
59,122 |
|
PROVISION FOR INCOME TAXES |
|
|
19,099 |
|
|
|
2,444 |
|
|
|
— |
|
|
|
3,262 |
|
9 |
|
|
24,805 |
|
NET INCOME |
|
|
21,695 |
|
|
|
7,855 |
|
|
|
— |
|
|
|
4,767 |
|
|
|
|
34,317 |
|
Dividends on preferred shares |
|
|
11,277 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
11,277 |
|
INCOME AVAILABLE TO COMMON STOCKHOLDERS |
|
$ |
10,418 |
|
|
$ |
7,855 |
|
|
$ |
— |
|
|
$ |
4,767 |
|
|
|
$ |
23,040 |
|
EARNINGS PER COMMON SHARE |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.39 |
|
|
$ |
4.69 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.68 |
|
Diluted |
|
$ |
0.38 |
|
|
$ |
4.59 |
|
|
|
|
|
|
|
|
|
|
|
$ |
0.67 |
|
AVERAGE SHARES OUTSTANDING |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
26,963,517 |
|
|
|
1,675,204 |
|
|
|
|
|
|
|
6,682,850 |
|
10 |
|
|
33,646,367 |
|
Diluted |
|
|
27,547,314 |
|
|
|
1,710,618 |
|
|
|
|
|
|
|
6,914,252 |
|
10 |
|
|
34,461,566 |
|
4
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Information
(Table dollars in thousands, except share and per share data)
Note 1—Basis of Presentation
The unaudited pro forma combined condensed consolidated financial information has been prepared under the acquisition method of accounting for business combinations. The unaudited pro forma combined condensed consolidated statements of operations for the year ended December 31, 2017 and three months ended March 31, 2018, are presented as if the acquisition occurred on January 1, 2017. The unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2018 is presented as if the acquisition occurred as of that date. This pro forma information does not attempt to predict or suggest future results. It also does not necessarily reflect what the historical results of the combined company Byline and First Evanston would have been had Byline and First Evanston been combined during the periods presented. The pro forma adjustments are preliminary, based on estimates, and are subject to change as more information becomes available and after final analyses of the fair values of both tangible and intangible assets acquired and liabilities assumed are completed. Accordingly, the final fair value adjustments may be materially different from those presented in this document.
Certain historical data of First Evanston has been reclassified on a pro forma basis to conform with Byline’s classifications.
Note 2—Purchase Price
At the effective time of the Mergers (the “Effective Time”), each share of First Evanston’s common stock (the “First Evanston common stock”) was converted into the right to receive: (1) 3.994 shares of Byline’s common stock, and (2) an amount in cash equal to $27.0 million divided by the number of outstanding shares of First Evanston common stock as of the closing date, with cash paid in lieu of any fractional shares. Options to acquire 144,090 shares of First Evanston common stock that were outstanding at the Effective Time were converted into options to acquire 680,787 shares of Byline common stock, resulting in consideration value of $7.6 million. The per share cash consideration was based on $27.0 million divided by the outstanding shares of First Evanston common stock, or $16.136 per outstanding share. Based on the closing price per share of Byline’s common stock of $21.62 on May 31, 2018, as reported by the New York Stock Exchange, and 6,682,850 shares of Byline common stock issued with respect to the outstanding shares of First Evanston common stock, the stock consideration was valued at $144.5 million. The value of the total merger consideration at closing was $179.1 million.
Note 3—Allocation of Purchase Price of First Evanston
Under the acquisition method of accounting, First Evanston’s assets and liabilities, including identifiable intangible assets, are required to be adjusted to their estimated fair values. The excess of the purchase price over the fair value of the net assets acquired, net of deferred taxes, is allocated to goodwill. Estimated fair value adjustments of assets and liabilities included in the unaudited pro forma combined condensed consolidated financial information are based upon available information, and certain assumptions considered reasonable. Fair values are estimated and subject to refinement as additional information becomes available.
5
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
(Table dollars in thousands, except share and per share data)
The following table presents a summary of the pro forma estimates of fair values of First Evanston’s assets and liabilities at March 31, 2018:
(dollars in thousands) |
|
|
|
|
Assets |
|
|
|
|
Cash and cash equivalents |
|
$ |
96,476 |
|
Securities available-for-sale |
|
|
135,215 |
|
Restricted stock |
|
|
1,362 |
|
Loans |
|
|
882,524 |
|
Premises and equipment |
|
|
16,905 |
|
Other intangible assets |
|
|
22,276 |
|
Other assets |
|
|
8,084 |
|
Total assets acquired |
|
|
1,162,842 |
|
Liabilities |
|
|
|
|
Deposits |
|
|
1,042,434 |
|
Junior subordinated debentures |
|
|
8,497 |
|
Accrued expenses and other liabilities |
|
|
11,239 |
|
Total liabilities assumed |
|
|
1,062,170 |
|
Net assets acquired |
|
$ |
100,672 |
|
Consideration paid |
|
|
|
|
Common stock (6,682,850 shares issued at $21.62 per share) |
|
$ |
144,483 |
|
Outstanding stock options converted to Byline stock options |
|
|
7,644 |
|
Cash paid |
|
|
27,004 |
|
Total consideration paid |
|
|
179,131 |
|
Goodwill |
|
$ |
78,459 |
|
The following pro forma adjustments are reflected in the unaudited pro forma condensed combined consolidated financial information:
* |
The historical reclassification adjustments to First Evanston’s historical information are presented to conform such financial information to the presentation of Byline’s consolidated statement of financial condition and statements of operations. |
A. Reflects the cash consideration for the merger.
B. |
Fair value adjustment on loans of $28.0 million, which includes $16.6 million to be accreted into interest income on an effective yield method over the weighted average lives of the respective loans. The interest rate fair value adjustment was determined based on the present value of estimated future cash flows of the loans to be acquired, discounted using a weighted average market rate. The credit-related fair value adjustment was determined based on assigned risk ratings and the present value of estimated expected cash flows (including the estimated fair value of loan collateral). The fair value adjustment also includes the reversal of $736,000 of unearned loan fees. |
C. Elimination of First Evanston’s allowance for loan losses.
D. Fair value adjustments on premises, furniture and equipment.
6
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
(Table dollars in thousands, except share and per share data)
E. |
Estimate of goodwill that would be recognized as part of the transaction if the merger occurred on March 31, 2018. See the allocation of purchase price for calculation. |
F. |
Estimate of core deposit and customer relationship intangible assets that will be recognized as part of the acquisition accounting. The core deposit intangible is amortized on an accelerated basis over approximately nine years, while the customer relationship intangible is amortized over 12 years. |
G. |
Net deferred tax asset adjustment related to the acquisition accounting adjustments for loans, the allowance for loan and lease losses, core deposit intangible, customer relationship intangible, premises, furniture, and equipment, time deposits, and junior subordinated debentures issued to capital trust using a tax rate of 27.85%. |
H. |
Fair value adjustment on time deposits. The acquisition accounting adjustment is amortized on an effective yield method over the remaining life of the time deposits acquired. |
I. |
Fair value adjustment on junior subordinated debentures. The acquisition accounting adjustment is amortized on a straight line basis over the remaining life of the junior subordinated debentures acquired. |
J. |
Represents an accrual for estimated transaction costs, net of income tax benefit using a tax rate of 28.51%: |
(dollars in thousands) |
|
|
|
|
Change in control payment and share-based award accelerated vesting |
|
$ |
8,657 |
|
Professional fees |
|
|
2,113 |
(1) |
Pre-tax merger costs |
|
|
10,770 |
|
Income tax benefit |
|
|
(2,896 |
) |
Total merger costs, net of tax |
|
$ |
7,874 |
|
|
|
(1)A portion of this amount is not tax deductible |
K . |
Elimination of First Evanston’s shareholders’ equity, and the issuance of Byline’s shares in the merger. First Evanston’s shareholders were entitled to receive 3.994 shares of Byline’s common stock for each share of First Evanston common stock held by them. The fair value of Byline common stock was based on Byline’s closing price as of May 31, 2018 of $21.62 per share. Also includes a decrease in retained earnings for estimated transaction costs of $7,874, net of tax. |
1. |
Adjustments to interest and fees on loans and leases reflect the change in loan and lease interest income due to estimated discount accretion associated with fair value adjustments of $28.0 million to acquired loans, assuming the loans had been acquired as of January 1, 2017. The discount accretion was calculated on the effective yield method over the estimated life of the acquired loan portfolio of approximately five years. |
2. |
Adjustments to interest on securities reflect the change in securities income due to estimated discount accretion associated with fair value adjustments of $1.9 million to acquired securities, assuming the securities had been acquired as of January 1, 2017. The discount accretion was calculated on the effective yield method over the estimated lives of the acquired securities of five years. |
3. |
Adjustments to interest on deposits reflect the change in deposit interest expense due to estimated premium amortization associated with fair value adjustments of $712,000 to acquired time deposits, assuming the time deposits had been acquired as of January 1, 2017. The premium amortization was calculated on the effective yield method over the weighted average estimated lives of the acquired time deposits of approximately one year. |
7
BYLINE BANCORP, INC. AND FIRST EVANSTON BANCORP, INC.
Notes to Unaudited Pro Forma Combined Condensed Consolidated Financial Statements
(Table dollars in thousands, except share and per share data)
4. |
Adjustments to interest on borrowings reflect the change in interest expense due to estimated discount accretion associated with the fair value adjustments to assumed junior subordinated debentures issued to capital trust. Adjustments reflect the change in interest expense that would have resulted had the borrowings been acquired as of January 1, 2017. The discount accretion of the fair value adjustment associated with the junior subordinated debenture issued to capital trust of $1.5 million was calculated on the effective yield method over the estimated life of the acquired borrowings of approximately 17 years. |
5. |
Adjustments reflect the reversal of other operating expense related to the acquisition, which are nonrecurring, and will not have a continuing impact on the results of operations. |
6. |
Adjustments to occupancy and equipment expense reflect the premium amortization resulting from a fair value adjustment of acquired buildings of $3.0 million. The amortization of the discount is calculated based on a straight line basis over useful lives ranging from 18 to 33 years. |
7. |
Adjustments are to exclude transaction costs (e.g., advisory and legal) directly related to the acquisition of First Evanston, which are nonrecurring and will not have a continuing impact on the results of operations. |
8. |
Adjustments to other intangible assets amortization expense reflect the change in other expense that would have resulted from the amortization of the core deposit intangible of $19.1 million and customer relationship intangible of $3.2 million had the acquisition occurred as of January 1, 2017. The amortization of the core deposit intangible was calculated on an accelerated basis over an estimated life of approximately nine years and the amortization of the customer relationship intangible was calculated on a straight line basis over an estimated life of 12 years. |
9 . |
Adjustments to provision for income taxes reflect recognition of tax expense associated with the adjusted net income before taxes assuming an effective tax rate of 27.85% in 2018 and 40.63% in 2017. |
10. Common stock and stock options assumed to be issued by Byline in the merger.
Note 4—Estimated Merger Costs
The table below reflects Byline’s current estimate of merger costs of $9.7 million (net of $3.6 million of income tax benefit, computed using a 27.85% rate) expected to be incurred in connection with the First Evanston merger, which are excluded from the pro forma financial statements:
(dollars in thousands) |
|
|
|
|
|
Non-compete, severance and retention payments |
|
$ |
2,794 |
|
|
Data processing, termination and conversion |
|
|
8,100 |
|
|
Professional fees and other noninterest expenses |
|
|
2,426 |
|
(1) |
Pre-tax merger costs |
|
|
13,320 |
|
|
Income tax benefit |
|
|
(3,577 |
) |
|
Total merger costs, net of tax |
|
$ |
9,743 |
|
|
|
(1) |
A portion of this amount is not tax deductible |
8