Item 1. Business - ----------------
Balcor Current Income Fund-87 A Real Estate Limited Partnership (the "Registrant") is a limited partnership formed in 1986 under the laws of the State of Delaware. The Registrant raised $14,942,190 from sales of Limited Partnership Depositary Units. The Registrant's operations consist exclusively of investment in and operation of one existing real property, and all financial information included in this report relates to this industry segment.
As of December 31, 1994, the Registrant owns Autumn Woods Apartments, as described under "Properties" (Item 2). The Partnership Agreement provides that the proceeds of any sale, financing or refinancing will not be reinvested in new acquisitions. The General Partner loan, which matured in December 1994, has been extended. See Liquidity and Capital Resources for additional information.
Autumn Woods Apartments is subject to certain competitive conditions in the markets in which it is located. See Liquidity and Capital Resources for additional information.
The Registrant, by virtue of its ownership of real estate, is subject to federal and state laws and regulations covering various environmental issues. Management of the Registrant utilizes the services of environmental consultants to assess a wide range of environmental issues and to conduct tests for environmental contamination as appropriate. The General Partner is not aware of any potential liability due to environmental issues or conditions that would be material to the Registrant.
The officers and employees of Balcor CIF Partners, the General Partner of the Registrant, and its affiliates perform services for the Registrant. The Registrant currently has no employees engaged in its operations.
Item 2.

Item 2. Properties - ------------------
As of December 31, 1994, the Registrant has a 99.7291% interest in the joint venture that owns Autumn Woods Apartments, a 424-unit apartment complex located on approximately 37 acres in Indianapolis, Indiana.
The property is held subject to a mortgage loan.
In the opinion of the General Partner, the Registrant has provided for adequate insurance coverage for its interest in the real estate investment property.
See Notes to Financial Statements for other information regarding real property investments.
Item 3.

Item 3. Legal Proceedings - -------------------------
The Registrant is not subject to any material pending legal proceedings, nor were any such proceedings terminated during the fourth quarter of 1994.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders - -----------------------------------------------------------
No matters were submitted to a vote of the Unitholders of the Registrant during 1994.
PART II
Item 5.

Item 5. Market for the Registrant's Common Equity and Related Stockholder - ------------------------------------------------------------------------- Matters - -------
There has not been an established public market for Units and it is not anticipated that one will develop; therefore, the market value of the Units cannot reasonably be determined. For information regarding previous distributions, see Financial Statements, Statements of Partners' Capital and Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources.
As of December 31, 1994, the number of record holders of Units of the Registrant was 786.
Item 6.

Item 7. Management's Discussion and Analysis of Financial Condition and - ----------------------------------------------------------------------- Results of Operations - ---------------------
Summary of Operations - ---------------------
An overall decrease in operations at Autumn Woods Apartments due primarily to increased property operating and maintenance and repair expenses resulted in an increase in the net loss during 1994 as compared to 1993.
Overall interest expense on long term financing was higher in 1993 than in 1992 and resulted in an increase in the net loss during 1993. Further discussion of Balcor Current Income Fund-87 (the "Partnership") operations is summarized below.
1994 Compared to 1993 - ---------------------
Rental rates increased at Autumn Woods Apartments, resulting in an increase in rental and service income during 1994 as compared to 1993.
Balcor Real Estate Holdings, Inc. ("BREHI"), an affiliate of the General Partner, previously funded a zero coupon loan to the Partnership on which interest expense compounded semi-annually. During May 1993, this loan was prepaid with proceeds received from the financing with a third party of the Autumn Woods mortgage loan and funds advanced from the General Partner. This resulted in the cessation of interest expense on the promissory note payable -
affiliate. This new mortgage loan resulted in an increase in interest expense on the mortgage note payable and amortization of deferred expenses during 1994 as compared to 1993.
The General Partner advanced funds to prepay the remainder of the zero coupon loan in May 1993, and advanced funds as required by the Limited Partnership Agreement to pay the monthly debt service payments due on the property's mortgage loan through December 1994. As a result, interest expense on the short-term loan payable - affiliate increased during 1994 as compared to 1993.
Due to higher insurance premiums, payroll expenses and contract services, property operating expenses increased during 1994 as compared to 1993.
Due to higher expenditures for roof repairs and floor covering replacement, maintenance and repair expenses increased during 1994 as compared to 1993.
During 1994, the Partnership received a refund of prior years' taxes from taxing authorities due to a decrease in the assessed value of Autumn Woods Apartments. This resulted in a decrease in real estate tax expense during 1994 as compared to 1993.
Due to a decrease in the distribution level to Unitholders for the fourth quarter of 1994, incentive partnership management fees decreased during 1994 as compared to 1993.
1993 Compared to 1992 - ---------------------
Rental rates increased at Autumn Woods Apartments in 1993, resulting in an increase in rental and service income in 1993 as compared to 1992.
Due to lower average cash balances and lower interest rates on short-term interest-bearing instruments, interest income on short-term investments decreased during 1993 as compared to 1992.
During May 1993, the BREHI note was prepaid with proceeds received from the financing of the Autumn Woods mortgage loan and funds advanced from the General Partner. This resulted in a decrease in interest expense on the promissory note payable-affiliate during 1993 as compared to 1992.
As a result of the financing of the Autumn Woods mortgage loan, interest expense on the mortgage note payable and amortization of deferred expenses were incurred during 1993.
Due to higher expenditures for roof and pavement repairs, maintenance and repair expense increased during 1993 when compared to 1992.
Higher accounting and portfolio management costs resulted in an increase in administrative expenses during 1993 as compared to 1992.
Liquidity and Capital Resources - -------------------------------
The Partnership's cash flow provided by operating activities during 1994 was generated primarily from the operation of Autumn Woods Apartments, which was partially offset by the payment of administrative expenses and incentive partnership management fees. Financing activities included the payment of distributions to Unitholders and the General Partner, the receipt of loan proceeds from the General Partner to fund debt service payments on the Autumn Woods mortgage loan, and the payment of principal on the mortgage note payable. A portion of the loan from the General Partner was also repaid during December 1994 from Partnership cash reserves, causing the cash position of the Partnership at December 31, 1994 to decrease in comparison to December 31, 1993.
Autumn Woods Apartments is located on the northeast side of Indianapolis in the
city submarket of Castleton/Nora. There are approximately 11,000 rental units in this submarket, most of which are newer and have slightly higher rental rates than Autumn Woods Apartments. Autumn Woods Apartments competes most directly with approximately 3,000 rental units located within a 2 mile radius of the property, many of which have been renovated within the last 3 years. The average property in this market is 12-15 years old, consists of 300 units and has an occupancy rate of 92%. Autumn Woods Apartments, a 424-unit property built in 1977, has a current occupancy rate of 93%. There are currently 300 new rental units under construction in this market. The average rental rate for these units are $100-$200 a month per unit higher than Autumn Woods Apartments.
As of December 31, 1994, Autumn Woods Apartments was generating positive cash flow. The Partnership defines cash flow as an amount equal to the property's revenue receipts less property related expenditures, which include debt service payments. Autumn Woods Apartments is encumbered by a first mortgage loan which matures in 1998.
In conjunction with the May 1993 financing of the Autumn Woods loan, the monthly debt service payments due on the first mortgage loan were required by the Limited Partnership Agreement to be funded by advances from the General Partner on a zero coupon basis until December 1994 when the General Partner loan matured. The Partnership repaid a portion of the loan in December and the remainder of the loan is expected to be repaid from the available cash flow from operations of the property. Additionally, all debt service payments required under the first mortgage loan will now be paid from the cash flow of the property. As of December 31, 1994, the loan payable to the General Partner is $1,041,594, including accrued interest thereon. See Note 7 of Notes to Financial Statements for additional information.
In January 1995, the Partnership paid $74,711 ($.075 per Unit) of Net Cash Receipts to the Unitholders representing the distribution for the fourth quarter of 1994. The level of this distribution decreased from the amount distributed to Unitholders for the third quarter of 1994 due to the maturity and partial repayment of the General Partner loan in December 1994. During 1994, 1993 and 1992, the Partnership made four quarterly distributions of Net Cash Receipts to Unitholders totaling $.90 per Unit for each year. See Financial Statements, Statements of Partners' Capital. The distributions paid to Unitholders in 1994, 1993 and 1992 represent annual returns of 6.00% on Adjusted Original Capital. The General Partner presently expects that cash flow from property operations will allow the Partnership to continue making quarterly distributions to Unitholders. However, the level of future distributions will be dependent on the repayment of the General Partner loan and the cash flow generated by the Autumn Woods Apartments. In light of results to date and current market conditions, there can be no assurance that investors will recover all of their original investment.
Since the Preferred Distribution levels to Unitholders specified in the Partnership Agreement have not been attained in any year, the General Partner subordinated 25% of its share of Net Cash Receipts, in the cumulative amount of $127,915 of incentive partnership management fees and $16,998 as its distributive share, in accordance with the Partnership Agreement. The General Partner anticipates that future distribution levels will continue to result in further subordinations of its incentive management fee and distributive share from operations. During 1988 and 1989, the General Partner also voluntarily agreed to subordinate $82,953 of incentive partnership management fees and $15,130 as its distributive share, to the prior receipt of the specified returns by Unitholders. These amounts may be paid to the General Partner from Net Cash Proceeds received by the Partnership prior to any other payments out of Net Cash Proceeds.
The General Partner has recently completed the outsourcing of the financial reporting and accounting services, transfer agent and investor records services, and computer operations and systems development functions that provided services to the Partnership. All of these functions are now being provided by independent third parties. Additionally, Allegiance Realty Group, Inc., which has provided property management services to the Partnership's
property, was sold to a third party. Each of these transactions occurred after extensive due diligence and competitive bidding processes. The General Partner does not believe that the cost of providing these services to the Partnership, in the aggregate, will be materially different to the Partnership during 1995 when compared to 1994.
Inflation has several types of potentially conflicting impacts on real estate investments. Short-term inflation can increase real estate operating costs which may or may not be recovered through increased rents and/or sales prices, depending on general or local economic conditions. In the long-term, inflation can be expected to increase operating costs and replacement costs and may lead to increased rental revenues and real estate values.
Item 8.

Item 8. Financial Statements and Supplementary Data - ---------------------------------------------------
See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
The supplemental financial information specified by Item 302 of Regulation S-K is not applicable.
The net effect of the differences between the financial statements and the tax returns is summarized as follows:
December 31, 1994 December 31, 1993 ---------------------- ------------------------- Financial Tax Financial Tax Statements Returns Statements Returns ---------- --------- ---------- --------- Total assets $11,185,388 $9,009,012 $12,409,021 $10,165,555 Partners' capital accounts (deficit): General Partner (101,009) (475,883) (87,247) (90,709) Unitholders 151,924 (1,616,990) 1,671,261 (535,974) Net loss: General Partner (6,291) (377,703) (5,137) (8,151) Unitholders (622,805) (184,484) (508,592) (566,157) Per Unit (.63) (.19) (.51) (.57)
Item 9.

Item 9. Changes in and Disagreements with Accountants on Accounting and - ----------------------------------------------------------------------- Financial Disclosure - --------------------
There have been no changes in or disagreements with accountants on any matter of accounting principles, practices or financial statement disclosure.
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant - -----------------------------------------------------------
(a) Neither the Registrant nor Balcor CIF Partners, its General Partner, has a Board of Directors.
(b, c & e) The names, ages and business experience of the executive officers and significant employees of the General Partner of the Registrant are as follows:
TITLE OFFICERS ----- --------
Chairman, President and Chief Thomas E. Meador Executive Officer Executive Vice President, Allan Wood Chief Financial Officer and Chief Accounting Officer Senior Vice President Alexander J. Darragh First Vice President Daniel A. Duhig First Vice President Josette V. Goldberg First Vice President Alan G. Lieberman First Vice President Brian D. Parker and Assistant Secretary First Vice President John K. Powell, Jr. First Vice President Reid A. Reynolds First Vice President Thomas G. Selby
Thomas E. Meador (July 1947) joined Balcor in July 1979. He is Chairman, President and Chief Executive Officer and has responsibility for all ongoing day-to-day activities at Balcor. He is a Director of The Balcor Company. Prior to joining Balcor, Mr. Meador was employed at the Harris Trust and Savings Bank in the commercial real estate division where he was involved in various lending activities. Mr. Meador received his M.B.A. degree from the Indiana University Graduate School of Business.
Allan Wood (January 1949) joined Balcor in August 1983 and, as Balcor's Chief Financial Officer and Chief Accounting Officer, is responsible for the financial and administrative functions. He is also a Director of The Balcor Company. Mr. Wood is a Certified Public Accountant. Prior to joining Balcor, he was employed by Price Waterhouse where he was involved in auditing public and private companies.
Alexander J. Darragh (February 1955) joined Balcor in September 1988 and has primary responsibility for the Portfolio Advisory Group. He is responsible for due diligence analysis and real estate advisory services in support of asset management, institutional advisory and capital markets functions. Mr. Darragh has supervisory responsibility of Balcor's Investor Services, Investment Administration, Fund Management and Land Management departments. Mr. Darragh received masters' degrees in Urban Geography from Queens's University and in Urban Planning from Northwestern University.
Daniel A. Duhig (October 1956) joined Balcor in November 1986 and is responsible for the Asset Management Department relating to real estate investments made by Balcor and its affiliated partnerships, including negotiations for modifications or refinancings of real estate mortgage investments and the disposition of real estate investments.
Josette V. Goldberg (April 1957) joined Balcor in January 1985 and has primary responsibility for all human resources matters. In addition, she has supervisory responsibility for Balcor's administrative and MIS departments. Ms. Goldberg has been designated as a Senior Human Resources Professional
(SHRP).
Alan G. Lieberman (June 1959) joined Balcor in May 1983 and is responsible for the Property Sales and Capital Markets Groups. Mr. Lieberman is a Certified Public Accountant.
Brian D. Parker (June 1951) joined Balcor in March 1986 and is responsible for Balcor's corporate and property accounting, treasury and budget activities. Mr. Parker is a Certified Public Accountant and holds an M.S. degree in Accountancy from DePaul University.
John K. Powell, Jr. (June 1950) joined Balcor in September 1985 and is responsible for the administration of the investment portfolios of Balcor's partnerships and for Balcor's risk management functions. Mr. Powell received a Master of Planning degree from the University of Virginia. He has been designated a Certified Real Estate Financier by the National Society for Real Estate Finance and is a full member of the Urban Land Institute.
Reid A. Reynolds (April 1950) joined Balcor in March 1981 and is involved with the asset management of residential properties for Balcor. Mr. Reynolds is a licensed Real Estate Broker in the State of Illinois.
Thomas G. Selby (July 1955) joined Balcor in February 1984 and has responsibility for various Asset Management functions, including oversight of the residential portfolio. From January 1986 through September 1994, Mr. Selby was Regional Vice President and then Senior Vice President of Allegiance Realty Group, Inc., an affiliate of Balcor providing property management services. Mr. Selby was responsible for supervising the management of residential properties in the western United States.
(d) There is no family relationship between any of the foregoing officers.
(f) None of the foregoing officers or employees are currently involved in any material legal proceedings nor were any such proceedings terminated during the fourth quarter of 1994.
Item 11.

Item 11. Executive Compensation - -------------------------------
The Registrant has not paid and does not propose to pay any remuneration to the executive officers and directors of the general partner. Certain of these officers receive compensation from The Balcor Company (but not from the Registrant) for services performed for various affiliated entities, which may include services performed for the Registrant. However, the general partner believes that any such compensation attributable to services performed for the Registrant is immaterial to the Registrant. See Note 7 of Notes to Financial Statements for the information relating to transactions with affiliates.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management - -----------------------------------------------------------------------
(a) No person owns of record or is known by the Registrant to own beneficially more than 5% of the Units issued by the Registrant, other than that listed in Item 12(b) below.
(b) Balcor Employee Investment Partners-1987, a partnership which is an affiliate of the General Partner, and the General Partner's officers and partners own as a group the following number of Units, which are controlled by the General Partner.
Amount Beneficially Title of Class Owned Percent of Class -------------- ------------- ----------------
Units 117,065 Units 12%
Relatives and affiliates of the officers and partners of the General Partner own an additional 334 Units.
(c) The Registrant is not aware of any arrangements, the operation of which may result in a change of control of the Registrant.
Item 13.

Item 13. Certain Relationships and Related Transactions - -------------------------------------------------------
(a & b) See Note 7 of Notes to Financial Statements for information relating to transactions with affiliates.
See Note 2 of Notes to Financial Statements for information relating to the Partnership Agreement and the allocation of distributions and profits and losses.
(c) No management person is indebted to the Registrant.
(d) The Registrant has no outstanding agreements with any promoters.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedule and Reports on Form 8-K - ------------------------------------------------------------------------
(a) (1 & 2) See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
(3) Exhibits:
(3) The Amended and Restated Agreement and Certificate of Limited Partnership, previously filed as Exhibit 3 to Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated December 17, 1986 (Registration No. 33-7858), is hereby incorporated herein by reference.
(4) Form of Subscription Agreement set forth as Exhibit 4.1 to Amendment No. 2 to the Registrant's Registration Statement on Form S-11 dated December 17, 1986 (Registration No. 33-7858) and Form of Confirmation regarding Depositary Units in the Registrant set forth as Exhibit 4.2 to the Registrant's Report on Form 10-Q for the quarter ended June 30, 1992 (Commission File No. 0-16712) are incorporated herein by reference.
(27) Financial Data Schedule of the Registrant for 1994 is attached hereto.
(b) Reports on Form 8-K: No reports were filed on Form 8-K during the quarter ended December 31, 1994.
(c) Exhibits: See Item 14(a)(3) above.
(d) Financial Statement Schedule: See Index to Financial Statements and Financial Statement Schedule in this Form 10-K.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of l934, the Registrant has duly caused this Report to be signed on its behalf by the undersigned, thereunto duly authorized.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP
By: /s/Allan Wood ---------------------------- Allan Wood Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of Balcor CIF Partners, the General Partner
Date: March 24, 1995 ----------------
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
Signature Title Date - --------------------- ------------------------------- ------------
President and Chief Executive Officer (Principal Executive Officer) of Balcor CIF Partners, /s/Thomas E. Meador the General Partner March 24, 1995 - -------------------- -------------- Thomas E. Meador
Executive Vice President, and Chief Accounting and Financial Officer (Principal Accounting and Financial Officer) of Balcor CIF /s/Allan Wood Partners, the General Partner March 24, 1995 - -------------------- -------------- Allan Wood
INDEX TO FINANCIAL STATEMENTS AND FINANCIAL STATEMENT SCHEDULE
Report of Independent Auditors
Financial Statements:
Balance Sheets, December 31, 1994 and 1993
Statements of Partners' Capital, for the years ended December 31, 1994, 1993 and 1992
Statements of Income and Expenses, for the years ended December 31, 1994, 1993 and 1992
Statements of Cash Flows, for the years ended December 31, 1994, 1993 and 1992
Notes to Financial Statements
Schedule:
III - Real Estate and Accumulated Depreciation, as of December 31, 1994
Schedules, other than that listed, are omitted for the reason that they are inapplicable or equivalent information has been included elsewhere herein.
REPORT OF INDEPENDENT AUDITORS
To the Partners of Balcor Current Income Fund-87 A Real Estate Limited Partnership:
We have audited the accompanying balance sheets of Balcor Current Income Fund-87 A Real Estate Limited Partnership (A Delaware Limited Partnership) as of December 31, 1994 and 1993, and the related statements of partners' capital, income and expenses and cash flows for each of the three years in the period ended December 31, 1994. Our audits also included the financial statement schedule listed in the Index at Item 14(a). These financial statements and schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Balcor Current Income Fund-87 A Real Estate Limited Partnership at December 31, 1994 and 1993, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1994, in conformity with generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
ERNST & YOUNG LLP
Chicago, Illinois March 1, 1995
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
BALANCE SHEETS December 31, 1994 and 1993
ASSETS
1994 1993 ------------- ------------- Cash and cash equivalents $ 639,493 $ 1,050,766 Escrow deposits 105,883 102,628 Deferred expenses, net of accumulated amortization of $50,445 in 1994 and $18,585 in 1993 108,855 140,715 ------------- ------------- 854,231 1,294,109 ------------- ------------- Investment in real estate, at cost: Land 940,021 940,021 Buildings and improvements 16,578,369 16,578,369 ------------- ------------- 17,518,390 17,518,390 Less accumulated depreciation 7,187,233 6,403,478 ------------- ------------- Investment in real estate, net of accumulated depreciation 10,331,157 11,114,912 ------------- ------------- $ 11,185,388 $ 12,409,021 ============= =============
LIABILITIES AND PARTNERS' CAPITAL
Loan payable - affiliate $ 1,041,594 $ 635,776 Accounts payable 17,887 16,758 Due to affiliates 118,273 115,869 Accrued liabilities, principally real estate taxes 283,839 287,318 Security deposits 41,760 59,708 Mortgage note payable 9,606,251 9,679,905 ------------- ------------- Total liabilities 11,109,604 10,795,334
Affiliate's participation in joint venture 24,869 29,673 Partners' capital (996,146 Units issued and outstanding) 50,915 1,584,014 ------------- ------------- $ 11,185,388 $ 12,409,021 ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 1994, 1993 and 1992
Partners' Capital (Deficit) Accounts ----------------------------------------- General Unit- Total Partner holders ------------- ------------- ------------- Balance at December 31, 1991 $ 4,398,276 $ (62,263) $ 4,460,539
Cash distributions to: Unitholders (A) (896,532) (896,532) General Partner (7,451) (7,451) Net loss for the year ended December 31, 1992 (492,547) (4,925) (487,622) ------------- ------------- ------------- Balance at December 31, 1992 3,001,746 (74,639) 3,076,385
Cash distributions to: Unitholders (A) (896,532) (896,532) General Partner (7,471) (7,471) Net loss for the year ended December 31, 1993 (513,729) (5,137) (508,592) ------------- ------------- ------------- Balance at December 31, 1993 1,584,014 (87,247) 1,671,261
Cash distributions to: Unitholders (A) (896,532) (896,532) General Partner (7,471) (7,471) Net loss for the year ended December 31, 1994 (629,096) (6,291) (622,805) ------------- ------------- ------------- Balance at December 31, 1994 $ 50,915 $ (101,009) $ 151,924 ============= ============= =============
(A) Summary of cash distributions paid per Unit:
1994 1993 1992 ------------- ------------- -------------
First Quarter $ .225 $ .225 $ .225 Second Quarter .225 .225 .225 Third Quarter .225 .225 .225 Fourth Quarter .225 .225 .225
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
STATEMENTS OF INCOME AND EXPENSES For the years ended December 31, 1994, 1993 and 1992
1994 1993 1992 ------------- ------------- ------------- Income: Rental and service $ 2,652,841 $ 2,598,588 $ 2,436,961 Interest on short-term investments 35,033 28,318 37,980 ------------- ------------- ------------- Total income 2,687,874 2,626,906 2,474,941 ------------- ------------- -------------
Expenses: Interest on promissory note payable - affiliates 356,633 825,203 Interest on mortgage note payable 843,120 520,648 Interest on short-term loan payable - affiliate 55,442 4,613 Depreciation 783,755 773,708 773,708 Amortization 31,860 18,585 Property operating 676,075 561,507 524,691 Maintenance and repairs 329,682 271,292 242,932 Real estate taxes 261,018 300,047 303,083 Property management fees 132,642 128,973 122,040 Incentive partnership management fees 56,033 67,240 67,240 Administrative 148,441 137,322 107,316 ------------- ------------- ------------- Total expenses 3,318,068 3,140,568 2,966,213 ------------- ------------- -------------
Loss before affiliate's participation in joint venture (630,194) (513,662) (491,272)
Affiliate's participation in loss (income) from joint venture 1,098 (67) (1,275) ------------- ------------- ------------- Net loss $ (629,096) $ (513,729) $ (492,547) ============= ============= ============= Net loss allocated to General Partner $ (6,291) $ (5,137) $ (4,925) ============= ============= ============= Net loss allocated to Unitholders $ (622,805) $ (508,592) $ (487,622) ============= ============= ============= Net loss per Unit (996,146 issued and outstanding) $ (0.63) $ (0.51) $ (0.49) ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
STATEMENTS OF CASH FLOWS For the years ended December 31, 1994, 1993 and 1992
1994 1993 1992 ------------- ------------- ------------- Operating activities: Net loss $ (629,096) $ (513,729) $ (492,547) Adjustments to reconcile net loss to net cash provided by operating activities: Affiliate's participation in (loss) income from joint venture (1,098) 67 1,275 Depreciation of property 783,755 773,708 773,708 Amortization of deferred expenses 31,860 18,585 Accrued interest expense due at maturity - affiliate 55,442 361,246 825,203 Net change in: Escrow deposits (3,255) (93,372) 54,228 Accounts payable 1,129 (7,671) (2,837) Due to affiliates 2,404 1,894 (4,719) Accrued liabilities (3,479) 12,729 28,002 Security deposits (17,948) 7,743 4,183 ------------- ------------- ------------- Net cash provided by operating activities 219,714 561,200 1,186,496 ------------- ------------- ------------- Investing activities: Additions to property (130,642) ------------- Net cash used in investing activities (130,642) ------------- Financing activities: Distributions to Unitholders (896,532) (896,532) (896,532) Distributions to General Partner (7,471) (7,471) (7,451) Capital contribution by joint venture partner - affiliate 157 Distributions to joint venture partner - affiliate (3,706) (3,278) (3,395) Proceeds from loan payable - affiliate 850,376 631,163 Repayment of loan payable - affiliate (500,000) Proceeds from issuance of mortgage note payable 9,720,000 Prepayment of promissory note payable - affiliate (9,790,420) Principal payments on mortgage note payable (73,654) (40,095) Payment of deferred expenses (159,300) Funding of improvement reserve (200,850) Proceeds from release of improvement reserve 200,850 ------------- ------------- ------------- Net cash used in financing activities (630,987) (545,776) (907,378)
------------- ------------- ------------- Net change in cash and cash equivalents (411,273) (115,218) 279,118 Cash and cash equivalents at beginning of year 1,050,766 1,165,984 886,866 ------------- ------------- ------------- Cash and cash equivalents at end of year $ 639,493 $ 1,050,766 $ 1,165,984 ============= ============= =============
The accompanying notes are an integral part of the financial statements.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
1. Accounting Policies:
(a) Depreciation expense is computed using the straight-line method. Rates used in the determination of depreciation are based upon the following estimated useful lives:
Years -----
Buildings and improvements 20 Furniture and fixtures 5
Maintenance and repairs are charged to expense when incurred. Expenditures for improvements are charged to the related asset account.
The Partnership records its investments in real estate at cost, and periodically assesses possible impairment to the value of its properties. In the event that the General Partner determines that a permanent impairment in value has occurred, the carrying basis of the property is reduced to its estimated fair value.
(b) Deferred expenses consist of loan commitment fees and other loan closing costs which are amortized over the term of the loan.
(c) Cash equivalents include all highly liquid investments with a maturity of three months or less when purchased.
(d) The Partnership is not liable for Federal income taxes and each partner recognizes his proportionate share of the Partnership income or loss in his tax return; therefore, no provision for income taxes is made in the financial statements of the Partnership.
(e) Reclassifications have been made to the previously reported 1993 and 1992 statements in order to provide comparability with the 1994 statements. These reclassifications have not changed the 1993 or 1992 results.
2. Partnership Agreement:
The Partnership was organized in July 1986. The Partnership Agreement provides for Balcor CIF Partners to be the General Partner and for the sale of up to 5,000,000 Limited Partnership Depositary Units at $15 per Unit, 996,146 of which were sold through December 1987, when the offering terminated.
The Partnership Agreement provides that, except for profit or loss from the sale or other disposition of Partnership property, each item of profit or loss will be allocated 1% to the General Partner and 99% to Unitholders. Net Cash Receipts available for distribution will be distributed to Unitholders on a quarterly basis as follows: 94% to Unitholders and 6% to the General Partner for the 12-month period commencing on the first day of the first full calendar quarter following the termination of the offering, 93% to Unitholders and 7% to the General Partner for the next 12-month period, 92% to Unitholders and 8% to the General Partner for the next 12-month period, 91% to Unitholders and 9% to the General Partner for the next 12-month period and 90% to Unitholders and 10% to the General Partner for each 12-month period thereafter. For such periods, 1% of such Net Cash Receipts shall be the General Partner's distributive share from operations and 5%, 6%, 7%, 8% and 9%, respectively, shall be its Incentive Partnership Management Fee. To the extent of any deficiency in the Unitholders' receipt of Preferred Distributions for any year, up to 25% of the General Partner's share of Net Cash Receipts (including Incentive Partnership
Management Fees) for that year shall be subordinated to the Unitholders' receipt of such Preferred Distributions. Preferred Distributions are those amounts equal to 8% per annum for the three-year period commencing on the first day of the full calendar quarter following the termination of the offering, 8.5% per annum for the next three-year period, 9% per annum for the next two-year period and 10% per annum for each 12-month period thereafter on Adjusted Original Capital, to be satisfied from Net Cash Receipts and Net Cash Proceeds.
The distributions paid to Unitholders in 1994, 1993 and 1992 represent average annual returns of 6.00% on Adjusted Original Capital. Since the Preferred Distribution levels to the Unitholders have not been attained in any year, the General Partner subordinated 25% of its share of Net Cash Receipts. The General Partner received $67,240, $67,240 and $65,208 of incentive partnership management fees and $7,471, $7,471 and $7,451 as its unsubordinated distributive share during 1994, 1993 and 1992, respectively. The remaining 75% of Net Cash Receipts distributions which the General Partner was entitled to receive in 1988 and 1989 was voluntarily subordinated to the prior receipt of certain returns to the Unitholders.
When the Partnership sells or refinances its property, the Net Cash Proceeds resulting therefrom which are available for distribution will be distributed first to the General Partner to the extent of its share of Net Cash Receipts voluntarily subordinated in 1988 and 1989 which totals $98,083; then to Unitholders until such time as Unitholders have received an amount equal to their Original Capital plus any deficiency in a 6% per annum Cumulative Distribution on Adjusted Original Capital. Thereafter, remaining Net Cash Proceeds will be paid to the General Partner to pay any subordinated real estate commissions on property sales; next, to pay to Unitholders an amount equal to any deficiency in their receipt of Preferred Distributions; next, to the General Partner in an amount equal to any deficiencies in its required subordinated share of Net Cash Receipts and Incentive Partnership Management Fees; and finally 85% to Unitholders and 15% to the General Partner.
3. Mortgage Note Payable:
In May 1993, the Partnership obtained a $9,720,000 first mortgage loan collateralized by Autumn Woods Apartments. The loan matures in June 1998, bears interest at a rate of 8.74%, and requires monthly payments of principal and interest of $76,398. During 1994 the Partnership incurred and paid interest expense of $843,120.
Approximate maturities of the Autumn Woods mortgage note payable during each of the next four years are summarized below.
1995 $ 80,000 1996 88,000 1997 96,000 1998 9,343,000
4. Management Agreement:
As of December 31, 1994, Autumn Woods Apartments is under a management agreement with a third-party management company. This management agreement provides for annual fees of 5% of gross operating receipts.
5. Affiliate's Participation in Joint Venture:
Autumn Woods Apartments is owned by a joint venture between the Partnership and an affiliated partnership. All assets, liabilities, income and expenses of the joint venture are included in the financial statements of the Partnership with the appropriate adjustment of profit or loss for the affiliate's participation in the joint venture. Profits and losses are allocated 99.7291% to the Partnership and .2709% to the affiliate.
6. Tax Accounting:
The Partnership keeps its books in accordance with the Internal Revenue Code, rules and regulations promulgated thereunder and existing interpretations thereof. The accompanying financial statements, which are prepared in accordance with generally accepted accounting principles, will differ from the tax returns due to the different treatment of various items as specified in the Internal Revenue Code. The net effect of these accounting differences is that the net loss for 1994 in the financial statements is $66,909 more than the tax loss of the Partnership for the same period.
7. Transactions with Affiliates:
Fees and expenses paid and payable by the Partnership to affiliates are:
Year Ended Year Ended Year Ended 12/31/94 12/31/93 12/31/92 -------------- -------------- -------------- Paid Payable Paid Payable Paid Payable ------ ------- ------ ------- ------ -------
Property management fees $121,289 None $128,591 $10,289 $122,133 $ 9,907 Incentive partnership management fees 67,240 $88,557 67,240 99,764 65,208 99,764 Reimbursement of expenses to the General Partner, at cost: Accounting 38,067 15,183 31,773 2,624 28,364 2,240 Data processing 12,200 2,131 4,329 640 6,094 475 Investor communica- tions 12,373 4,935 9,877 816 8,150 644 Legal 4,537 1,810 3,083 255 3,515 278 Portfolio management 9,296 3,707 9,288 767 3,704 293 Other 4,890 1,950 8,648 714 4,752 374
Allegiance Realty Group, Inc., an affiliate of the General Partner, managed the Partnership's property until the affiliate was sold to a third party in November 1994.
In May 1993, the Partnership used proceeds from the Autumn Woods first mortgage loan and a General Partner loan to prepay the zero coupon loan and accrued interest thereon. During 1993 and 1992, the Partnership incurred interest expense of $356,633 and $825,203 respectively, in connection with the zero coupon financing, all of which was paid in 1993.
In conjunction with the May 1993 financing of the Autumn Woods loan, the monthly debt service payments due on the first mortgage loan were required to be funded by advances from the General Partner through December 16, 1994, at which time the General Partner loan became due. The Partnership repaid $500,000 of the loan in December and the remainder of the General Partner loan has been extended and is expected to be repaid from the available cash flow from operations of the property. As of December 31, 1994, this loan had a balance of $1,041,594. During 1994 and 1993, the Partnership incurred interest expense of $55,442 and $4,613, respectively. Interest expense was computed at the American Express Company cost of funds rate plus a spread to cover administrative costs. As of December 31, 1994, this rate was 6.562%.
The Partnership participates in an insurance deductible program with other affiliated partnerships which program pays claims up to the amount of the deductible under the master insurance policies for its properties. The program is administered by an affiliate of the General Partner who receives no compensation for administering the program. The Partnership's premiums to the deductible insurance program were $27,289, $18,640 and $17,526 for 1994, 1993 and 1992, respectively.
8. Subsequent Event:
In January 1995, the Partnership made a distribution of $74,711 ($.075 per Unit) to the Unitholders for the fourth quarter of 1994.
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (An Illinois Limited Partnership)
BALCOR CURRENT INCOME FUND-87 A REAL ESTATE LIMITED PARTNERSHIP (A Delaware Limited Partnership)
NOTES TO SCHEDULE III
(a) See the description of the mortgage note payable in Note 3 of Notes to Financial Statements.
(b) Consists of legal fees, appraisal fees, title costs, other related professional fees and acquisition fees.
(c) The aggregate cost of land for Federal income tax purposes is $942,454 and the aggregate cost of buildings and improvements for Federal income tax purposes is $16,620,663. The total of the above-mentioned is $17,563,117.
(d) Reconciliation of Real Estate -----------------------------
1994 1993 1992 ---------- ---------- ----------
Balance at beginning of year $17,518,390 $17,387,748 $17,387,748
Additions during the year: Improvements None 130,642 None ----------- ----------- -----------
Balance at close of year $17,518,390 $17,518,390 $17,387,748 =========== =========== ===========
Reconciliation of Accumulated Depreciation ------------------------------------------
1994 1993 1992 ---------- ---------- ----------
Balance at beginning of year $6,403,478 $5,629,770 $4,856,062
Depreciation expense for the year 783,755 773,708 773,708 ---------- ---------- ----------
Balance at end of year $7,187,233 $6,403,478 $5,629,770 ========== ========== ==========
(e) Depreciation expense is computed based upon the following estimated useful lives: Years -----
Buildings and improvements 20 Furniture and fixtures 5


Item 1. Business
Premier Financial Services, Inc. (the "Company") is a registered bank holding company organized in 1976 under Delaware law. The operations of the Company and its subsidiaries consist primarily of those financial activities, including trust and investment services, common to the commercial banking industry. Unless the context otherwise requires, the term "Company" as used herein includes the Company and its subsidiaries on a consolidated basis. Substantially all of the operating revenue and net income of the Company is attributable to its subsidiary banks.
The primary function of the Company is to coordinate the banking policies and operations of its subsidiaries in order to improve and expand their services and effect economies in their operations by joint efforts in certain areas such as auditing, training, marketing, and business development. The Company also provides operational and data processing services for its subsidiaries. All services and counsel to subsidiaries are provided on a fee basis, with fees based upon fair market value.
The Company's banking subsidiaries include First Bank North ("FBN"), First Bank South ("FBS"), First National Bank of Northbrook ("FNBN") and First Security Bank of Cary Grove ("FSBCG"). Although chartered as commercial banks, the offices of the banks serve as general sales offices providing a full array of financial services and products to individuals, businesses, local governmental units and institutional customers throughout northern Illinois. Banking services include those generally associated with the commercial banking industry such as demand, savings and time deposits, loans to commercial, agricultural and individual customers, cash management, electronic funds transfers and other services tailored for the client. The Company has banking offices located in Freeport, Stockton, Warren, Mt. Carroll, DeKalb, Dixon, Rockford, Polo, Sterling, Northbrook, Riverwoods and Cary, Illinois.
Premier Trust Services, Inc., ("PTS") a wholly owned subsidiary of FBN, provides a full line of fiduciary and investment services throughout the Company's general market area. Premier Insurance Services, Inc., also a wholly owned subsidiary of FBN, is a full line casualty and life insurance agency.
Premier Operating Systems, Inc., ("POS") a direct subsidiary of the Company, provides data processing and operational services to the Company and its subsidiaries.
Competition
Active competition exists in all principal areas where the Company and its subsidiaries are engaged, not only with commercial banking organizations, but also with savings and loan associations, finance companies, mortgage companies, credit unions, brokerage houses and other providers of financial services. The Company has seen the level of competition and number of competitors in its markets increase in recent years and expects a continuation of these aggressively competitive market conditions.
To gain a competitive market advantage, the Company relies on a strategic marketing plan that is employed throughout the Company, reaching every level of its sales force. The marketing plan includes the identification of target markets and customers so that the Company's resources, both financial and manpower, can be utilized where the greatest opportunities for gaining market share exist. The differentiation between the Company's approach to providing products and services to its customers and that of the competition is in the individualized attention that the Company devotes to the needs of its customers. This focus on fulfilling customer's financial needs generally results in long - -term customer relationships.
Banking deposits are well balanced, with a large customer base and no dominant accounts in any category. The Company's loan portfolio is also characterized by a large customer base, balanced between loans to individuals, commercial and agricultural customers, with no dominant relationships. There is no readily available source of information which delineates the market for financial services, including services offered by non-bank competitors, in the company's market area.
Regulation and Supervision
Bank holding companies and banks are extensively regulated under both federal and state law. To the extent that the following information describes statutory and regulatory provisions, it is qualified in its entirety by references to the particular statutes and regulations. Any significant change in applicable law or regulation may have an effect on the business and prospects of the Company and its subsidiaries.
The Company is registered under and is subject to the provisions of the Bank Holding Company Act, and is regulated by the Federal Reserve Board. Under the Bank Holding Company Act the Company is required to file annual reports and such additional information as the Federal Reserve Board may require and is subject to examination by the Federal Reserve Board. The Federal Reserve Board has jurisdiction to regulate all aspects of the Company's business.
The Bank Holding Company Act requires every bank holding company to obtain the prior approval of the Federal Reserve Board before merging with or consolidating into another bank holding company, acquiring substantially all the assets of any bank or acquiring direct or indirect ownership or control of more than 5% of the voting shares of any bank. Bank holding companies are also prohibited from acquiring shares of any bank located outside the state in which the operations of the holding company's banking subsidiaries are principally conducted unless such an acquisition is specifically authorized by statute of the state of the bank whose shares are to be acquired. On September 29, 1994, the Reigle-Neal Interstate Banking and Branching Efficiency Act (the "Reigle- Neal Act") became law. The Act authorizes interstate acquisitions by bank holding companies, interstate mergers of banks, interstate bank branching and "agency banking" with affiliate banks in different states.
There are several effective dates under the Reigle-Neal Act. Generally, interstate acquisitions and "agency banking" are permitted as of September 29, 1995, and interstate bank mergers and interstate branching are permitted as of June 1, 1997. However, states may "opt-in" or "opt-out" of the interstate merger and branching provisions before June 1, 1997.
The Bank Holding Company Act also prohibits a bank holding company, with certain exceptions, from acquiring direct or indirect ownership or control of more than 5% of the voting shares of any company which is not a bank and from engaging in any business other than that of banking, managing and controlling banks, or services to banks and their subsidiaries. The Company, however, may engage in certain businesses determined by the Federal Reserve Board to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. The Bank Holding Company Act does not place territorial restrictions on the activities of bank holding companies or their nonbank subsidiaries.
The Company is also subject to the Illinois Bank Holding Company Act of 1957, as amended (the "Illinois Act"). Effective December 1, 1990, certain provisions of the Illinois Act were amended to permit Illinois banks and bank holding companies to acquire or be acquired by banks and bank holding companies located in any state having a reciprocal law. The approval of the Commissioner of Banks and Trusts Companies of Illinois is required to complete such an interstate acquisition in Illinois. The Illinois Act also permits intrastate acquisition throughout Illinois by Illinois bank holding companies.
The passage of the Financial Institutions Reform, Recovery and Enforcement Act of 1989 ("FIRREA") resulted in significant changes in the enforcement powers of federal banking agencies, and more significantly, the manner in which the thrift industry is regulated. While FIRREA's primary purpose is to address public concern over the financial crisis of the thrift industry through the imposition of strict reforms on that industry, FIRREA grants bank holding companies more expansive rights of entry into "the savings institution" market through the acquisition of both healthy and failed savings institutions. Under the provisions of FIRREA, a banking holding company can expand its geographic market or increase its concentration in an existing market by acquiring a savings institution, but the bank holding company cannot expand its product market by acquiring a savings institution.
FIRREA authorizes the Federal Reserve Board to approve applications under Section 4(c)(8) of the Act for bank holding companies to acquire savings associations, under certain conditions, regardless of the associations' financial condition. Previously, under the provisions of the Garn-St. Germain Depository Institutions Act of 1983 and subsequent Federal Reserve Board interpretations, bank holding companies could generally acquire only failing thrifts. Under FIRREA, they realize a significant expansion of authority. Furthermore, bank holding companies may acquire thrifts without regard to certain restrictions on interstate banking, as long as the thrift is operated as a separate subsidiary. FIRREA also allows a bank holding company to merge an acquired savings association or branch office with a bank holding company's subsidiary bank, if the bank continues to pay insurance assessments to the Savings Association Insurance Fund for the deposits acquired from the savings association and if, among other conditions, the merger complies. with current state law. On September 5, 1989, the Federal Reserve Board promulgated a final rule amending Regulation Y to allow bank holding companies to acquire savings associations.
On December 19, 1991, The Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") was enacted into law. In addition to providing for the recapitalization of the Bank Insurance Fund (the"BIF"), FDICIA contains, among other things: (i) truth-in savings legislation that requires financial institutions to disclose terms, conditions, fees and yields on deposit accounts in a uniform manner; (ii) provisions that impose strict audit requirements and expand the role of independent auditors of financial institutions; (iii) provisions that require regulatory agencies to examine financial institutions more frequently than was required in the past; (iv) provisions that limit the powers of state-chartered banks to those of national banks unless the state-chartered bank meets minimum capital requirements and the FDIC finds that the activity to be engaged in by the state-chartered banks poses no significant risk to the BIF; (v) provisions that require the expedited resolution of problem financial institutions; (vi) provisions that require regulatory agencies to develop a method for financial institutions to provide information concerning the estimated fair market value of assets and liabilities as supplemental disclosures to the financial statements filed with the regulatory agencies; (vii)provisions that require regulators to consider adopting capital requirements that account for interest rate risk; (viii) provisions that require the regulatory agencies to adopt regulations that facilitate cross-industry transactions, and (ix) provisions for acquisition of banks by thrift institutions.
While regulations implementing many of the provisions of FDICIA have been issued by the federal banking agencies, regulations implementing certain significant FDICIA requirements (including requirements for establishment of operational and managerial standards to promote bank safety and soundness and modification of regulatory capital standards to account for interest rate risk) have not yet been issued in final form. Consequently, it is not possible at this time to determine the full impact FDICIA will have on the Company and its operations. It is expected, however, that FDICIA is likely to result in, among other things, increased regulatory compliance costs and a greater emphasis on capital.
The Company's Subsidiaries
FBN and FBS are State chartered, Federal Reserve member banks. They are, therefore, subject to regulation and an annual examination by the Illinois Commissioner of Banks and Trust Companies and by the Board of Governors of the Federal Reserve Bank. FNBN is a nationally chartered bank and is under the supervision of and subject to examination by the Comptroller of the Currency. All national banks are members of the Federal Reserve System and subject to applicable provisions of the Federal Reserve Act and to regular examination by the Federal Reserve Bank of their district. FSBCG is a State chartered non- member bank and is subject to regulation and an annual examination by the Illinois Commissioner of Banks and Trust Companies and by the Federal Deposit Insurance Corporation.
All of the Company's banks are insured by the Federal Deposit Insurance Corporation and each bank is consequently subject to the provisions of the Federal Deposit Insurance Act. The examinations by the various regulatory authorities are designed for the protection of bank depositors and not for bank or holding company stockholders.
The federal and state laws and regulations generally applicable to banks regulate, among other things, the scope of their business, their investments, their reserves against deposits, the nature and amount of and collateral for loans, minimum capital requirements and the number of banking offices and activities which may be performed at such offices.
Subsidiary banks of a bank holding company are subject to certain restrictions under the Federal Reserve Act and the Federal Deposit Insurance Act on loans and extensions of credit to the bank holding company or to its other subsidiaries, investments in the stock or other securities of the bank holding company or its other subsidiaries, or advances to any borrower collateralized by such stock or other securities.
Capital Requirements
In December 1992, the Federal Reserve Board's final rules for risk-based capital guidelines became effective. These guidelines establish risk-based capital ratios based upon the allocation of assets and specified off-balance sheet commitments into four risk-weighted categories. The guidelines require all bank holding companies and banks to maintain a minimum Tier 1 capital to risk weighted asset ratio of 4% and a total capital to risk weighted asset ratio of at least 8.00%. In addition to the risk-based capital guidelines, the Federal Reserve Board has adopted the use of a leverage ratio as an additional tool to evaluate the capital adequacy of banks and bank holding companies. The leverage ratio is defined to be a company's "Tier 1" capital divided by its adjusted total assets. The Company and its banking subsidiaries meet or exceed the regulating capital guidelines as currently defined.
Monetary Policy and Economic Conditions
The earnings of commercial banks and bank holding companies are affected not only by general economic conditions, but also by the policies of various governmental regulatory authorities. In particular, the Federal Reserve Board influences conditions in the money and capital markets, which affect interest rates and growth in bank credit and deposits. Federal Reserve Board monetary policies have had a significant effect on the operating results of commercial banks in the past and are expected to in the future. Also, assessments from the Bank Insurance Fund, which insures commercial bank deposits, will continue to impact future earnings of the company.
Employees
As of December 31, 1994, the Company and its subsidiaries had a total of 273 full-time and 65 part-time employees.
Item 2.

Item 2. Properties
The Company owns a two story office building at 27 West Main Street, Freeport, Illinois which has a total of 13,900 square feet and approximately 5.5 acres of land located at the northeast corner of Lake-Cook Road and Corporate Drive in Riverwoods, Illinois. The land in Riverwoods, Illinois was acquired in 1992 for possible future use as a branch site or denovo bank location.
FBN conducts its operations from its offices located in Freeport, Stockton, Rockford, Warren, Mount Carroll, and DeKalb, Illinois. Its main office is located at 101 West Stephenson Street, Freeport, Illinois and includes approximately 26,400 square feet. In addition, two other office buildings are attached to the bank's main office by a parking deck. One is occupied by the Commercial Division. The other serves as a drive in facility and operations center. All three buildings including the underlying land, are owned by the Bank. FBN also operates a remote banking facility located approximately 1.5 miles southwest of the Bank's main office in a shopping center. The underlying land is leased by FBN from an unaffiliated party through 1995, and the Bank has an option to renew through 2000. The annual rental payment for the remaining year is $6,000.
FBN's office in Mount Carroll is located at 102 E. Market Street, Mount Carroll, Illinois, with a separate drive-in facility located at 315 N. Clay Street (Highway 78), in Mount Carroll. The main bank building, containing approximately 12,000 square feet, is owned by the bank as is the underlying land. FBN occupies the main floor and most of the basement, with total square footage of approximately 9,000 square feet. The second floor, containing approximately 3,400 square feet, is rented to various professional organizations. The drive-in facility is approximately one block east of the main office. It houses the drive-in and walk-up facilities as well as a small lobby in a building containing approximately 1,200 square feet. The drive-in facility as well as the underlying land is owned by FBN.
FBN conducts its operations in Stockton from its quarters located at 133 W. Front Street, Stockton, Illinois. The office at Stockton includes drive-in facilities and is approximately 8,000 square feet. The building, underlying land and an adjoining 9,000 square foot parking lot are owned by FBN.
FBN's office in Warren is located at 135 Main Street, Warren, Illinois. The building, which contains approximately 9,000 square feet is owned and occupied by the bank. The building also houses its wholly owned insurance subsidiary, Premier Insurance Services, Inc.
FBN's Rockford office is located at 3957 Mulford Road, Rockford, Illinois. Both the building which contains approximately 1358 square feet and underlying land are leased from an unaffiliated party through May 1, 1999, with an option to renew annually.
FBN's office in DeKalb is located at 301-9 East Lincoln Highway, DeKalb, Illinois. Both the building and underlying land are leased from an unaffiliated party through August 1995, with an option to renew annually.
FBS conducts its operations from its offices located in Dixon, Polo, and Sterling, Illinois. Its main office is located at 102 Galena Avenue, Dixon, Illinois. The building, which contains approximately 15,000 square feet, is owned and occupied by the bank. The land underlying the building, as well as an adjoining parking lot, are also owned by the bank.
FBS's office in Polo is located at 101 W. Mason St., Polo, Illinois. Drive - -In and Walk-up facilities are part of the building. The building contains approximately 17,000 square feet, and is owned by the bank as is the underlying land. FBS occupies the first floor and the majority of the basement, with total square footage of about 10,000 square feet. The remainder of the basement and the second floor, which contain the remaining 7,000 square feet, are rented to various professional and/or retail organizations.
FBS's Sterling office is located at 3014 E. Lincolnway, Sterling, Illinois. Drive-in and Walk-up facilities are part of the building. The building contains approximately 6,800 square feet. Both the building, which is occupied solely by the bank, and the underlying land are owned by FBS.
FNBN owns the land and building on which its main office and adjacent drive-through facility are located at 1300 Meadow Road, Northbrook, Illinois. The two story, colonial building and drive-through facility are located on 30,318 square feet of land. The main building consists of 8,035 square feet. This property also includes a satellite parking area with 29 parking spaces.
FNBN also owns the land and building located at 2755 West Dundee Road, Northbrook, Illinois, which houses a full-service branch facility. The building consists of 4,913 square feet and is located on 22,500 square feet of land. FNBN leases 16,739 square feet for its Riverwoods branch at Milwaukee and Deerfield Road.
FSBCG conducts its business in Cary from its main office located at Route 45 Highway 14. The main bank building containing approximately 3,500 square feet is owned by the bank as is the 4 lane drive-through and the underlying land. The adjoining parking lot contains 26,000 square feet of land.
FSBCG owns a second banking center at 3114 Northwest Highway, Cary, Illinois. The building consists of 1,856 square feet, and three drive-through lanes situated on 145,953 square feet of land.
Premier Operating Systems, Inc. conducts the majority of its operations from a 13,000 square foot, two story office building at 110 West Stephenson Street, Freeport, Illinois. The building and underlying land is owned by Premier Operating Systems, Inc.
Item 3.

Item 3. Legal Proceedings
Neither the Company nor its subsidiaries are a party to any material legal proceedings, other than routine litigation incidental to the business of the banks as of December 31, 1994.
Item 4.

Item 4. Submission of Matters to a Vote of Security Holders
No matters, through the solicitation of proxies or otherwise, have been submitted to a vote of security holders for the quarter ended December 31, 1994.
PART II
Item 5.

Item 5. Market for the Registrant's Common Stock and Related Stockholder Matters
The approximate number of Holders of Common Stock as of 12/31/94 was as follows: Title of Class No. of Record Holders
Common Stock 671 ($5 Par Value)
Other information required by this item is incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1994, which is included as an exhibit to this report.
Item 6.

Item 6. Selected Financial Data
Incorporated herein by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1994, which is included as an exhibit to this report.
On July 16, 1993, the Company acquired 100% of the common stock of First Northbrook Bancorp, Inc. The acquisition was accounted for as a purchase transaction; accordingly, the assets and liabilities of First Northbrook Bancorp, Inc. were recorded at fair market value on the acquisition date and the results of operations have been included in the consolidated statements of earnings since July 16, 1993. For a discussion regarding the business combination see footnote #12 on pages 16 and 17 of Registrant's Annual Report.
Item 7.

Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations
Incorporated by reference to the Registrant's Annual Report to its shareholders for the year ended December 31, 1994, which is included as an exhibit to this report.
Submitted herewith is the following supplementary financial information of the registrant for each of the last five years (Unless otherwise stated):
Distribution of Assets, Liabilities and Stockholders' Equity Interest Rates and Interest Differential Changes in Interest Margin for each of the last two years Investment Portfolio Maturities of Investments, December 31, 1994 Loan Portfolio Loan Maturities and Sensitivity to Changes in Interest Rates, December 31, 1994 Risk Elements in the Loan Portfolio Summary of Loan Loss Experience Deposits Time Certificates and Other Time Deposits of $100,000 or more as of December31, 1994 Return on Equity and Assets Short Term Borrowings
Item 8.

Item 8. Financial Statements and Supplementary Data
The following consolidated financial statements of the Company, which are included in the annual report of the registrant to its stockholders for the year ended December 31, 1994, are submitted herewith as an exhibit, and are incorporated by reference:
1. Consolidated Balance Sheets, December 31, 1994 and 1993 2. Consolidated Statements of Earnings, for the three years ended December 31, 1994 3. Consolidated Statements of Changes in Stockholders' Equity for the three years ended December 31, 1994 4. Consolidated Statements of Cash Flows for the three years ended December 31, 1994 5. Notes to Consolidated Financial Statements 6. Independent Auditors' Report
Item 9.

Item 9. Change in and Disagreements with Accountants on Accounting and Financial Disclosures
None
DISTRIBUTION OF ASSETS, LIABILITIES AND STOCKHOLDERS' EQUITY
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's consolidated average daily condensed balance sheet for each of the last five years (dollar figures in thousands): Year Ended December 31
1990 1991 1992 1993 1994
ASSETS: Cash & Non-interest bearing deposits $ 16,457 $ 15,129 $ 17,162 $30,003 $ 27,316 Interest Bearing Deposits 1,701 1,114 880 1,677 12,027
Taxable Investment Securities 119,804 114,281 95,691 102,323 185,110 Non-Taxable Investment Securities 20,102 26,200 24,374 37,038 40,498
Total Investment Securities 139,906 140,481 120,065 139,361 225,608
Trading Account Assets 386 773 2,017 --- --- Federal Funds Sold 9,390 1,704 656 4,706 3,737 Loans (Net) 169,711 182,975 219,684 273,951 287,825 All Other Assets 17,827 16,755 17,450 32,101 46,101
TOTAL ASSETS $355,378 $358,931 $377,914 $481,799 $602,614
LIABILITIES & STOCKHOLDERS EQUITY: Non-Interest Bearing Deposits $ 36,437 $ 36,118 $ 38,402 $ 66,895 $ 88,594 Interest Bearing Deposits 275,436 244,253 259,271 335,510 420,530
Total Deposits 311,873 280,371 297,673 402,405 509,124
Short Term Borrowings 12,469 49,544 47,556 24,014 33,033 Long Term Debt 4,532 826 --- --- --- All Other Liabilities & Reserves 3,500 2,861 2,844 10,785 4,619 Stockholders' Equity 23,004 25,329 29,841 44,595 55,838
TOTAL LIABILITIES & EQUITY $355,378 $358,931 $377,914 $481,799 $602,614
INTEREST RATES AND INTEREST DIFFERENTIAL PREMIER FINANCIAL SERVICES, INC. The following table sets forth the registrant's interest earned or paid, as well as the average yield or average rate paid on each of the major interest earning assets and interest bearing liabilities for each of the last five years (dollar figures are in thousands): Year Ended December 31
1990 1991 1992 1993 1994 Interest Earned: Interest Bearing Deposits Interest Earned $ 144 $ 94 $ 68 $ 104 $ 514 Average Yield 8.47% 8.43% 7.73% 6.20% 4.27% Taxable Investment Securities Interest Earned 10,234 9,387 6,691 6,077 9,929 Average Yield 8.54% 8.21% 6.99% 5.94% 5.36% Non-Taxable Investment Securities (taxable equivalent) (1) Interest Earned 1,961 2,593 2,418 3,080 3,965 Average Yield 9.76% 9.89% 9.92% 8.32% 9.79% Trading Account Assets Interest Earned 31 58 151 --- --- Average Yield 8.03% 7.50% 7.49% --- --- Federal Funds Sold Interest Earned 768 88 25 133 150 Average Yield 8.18% 5.16% 3.81% 2.83% 4.01% Loans (Excluding Unearned Discount & Non Accrual Loans) (taxable equivalent) (1) Interest & Fees Earned (2) 19,226 19,357 19,860 22,262 23,641 Average Yield (3) 11.21% 10.56% 9.06% 8.13% 8.21% Interest Paid: Interest Bearing Deposits Interest Paid 18,464 14,358 11,559 11,461 13,511 Average Effective Rate Paid 6.70% 5.87% 4.46% 3.42% 3.21% Borrowed Funds Interest Paid 968 2,921 1,800 1,289 1,619 Average Effective Rate Paid 7.76% 5.89% 3.79% 5.37% 4.90% Long Term Debt Interest Paid 465 88 --- --- --- Average Effective Rate Paid 10.26% 10.65% --- --- --- Margin Between Rates Earned and Rates Paid: All Interest Earnings Assets (taxable equivalent) Interest & Fees Earned 32,364 31,577 29,213 31,656 38,199 Average Yield 10.02% 9.65% 8.52% 7.55% 7.24% All Interest Bearing Liabilities Interest Paid 19,898 17,367 13,359 12,750 15,130 Average Effective Rate Paid 6.80% 5.89% 4.35% 3.55% 3.33%
Net Interest Earned 12,466 14,210 15,854 18,906 23,069
Net Yield 3.86% 4.34% 4.62% 4.43% 4.32% (1) Yields on tax exempt securities and loans are full tax equivalent yields at 34%. (2) Includes fees of $255, $548, $568, $718 and $675 for 1990 through 1994 respectively. (3) There were no material out-of-period adjustments or foreign activities for any reportable period.
CHANGES IN INTEREST MARGIN
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's dollar amount of change in interest earned on each major interest earning assets and the dollar amount of change in interest paid on each major interest bearing liabilities, as well as the portion of such changes attributable to changes in rate and changes in volume for each of the last two years (Dollar figures in thousands): Increase (Decrease) 1993 over 1992 1994 over 1993 Rate Volume Rate Volume Changes in Interest Earned:
Interest Bearing Deposits $ (16) $ 52 (42) 452
Taxable Investment Securities (1,055) 441 (644) 4,496
Non-taxable Investment Securities (taxable equivalent) (438) 1,100 579 306
Trading Account Assets --- (151) --- ---
Fed Funds Sold (8) 116 48 (31)
Loans (net) (2,185) 4,587 224 1,155
Total $(3,702) $6,145 $ 165 6,378
Changes in Interest Paid:
Interest Bearing Deposits $(3,051) $2,953 (735) 2,785
Short Term Borrowings 581 (1,092) (121) 451
Total $(2,470) 1,861 (856) 3,236
Changes in Interest Margin $(1,232) $4,284 $ 1,021 $3,142
Changes attributable to rate/volume, i.e., changes in the interest margin which occurred because of a combination rate/volume change and cannot be attributed solely to a rate change or a volume change, are apportioned between rate and volume as follows:
1. Percentage rate increases (decreases) in rate and in volume were calculated for each major interest earning asset and interest bearing liability based upon their year-to-year change.
2. The percentage rate changes in rate and in volume were then allocated proportionately in relationship to 100%.
3. The proportionate allocations were applied to the total rate/volume change.
INVESTMENT PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities for each of the last five years (dollar figures in thousands):
1990 1991 1992 1993 1994 U.S. Treasury and U.S. Agency Securities $114,485 $ 89,825 $ 77,897 $140,725 $203,956 Obligations of States and Political Subdivisions 26,145 25,258 24,358 36,693 40,513
Other Securities 16,425 10,308 3,580 3,068 4,009
Total $157,055 $125,391 $105,835 $180,486 $248,478
The following table sets forth the registrant's book values of investments in obligations of the U.S. Treasury, U.S. Government Agencies and Corporations, State and Political Subdivisions (U.S.), and other securities as of December 31, 1994 by maturity and also sets forth the weighted average yield for each range of maturities.
Obligations of U.S. Treasury States and Weighted and U.S. Agency Political Other Average Book Value: Securities Subdivision Securities Yield
One Year or Less $ 85,341 $ 9,025 $ --- 6.17% After One Year to Five Years 75,434 21,739 18 6.98% After Five Years to Ten Years 8,729 5,949 --- 9.00% Over Ten Years 34,452 3800 3,991 8.74%
Total $ 203,956 $ 40,513 $ 4,009 6.77%
(1) Weighted Average Yields were calculated as follows:
1. The weighted average yield for each category in the portfolio was calculated based upon the maturity distribution shown in the table above.
2. The yields determined in step 1 were weighted in relation to the total investments in each maturity range shown in the table above.
(2) Yields on tax exempt securities are full tax equivalent yields at a 34% rate.
(3) At December 31, 1994 the Company did not own any Obligation of a State or Political Subdivision or Other Security which was greater than 10% of its total equity capital.
LOAN PORTFOLIO
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's Loan Portfolio by major category for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Commercial & Financial Loans $ 56,043 $ 83,777 $ 88,341 $121,514 $ 91,392 Agricultural Loans 38,738 32,428 45,924 40,972 31,564 Real Estate - Residential Mortgage Loans 56,980 66,256 54,728 103,234 86,105 Real Estate - Other 10,130 18,289 16,904 35,832 53,289 Loans to Individuals 16,185 13,364 13,268 29,728 22,056 Other Loans 1,857 859 980 625 394
179,933 214,973 220,145 331,905 284,800
Less: Unearned Discount 223 231 182 518 344 Allowance for Possible Loan Losses 3,160 3,202 2,713 4,369 3,688
Net Loans $176,550 $211,540 $217,250 $327,018 $280,768
The following tables set forth the registrant's loan maturity distribution for certain major categories of loans as of December 31, 1994 (dollar figures in thousands). AMOUNT DUE IN
1 Year or Less 1-5 Years After 5 Years
Commercial & Financial Loans $ 77,301 $ 13,947 $ 144 Agricultural Loans 26,806 4,471 287 Real Estate - Other Loans 26,528 22,715 4,046
Total $ 130,635 $ 41,133 $ 4,477
As of December 31, 1994 loans totaling $45,274,000, which are due after one year have predetermined interest rates, while $336,000 of loans due after one year have floating interest rates.
RISK ELEMENTS IN THE LOAN PORTFOLIO PREMIER FINANCIAL SERVICES, INC.
The Company's financial statements are prepared on the accrual basis of accounting, and substantially all of the loans currently accruing interest are accruing at the rate contractually agreed upon when the loan was negotiated. When in the judgement of management the timely receipt of interest payments on a loan is doubtful, it is the Company's policy to cease the accrual of interest thereon and to recognize income on a cash basis when payments are received, unless there is adequate collateral or other substantial basis for continued accrual of interest. An exception is made in the case of consumer installment and charge card loans; such loans are not placed on a cash basis and all interest accrued thereon is charged against income at the time a loan is charged off. At the time a loan is placed in non-accrual status all interest accrued in the current year but not yet collected is reversed against current interest income. Troubled debt restructurings (renegotiated loans) are loans on which interest is being accrued at less than the original contractual rate of interest because of the inability of the borrower to service the obligation under the original terms of the agreement. Income is accrued at the renegotiated rate so long as the borrower is current under the revised terms and conditions of the agreement. Other Real Estate is real estate, sales contracts, and other assets acquired because of the inability of the borrower to serve the obligation of a previous loan collateralized by such assets.
The following table sets forth the registrant's non-accrual, past due, and renegotiated loans, and other Real Estate for each of the last five years (dollar figures in thousands): Year Ended December 31
1990 1991 1992 1993 1994 Non-accrual Loans $ 156 $ 3,683 $ 2,915 $ 5,791 $ 4,879 Loans Past Due 90 days or More 946 501 152 5,151 144 Renegotiated Loans 372 314 288 523 261 Other Real Estate 210 48 153 1,749 1,403
Total $ 1,684 $ 4,546 $ 3,508 $13,214 $6,687
The following table sets forth interest information for certain non- performing loans for the year ended December 31, 1994 (dollar figures in thousands): Non-Accrual Loans Renegotiated Loans
Balance December 31, 1994 $ 4,879 $ 261
Gross interest income that would have been recorded if the loans had been current in accordance with their original terms 507 23
Amount of interest included in net earnings. 87 23
SUMMARY OF LOAN LOSS EXPERIENCE PREMIER FINANCIAL SERVICES, INC.
The Company and its subsidiary banks have historically evaluated the adequacy of their Allowance for Possible Loan Losses on an overall basis, and the resulting provision charged to expense has similarly been determined in relation to management's evaluation of the entire loan portfolio. In determining the adequacy of its Allowance for Possible Loan Losses, management considers such factors as the size, composition and quality of the loan portfolio, historical loss experience, current loan losses, current potential risks, economic conditions, and other risks inherent in the loan portfolio.
Because the Company has historically evaluated its Allowance for Loan Losses on an overall basis, the Allowance has not been allocated by category. The allocation shown in the table below, encompassing the major segments of the loan portfolio judged most informative by management, represents only an estimate for each category of loans based upon historical loss experience and management's judgement of amounts deemed reasonable to provide for the possibility of losses being incurred within each category. Approximately 28% remain unallocated as a general valuation reserve for the entire portfolio to cover unexpected variations from historical experience in individual categories. The following table sets forth the registrant's loan loss experience for each of the last five years (dollar figures in thousands):
Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/94:
Loans-year End (Gross) $ 122,956 $139,394 $ 22,056 $ 394 $ --- $284,800 Average Loans (Gross) 131,808 135,561 24,354 581 --- 292,304 Allowance for Loan Losses (Beginning of Year) 1,105 1,607 585 21 1,051 4,369
Loans Charged Off 1,081 73 370 --- --- 1,524 Recoveries - Loans Previously Charged Off 414 15 214 --- --- 643 Net Loan Losses (Recoveries) 667 58 156 --- --- 881 Operating Expense Provision 200 --- --- --- --- 200 Allowance For Loan Losses (Year End) 638 1,549 429 21 1,051 3,688
Ratios: Loans in Category to Total Loans 43.17% 48.95% 7.74% .14% --- 100% Net Loan Losses (Recoveries) to Average Loans .50% .04% .64% --- --- .30%
Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/93: Loans-year End (Gross) $162,486 $139,066 $29,728 $ 625 --- $331,905 Average Loans (Gross) 148,376 107,254 21,498 800 --- 277,928 Allowance for Loan Losses (Beginning of Year) 1,062 853 77 21 700 2,713 Allowance from Acquired Entities 750 750 500 --- 351 2,351 Loans Charged Off 1,845 546 129 --- --- 2,520 Recoveries - Loans Previously Charged Off 138 --- 67 --- --- 205 Net Loan Losses (Recoveries) 1,707 546 62 --- --- 2,315 Operating Expense Provision 1,000 550 70 --- --- 1,620 Allowance For Loan Losses (Year End) 1,105 1,607 585 21 1,051 4,369 Ratios: Loans in Category to Total Loans 48.96% 41.90% 8.96% .18% --- 100% Net Loan Losses (Recoveries) to Average Loans 1.15% .51% .29% --- --- .83%
Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total Year Ended 12/31/92: Loans-year End (Gross) $ 134,265 $ 71,632 $ 13,268 $ 980 $ --- $220,145 Average Loans (Gross) 129,764 77,851 13,976 1,041 --- 222,632 Allowance for Loan Losses (Beginning of Year) 1,553 832 97 21 700 3,203 Loans Charged Off 925 9 124 --- --- 1,058 Recoveries - Loans Previously Charged Off 159 30 54 --- --- 243 Net Loan Losses (Recoveries) 766 (21) 70 --- --- 815 Operating Expense Provision 275 --- 50 --- --- 325 Allowance For Loan Losses (Year End) 1,062 853 77 21 700 2,713 Ratios: Loans in Category to Total Loans 60.99% 32.54% 6.03% .44% --- 100% Net Loan Losses (Recoveries) to Average Loans .59% (.03%) .50% --- --- .37%
Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/91: Loans-year End (Gross) $ 116,205 $ 84,545 $ 13,364 $ 859 $ --- $214,973 Average Loans (Gross) 101,545 69,453 13,873 1,500 --- 186,371 Allowance for Loan Losses (Beginning of Year) 1,394 837 208 21 700 3,160 Loans Charged Off 337 36 165 --- --- 538 Recoveries - Loans Previously Charged Off 496 31 54 --- --- 581 Net Loan Losses (Recoveries) (159) 5 111 --- --- (43) Operating Expense Provision --- --- --- --- --- --- Allowance For Loan Losses (Year End) 1,553 832 97 21 700 3,203 Ratios: Loans in Category to Total Loans 54.06% 39.32% 6.22% .40% --- 100% Net Loan Losses (Recoveries) to Average Loans (.16%) .01% .80% --- --- (.02%)
Commercial & Real Loans to Agricultural Estate Individuals Other Unallocated Total
Year Ended 12/31/90: Loans-year End (Gross) $ 94,781 $ 67,110 $ 16,185 $ 1,857 $ --- $179,933 Average Loans (Gross) 88,431 66,887 15,789 2,204 --- 173,311 Allowance for Loan Losses (Beginning of Year) 1,647 824 285 21 700 3,477 Loans Charged Off 712 58 120 --- --- 890 Recoveries - Loans Previously Charged Off 459 71 43 --- --- 573 Net Loan Losses (Recoveries) 253 (13) 77 --- --- 317 Operating Expense Provision --- --- --- --- --- --- Allowance For Loan Losses (Year End) 1,394 837 208 21 700 3,160
Ratios: Loans in Category to Total Loans 52.68% 37.30% 9.00% 1.02% --- 100% Net Loan Losses (Recoveries) to Average Loans .29% (.02%) .49% --- --- .18%
DEPOSITS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's average daily deposits for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Demand Deposits (Non- Interest Bearing) $ 36,437 $ 36,119 $ 38,402 $66,895 $ 88,594
Demand Deposits (Interest Bearing) 32,948 38,194 44,772 57,937 93,788
Savings Deposits 71,821 67,456 73,684 95,351 154,188
Time Deposits 170,667 138,603 140,815 182,222 172,554
Deposits in Foreign Bank Offices None None None None None
TOTAL DEPOSITS $311,873 $280,372 $297,673 $402,405 $509,124
The following table sets forth the average rate paid on interest bearing deposits by major category for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Demand Deposits (Interest Bearing) 5.26% 4.83% 3.67% 2.41% 2.37%
Savings Deposits 5.45% 4.89% 3.52% 2.74% 2.99%
Time Deposits 7.50% 6.65% 5.20% 4.09% 4.30%
TIME CERTIFICATE OF DEPOSIT/TIME DEPOSITS OF $100,000 OR MORE
PREMIER FINANCIAL SERVICES, INC.
The following table sets for the registrant's maturity distribution for all time deposits of $100,000 or more as of December 31, 1994 (in thousands):
Maturity Amount Outstanding
3 months or less $ 8,006 3 through 6 months 2,953 6 through 12 months 5,809 Over 12 months 4,097
TOTAL $ 20,865
RETURN ON EQUITY AND ASSETS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth the registrant's return on average assets, return on average common equity, return on average equity, dividend payout ratio, and average equity to average asset ratio for each of the last five years:
Year Ended December 31
1990 1991 1992 1993 1994
Return on Average Assets .81% 1.01% 1.15% .83% .95%
Return on Average Common Equity 12.53% 14.29% 14.58% 10.80% 11.11%
Return on Average Equity 12.53% 14.29% 14.58% 8.99% 10.23%
Dividend Payout Ratio 16.32% 16.75% 19.73% 29.27% 26.47%
Average Equity to Average Asset Ratio 6.47% 7.06% 7.90% 9.26% 9.27%
SHORT TERM BORROWINGS
PREMIER FINANCIAL SERVICES, INC.
The following table sets forth a summary of the registrant's short- term borrowings for each of the last five years (dollar figures in thousands):
Year Ended December 31
1990 1991 1992 1993 1994
Balance at End of Period: Federal Funds Purchased $ 4,272 $ 14,241 $ 4,272 $ --- $ 13,975 Securities Sold Under Repurchase Agreements 50,534 43,688 14,854 20,571 16,086 Notes Payable to Banks 1,030 260 1,880 12,410 12,210 Other 2,000 --- --- --- ---
TOTAL $ 57,836 $ 58,189 $21,006 $32,981 $ 42,271
Weighted Average Interest Rate at the end of Period: Federal Funds Purchased 7.68% 4.75% 3.53% --- 5.75% Securities Sold Under Repurchase Agreements 7.19% 4.53% 3.79% 2.76% 4.47% Notes Payable to Banks 10.00% 6.50% 6.00% 6.00% 8.00% Other 6.50% --- --- --- ---
Highest Amount Outstanding at Any Month-End: Federal Funds Purchased $ 7,072 $ 14,241 $16,614 $18,535 $13,975 Securities Sold Under Repurchase Agreements 50,534 47,033 45,557 23,952 23,127 Notes Payable to Banks 3,300 1,115 1,880 17,500 14,555 Other 2,380 2,000 --- --- 1,000
Average Outstanding During the Year: Federal Funds Purchased $ 2,737 $ 6,305 $10,715 $ 8,534 $ 3,205 Securities Sold Under Repurchase Agreements 8,187 42,320 36,073 15,480 16,872 Notes Payable to Banks 1,370 760 768 7,362 12,755 Other 176 160 --- --- 201
Weighted Average Interest Rate During the Year: Federal Funds Purchased 8.00% 5.78% 3.93% 3.30% 4.90% Securities Sold Under Repurchase Agreements 7.31% 5.87% 3.74% 3.58% 3.26% Notes Payable to Banks 10.17% 8.63% 6.12% 6.14% 7.07% Other 6.75% 6.40% --- --- 3.98%
PART III
Item 10.

Item 10. Directors and Executive Officers of the Registrant
Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995 in connection with its annual meeting to be held on April 27, 1995.
Item 405 of Regulation S-K calls for disclosure of any known late filing or failure by an insider to file a report required by Section 16 of the Exchange Act. This disclosure is contained in the Registrant's Proxy Statement dated March 20, 1995 on page 20 under the Section "Compliance with Section 16 (a) of the Exchange Act" and is incorporated herein by reference in this Annual Report on Form 10-K.
Item 11.

Item 11. Executive Compensation
Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995, in connection with its annual meeting to be held on April 27, 1995.
Item 12.

Item 12. Security Ownership of Certain Beneficial Owners and Management
Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995, in connection with its annual meeting to be held on April 27, 1995.
Item 13.

Item 13. Certain Relationships and Related Transactions
Incorporated herein by reference to the Registrant's Proxy Statement dated March 20, 1995 in connection with its annual meeting to be held on April 27, 1995.
PART IV
Item 14.

Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K
1. The following documents are filed as a part of this report:
A. Consolidated Financial Statements of the Company which are included in the annual report of the registrant to its stock- holders for the year ended December 31, 1994 as follows:
1. Consolidated Balance Sheets, December 31, 1994 and 1993 2. Consolidated Statements of Earnings, for the three years ended December 31, 1994. 3. Consolidated Statements of Cash Flows, for the three years ended December 31, 1994. 4. Consolidated Statements of Changes in Stockholders' Equity, for the three years ended December 31, 1994. 5. Independent Auditors' Report 6. Notes to Consolidated Financial Statements
B. Financial Statement Schedules as follows:
Schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission have been omitted because they are not required under the related instructions or the required information as set forth in the financial statements and related notes.
C. Exhibits as follows:
13. Premier Financial Services, Inc. Annual Report for 1994.
21. Subsidiaries of the Registrant.
22. Published report regarding matters submitted to vote of security holders. See previous filing submitted on March 13, 1995.
23. Consents of Experts and Counsel.
99a. Premier Financial Services, Inc. Stock and Savings Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1994.
99b. Premier Financial Services, Inc. Senior Leadership and Directors Deferred Compensation Plan Form 11-K Annual Report for the Fiscal Year ended December 31, 1994.
2. Reports on Form 8-K
The registrant has not filed a report on Form 8-K, during the quarter ended December 31, 1994.
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Premier Financial Services, Inc.
Richard L. Geach By: Richard L. Geach, President Chief Executive Officer and Director
Date: March 23, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
D. L. Murray Donald E. Bitz
By: D. L. Murray, Executive Vice President Chief Financial Officer and Director
Date: March 23, 1995 Date: March 23, 1995
R. Gerald Fox Charles M. Luecke
Date: March 23, 1995 Date: March 23, 1995
Joseph C. Piland H. Barry Musgrove
Date: March 23, 1995 Date: March 23, 1995
E. G. Maris
Date: March 23, 1995
Appendix
Pursuant to paragraph 232.311 (c) of Regulatin S-T, Premier Financial Services, Inc. is submitting on paper under cover of Form SE the financial statements of the Plan which are included in the annual report of the Plan to its participants for the year ended December 31, 1994.