-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WUmHgevghKjSYuTKdE4TNJ1rsYWhauvVmHoLNYt0rWCGflc1d3/c4R1Q680Ih5iQ ljEF7vAMEz4EYmXhcEGPNA== 0000897101-02-000390.txt : 20020515 0000897101-02-000390.hdr.sgml : 20020515 20020515152638 ACCESSION NUMBER: 0000897101-02-000390 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20020331 FILED AS OF DATE: 20020515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: PRINCETON NATIONAL BANCORP INC CENTRAL INDEX KEY: 0000707855 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 363210283 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-20050 FILM NUMBER: 02651719 BUSINESS ADDRESS: STREET 1: 606 S MAIN ST CITY: PRINCETON STATE: IL ZIP: 61356 BUSINESS PHONE: 8158754444 10-Q 1 princeton022549-10q.txt PRINCETON NATIONAL BANCORP, INC. FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington D.C. 20549 QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2002 Commission File No. 0-20050 PRINCETON NATIONAL BANCORP, INC. (Exact name of registrant as specified in its charter) DELAWARE 36-32110283 (State or other jurisdiction (I.R.S. Employer Identification No.) of incorporation or organization) 606 S. Main Street, Princeton, IL 61356 (Address of principal executive offices and Zip Code) (815) 875-4444 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No -------- --------- As of April 22, 2002, the registrant had outstanding 3,304,440 shares of its $5 par value common stock. Page 1 of 15 pages PART I: FINANCIAL INFORMATION The unaudited consolidated financial statements of Princeton National Bancorp, Inc. and Subsidiary and management's discussion and analysis of financial condition and results of operations are presented in the schedules as follows: Schedule 1: Consolidated Balance Sheets Schedule 2: Consolidated Statements of Income and Comprehensive Income Schedule 3: Consolidated Statements of Stockholders' Equity Schedule 4: Consolidated Statements of Cash Flows Schedule 5: Notes to Consolidated Financial Statements Schedule 6: Management's Discussion and Analysis of Financial Condition and Results of Operations PART II: OTHER INFORMATION ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits : None. (b) No reports on Form 8-K were filed by the Corporation for the quarter ended March 31, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. PRINCETON NATIONAL BANCORP, INC. Date: May 13, 2002 By Tony J. Sorcic ---------------------------------------------- Tony J. Sorcic President & Chief Executive Officer Date: May 13, 2002 By Todd D. Fanning ---------------------------------------------- Todd D. Fanning Vice-President & Chief Financial Officer 2 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 1 CONSOLIDATED BALANCE SHEETS (unaudited) (dollars in thousands, except share data)
MARCH 31, December 31, 2002 2001 --------- --------- ASSETS Cash and due from banks $ 8,927 $ 16,740 Interest-bearing deposits with financial institutions 5,849 6,586 Federal funds sold 10,870 10,400 --------- --------- Total cash and cash equivalents 25,646 33,726 Loans held for sale, at lower of cost or market 5,715 8,490 Investment securities: Available-for-sale, at fair value 133,602 128,605 Held-to-maturity, at amortized cost 13,766 16,055 --------- --------- Total investment securities 147,368 144,660 --------- --------- Loans: Gross loans, net of unearned interest 338,087 333,399 Allowance for loan losses (2,434) (2,300) --------- --------- Net loans 335,653 331,099 --------- --------- Premises and equipment, net of accumulated depreciation 13,686 13,766 Bank-owned life insurance 12,668 12,452 Interest receivable 4,634 5,799 Goodwill, net of accumulated amortization 3,169 3,218 Intangible assets, net of accumulated amortization 720 668 Other assets 1,406 1,447 --------- --------- TOTAL ASSETS $ 550,665 $ 555,325 ========= ========= LIABILITIES Deposits: Demand $ 49,510 $ 58,378 Interest-bearing demand 122,616 116,587 Savings 62,371 51,966 Time 242,159 254,807 --------- --------- Total deposits 476,656 481,738 Borrowings: Customer repurchase agreements 11,192 12,217 Advances from Federal Home Loan Bank 6,258 6,451 Interest-bearing demand notes issued to the U.S. Treasury 2,400 377 Notes payable 1,500 1,550 --------- --------- Total borrowings 21,350 20,595 Other liabilities 4,770 5,492 --------- --------- TOTAL LIABILITIES 502,776 507,825 --------- --------- STOCKHOLDERS' EQUITY Common stock: $5 par value, 7,000,000 shares authorized; 4,139,841 issued 20,699 20,699 Surplus 6,433 6,416 Retained earnings 33,020 31,937 Accumulated other comprehensive income (loss), net of tax (182) 537 Less: Cost of 834,359 treasury shares at March 31, 2002 and 835,831 treasury shares at December 31, 2001 (12,081) (12,089) --------- --------- TOTAL STOCKHOLDERS' EQUITY 47,889 47,500 --------- --------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 550,665 $ 555,325 ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 3 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2 CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
For the Three Months Ended March 31 2002 2001 ---------- ---------- INTEREST INCOME: Interest and fees on loans $ 6,281 $ 7,453 Interest and dividends on investment securities 1,911 1,751 Interest on federal funds sold 35 53 Interest on interest-bearing time deposits in other banks 25 25 ---------- ---------- Total interest income 8,252 9,282 INTEREST EXPENSE: Interest on deposits 3,448 4,417 Interest on borrowings 143 483 ---------- ---------- Total interest expense 3,591 4,900 ---------- ---------- NET INTEREST INCOME 4,661 4,382 Provision for loan losses 225 50 ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,436 4,332 NON-INTEREST INCOME: Trust & farm management fees 303 328 Service charges on deposit accounts 671 521 Service charges on loans 43 106 Other service charges 302 240 Gain on sales of securities available-for-sale 40 95 Brokerage fee income 179 86 Mortgage banking income 271 153 Other operating income 84 138 ---------- ---------- Total non-interest income 1,893 1,667 NON-INTEREST EXPENSE: Salaries and employee benefits 2,441 2,250 Occupancy 298 275 Equipment expense 356 309 Federal insurance assessments 53 49 Goodwill amortization 49 106 Intangible assets amortization 3 3 Data processing 184 151 Other operating expense 851 871 ---------- ---------- Total non-interest expense 4,235 4,014 ---------- ---------- INCOME BEFORE INCOME TAXES 2,094 1,985 Income tax expense 576 506 ---------- ---------- NET INCOME $ 1,518 $ 1,479 ========== ========== NET INCOME PER SHARE: Basic 0.46 0.44 Diluted 0.46 0.44 Basic weighted average shares outstanding 3,304,440 3,400,011 Diluted weighted average shares outstanding 3,317,809 3,400,698
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 4 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (DOLLARS IN THOUSANDS)
For the Three Months Ended March 31 2002 2001 ------- ------- Net Income 1,518 $ 1,479 Other comprehensive income (loss), net of tax Unrealized holding gain (loss) arising during the period (693) 618 Less: Reclassification adjustment for realized gains included in net income (25) (58) ------- ------- Other comprehensive income (loss) (718) 560 ------- ------- Comprehensive income 800 $ 2,039 ======= =======
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 5 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 3 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED) (DOLLARS IN THOUSANDS)
For the Three Months Ended Ended March 31 2002 2001 -------- -------- Balance, January 1 $ 47,500 $ 47,476 Net income 1,518 1,479 Cash dividends ($0.13 per share in 2002, and $.10 per share in 2001) (429) (349) Other comprehensive income (loss), net of tax (718) 560 Purchases of treasury stock (0 shares in 2002, and 156,000 shares in 2001) 0 (2,438) Sales of treasury stock (1,028 shares in 2002, and 806 shares in 2001 18 12 -------- -------- Balance, March 31 $ 47,889 $ 46,740 ======== ========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 6 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) (DOLLARS IN THOUSANDS) For the Three Months
Ended March 31 2002 2001 -------- -------- OPERATING ACTIVITIES: Net income $ 1,518 $ 1,479 Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation 298 292 Provision for loan losses 225 50 Amortization of goodwill 3 3 Amortization of other intangible assets 49 106 Amortization of premiums on investment securities, net of accretion 158 (21) Gain on securities transactions, net (40) (95) Gain on sale of premises and equipment 0 (122) FHLB stock dividends (24) (30) Loans originated for sale (7,706) (1,929) Proceeds from sales of loans originated for sale 10,481 2,742 (Decrease) increase in interest payable (541) 338 Decrease in interest receivable 1,165 1,289 Increase in other assets (230) (97) Increase (decrease) in other liabilities 276 (1,171) -------- -------- NET CASH PROVIDED BY OPERATING ACTIVITIES 5,632 2,834 -------- -------- INVESTING ACTIVITIES: Proceeds from sales of investment securities available-for-sale 1,308 7,041 Proceeds from maturities of investment securities available-for-sale 11,993 8,083 Purchase of investment securities available-for-sale (17,920) (18,713) Proceeds from maturities of investment securities held-to-maturity 1,079 531 Purchase of investment securities held-to-maturity (437) (250) Proceeds from sales of premises and equipment 0 175 Net (increase) decrease in loans (4,779) 2,169 Purchases of premises and equipment (218) (956) -------- -------- NET CASH USED IN INVESTING ACTIVITIES (8,974) (1,920) -------- -------- FINANCING ACTIVITIES: Net (decrease) increase in deposits (5,082) 10,529 Net increase (decrease) in borrowings 755 (4,254) Dividends paid (429) (349) Purchases of treasury stock 0 (2,438) Sales of treasury stock 18 12 -------- -------- NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES (4,738) 3,500 -------- -------- (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (8,080) 4,414 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 33,726 18,979 -------- -------- CASH AND CASH EQUIVALENTS AT MARCH 31 $ 25,646 $ 23,393 ======== ======== - ------------------------------------------------------------------------------------------------ Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 4,132 $ 4,562 Income taxes $ 125 $ 825
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 7 Schedule 5 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Notes to Consolidated Financial Statements (Unaudited) The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information required by accounting principles generally accepted in the United States of America for complete financial statements and related footnote disclosures. In the opinion of management, all adjustments (consisting only of normal recurring accruals) considered for a fair presentation of the results for the interim period have been included. For further information, refer to the consolidated financial statements and notes included in the Registrant's 2001 Annual Report on Form 10-K. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year. Certain amounts in the 2001 consolidated financial statements have been reclassified to conform to the 2002 presentation. (1) EARNINGS PER SHARE CALCULATION - ----------------------------------- The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except share data): Three Months Ended March 31, 2002 2001 ---------- ---------- Numerator: Net income $ 1,518 $ 1,479 Denominator: Basic earnings per share- weighted average shares 3,304,440 3,400,011 Effect of dilutive securities- stock options 13,369 687 ---------- ---------- Diluted earnings per share- adjusted weighted average shares 3,317,809 3,400,698 Net income per share: Basic $ 0.46 $ 0.44 Diluted $ 0.46 $ 0.44 8 (2) IMPACT OF NEW ACCOUNTING STANDARDS In July 2001, the FASB issued Statement 141, "Business Combinations" (FAS 141) and Statement 142, "Goodwill and Other Intangible Assets" (FAS 142). FAS 141 required that all business combinations initiated after June 30, 2001 be accounted for under the purchase method and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. FAS 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. FAS 142 provides that intangible assets with finite useful lives be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. As required under FAS 142, the Company adopted FAS 142 effective January 1, 2002. The balance of goodwill, net of accumulated amortization, totaled $3,218,000 at December 31, 2001. Of this amount, $1,355,000, which had annual amortization of $226,000, will no longer be amortized. The remaining balance of $1,863,000 relates to branch acquisitions and, in accordance with the pronouncement, will continue to be amortized. The amortization expense for the first quarter of 2002 was $49,000 and will be approximately $147,000 for the remainder of 2002. The amortization expense will be approximately $196,000 for each of the next five years. The following is a summary of net income and earnings per share for the three months ended March 31, 2002 and 2001, as adjusted to remove the amortization of goodwill:
For the Quarter Ended March 31, ------------------------------- (in thousands, except per share data) 2002 2001 Net Income As Reported $ 1,518 $ 1,479 Add back goodwill amortization 0 57 Net income as adjusted $ 1,518 $ 1,536 Basic Earnings Per Share As Reported $ 0.46 $ 0.44 Add back goodwill amortization .00 0.01 Net income as adjusted $ 0.46 $ 0.45 Diluted Earnings Per Share As Reported $ 0.46 $ 0.44 Add back goodwill amortization .00 0.01 Net income as adjusted $ 0.46 $ 0.45
The following table summarizes the Corporation's intangible assets, which are subject to amortization, as of March 31, 2002: As of March 31, 2002 Gross Carrying Accumulated Amount Amortization ---------- ---------- Mortgage servicing rights $ 1,350 $ (705) Other intangible assets 160 (85) ---------- ---------- Total $ 1,510 $ (790) ========== ========== 9 AGGREGATE AMORTIZATION EXPENSE: For the Quarter Ended March 31, 2002 $ 64 ESTIMATED AMORTIZATION EXPENSE: For the Nine Months Ended December 31, 2002 $ 154 For the Year Ended December 31, 2003 $ 163 For the Year Ended December 31, 2004 $ 123 For the Year Ended December 31, 2005 $ 87 For the Year Ended December 31, 2006 $ 60 For the Year Ended December 31, 2007 $ 46 10 Schedule 6 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 2002 The following discussion provides information about Princeton National Bancorp, Inc.'s ("PNBC" or the "Corporation") financial condition and results of operations for the three months ended March 31, 2002. This discussion should be read in conjunction with the attached consolidated financial statements and note thereto. Certain statements in this report constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, but not limited to those statements that include the words "believes", "expects", "anticipates", "estimates", or similar expressions. PNBC cautions that such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied. Such risks and uncertainties include potential change in interest rates, competitive factors in the financial services industry, general economic conditions, the effect of new legislation, and other risks detailed in documents filed by the Corporation with the Securities and Exchange Commission from time to time. RESULTS OF OPERATIONS - --------------------- Net income for the first quarter of 2002 was $1,518,000, or basic and diluted earnings per share of $0.46, as compared to net income of $1,479,000 in the first quarter of 2001, or basic and diluted earnings per share of $0.44. This represents an increase of $39,000 (2.6%) or $.02 per basic share (4.6%). Net income for the first quarter of 2002 was positively impacted by the discontinuing of a portion of the Corporation's goodwill (consistent with the provisions of FAS 142) of $57,000. Additionally, net income for the first quarter of 2001 includes a gain on sale of premises of $122,000. The annualized return on average assets and return on average equity were 1.12% and 12.87%, respectively, for the first quarter of 2002, compared with 1.16% and 12.90% for the first quarter of 2001. Net interest income before provision for loan losses was $4,661,000 for the first quarter of 2002, compared to $4,382,000 for the first quarter of 2001 (an increase of $279,000 or 6.4%). This increase is a result of both an increase in average interest-earning assets and an improving net interest margin. For the three months ended March 31, 2002, average interest-earning assets were $497.0 million compared to $476.7 million for the three months ended March 31, 2001. Additionally, the net yield on interest-earning assets (on a fully taxable equivalent basis) increased from 3.95% in the first quarter of 2001 to 4.06% in the first quarter of 2002. 11 PNBC recorded a loan loss provision of $225,000 in the first quarter of 2002 compared to $50,000 in the first quarter of 2001. The provision expense taken each quarter is determined by the risk characteristics of the loan portfolio, as well as the net charge-off activity for the quarter. Non-interest income totaled $1,893,000 for the first quarter of 2002, as compared to $1,667,000 during the first quarter of 2001, an increase of $226,000 (or 13.6%). The majority of the increase is a result of service charges on deposit accounts increasing $150,000 (or 28.8%). Also, brokerage fee income increased by $93,000 (108.1%) from the first quarter of 2001 to the first quarter of 2002, and mortgage banking income increased $118,000 (77.1%) over the same period. These increases more than offset decreases in other categories of non-interest income: gains on sales of securities available-for-sale $55,000 (57.9%); service charges on loans $63,000 (59.4%); other operating income $54,000 (39.1%); and trust & farm management fees $25,000 (7.6%). Additionally, PNBC recorded a $122,000 gain from the sale of the subsidiary bank's downtown Oglesby branch building during the first quarter of 2001. Total non-interest expense for the first quarter of 2002 was $4,235,000, an increase of $221,000 (or 5.5%) from $4,014,000 in the first quarter of 2001. The largest increase was in salaries/employee benefits, which increased $191,000 (or 4.8%), partially the result of adding the Huntley office location in February, 2001. Equipment and data processing expenses also increased from the first quarter of 2001 to the first quarter of 2002 by $47,000 (15.2%) and $33,000 (21.9%), respectively. INCOME TAXES - ------------ Income tax expense totaled $576,000 for the first quarter of 2002, as compared to $506,000 for the first quarter of 2001. Additionally, PNBC also recognized a tax benefit of approximately $90,000 from the previously mentioned sale of the Oglesby facility in the first quarter of 2001. As a result, the effective tax rate was 27.5% for the three months ended March 31, 2002 compared to 25.5% for the same period in 2001. ANALYSIS OF FINANCIAL CONDITION - ------------------------------- Total assets at March 31, 2002 decreased to $550,665,000 from $555,325,000 at December 31, 2001 (a decrease of $4.7 million or 0.8%). Total deposits at March 31, 2002 decreased to $476,656,000 from $481,738,000 from December 31, 2001 (a decrease of $5.1 million or 1.1%). This decrease is attributable to seasonal deposit growth at the end of 2001, followed by a normal drop in the first three months of the new year. In comparing categories of deposits at March 31, 2002 to the December 31, 2001 totals, two categories had increasing balances: savings deposits (increase of $10.4 million or 20.0%), and interest-bearing demand deposits (increase of $6.0 million or 5.2%), while two categories had decreasing balances: demand deposits (decrease of $8.9 million or 15.2%), and time deposits (decrease of $12.6 million or 5.0%). Borrowings, consisting of customer repurchase agreements, notes payable, treasury, tax, and loan ("TT&L") deposits, federal funds purchased, and Federal Home Loan Bank advances, increased from $20,595,000 at December 31, 2001 to $21,350,000 at March 31, 2002 (increase of $755,000 or 3.7%). Investments totaled $147,368,000 at March 31, 2002, compared to $144,660,000 at December 31, 2001 (an increase of $2.7 million or 1.9%). Loan demand rebounded slightly during the first quarter of 2002. Loan balances, net of unearned interest, increased to $343,802,000 at March 31, 2002, compared to $341,889,000 at December 31, 2001 (an increase of $1.9 million or 0.6%). Non-performing loans totaled $6,339,000 or 1.84% of net loans at March 12 31, 2002, as compared to $5,718,000 or 1.72% of net loans at December 31, 2001. For the three months ended March 31, 2002, the subsidiary bank charged off $178,000 of loans and had recoveries of $87,000, compared to charge-offs of $194,000 and recoveries of $80,000 during the three months ended March 31, 2001. The allowance for loan losses is based on factors that include the overall composition of the loan portfolio, types of loans, past loss experience, loan delinquencies, potential substandard and doubtful credits, and such other factors that, in management's reasonable judgment, warrant consideration. The adequacy of the allowance is monitored monthly. At March 31, 2002, the allowance was $2,434,000 which is 38.4% of non-performing loans and 0.71% of total loans, compared with $2,300,000 which was 40.2% of non-performing loans and 0.67% of total loans at December 31, 2001. At March 31, 2002, impaired loans totaled $5,578,000 compared to $2,014,000 at December 31, 2001, all of which related to impaired loans which do not have a specific allowance, as the carrying value of the loans is less than the discounted present value of expected future cash flows or collateral value. Loans 90 days or more past due and still accruing interest at March 31, 2002 were $6,000, compared to $42,000 at December 31, 2001. Although the balances of non-performing and impaired loans have increased from the level of prior years, the total is concentrated to a few credits that management believes will not result in any losses to the Corporation. In fact, there are no specific loan loss reserves for any of the non-performing or impaired loans as of March 31, 2002. PNBC's management analyzes the allowance for loan losses monthly and believes the current level of allowance adequate to meet probable losses as of March 31, 2002. CAPITAL RESOURCES - ----------------- Federal regulations require all financial institutions to evaluate capital adequacy by the risk-based capital method, which makes capital requirements more sensitive to the differences in the level of risk assets. At March 31, 2002 and December 31, 2001, total risk-based capital of PNBC was 12.34%of total risk-weighted assets. The Tier 1 capital ratio increased from 8.10% at December 31, 2001, to 8.21% at March 31, 2002. Total stockholders' equity to total assets at March 31, 2002 increased to 8.70% from 8.55% at December 31, 2001. LIQUIDITY - --------- Liquidity is measured by a financial institution's ability to raise funds through deposits, borrowed funds, capital, or the sale of assets. Additional sources of liquidity include cash flow from the repayment of loans. Major uses of cash include the origination of loans and purchase of investment securities. Cash flows used for investing and financing activities, offset by those provided by operating activities, resulted in a net decrease in cash and cash equivalents of $8,080,000 from December 31, 2001 to March 31, 2002. This decrease was due to a net decrease in deposits and a net increase in loans. For more detailed information, see PNBC's Consolidated Statements of Cash Flows. 13 LEGAL PROCEEDINGS - ----------------- There are various claims pending against PNBC's subsidiary bank, arising in the normal course of business. Management believes, based upon consultation with legal counsel, that liabilities arising from these proceedings, if any, will not be material to PNBC's financial condition. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- There has been no material change in market risk since December 31, 2001, as reported in PNBC's 2001 Annual Report on Form 10-K. EFFECTS OF INFLATION - -------------------- The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with accounting principles generally accepted in the United States of America and practices within the banking industry which require the measurement of financial condition and operating results in terms of historical dollars, without considering the changes in the relative purchasing power of money over time due to inflation. Unlike most industrial companies, virtually all the assets and liabilities of a financial institution are monetary in nature. As a result, interest rates have a more significant impact on a financial institution's performance than the effects of general levels of inflation. 14 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY The following table sets forth (in thousands) details of average balances, interest income and expense, and resulting annualized rates for the Corporation for the periods indicated, reported on a fully taxable equivalent basis, using a tax rate of 34%.
------------------------------------------------------------------------------------ THREE MONTHS ENDED, MARCH 31, 2002 Three Months Ended, March 31, 2001 ------------------------------------------------------------------------------------ AVERAGE YIELD/ Average Yield/ BALANCE INTEREST COST Balance Interest Cost --------------- ------------- ---------- --------------- ------------- -------- AVERAGE INTEREST-EARNING ASSETS Interest-bearing deposits $6,585 $25 1.54% $1,971 $25 5.14% Taxable investment securities 97,050 1,307 5.46% 81,283 1,273 6.35% Tax-exempt investment securities 48,524 915 7.64% 38,200 723 7.68% Federal funds sold 8,759 35 1.62% 3,882 53 5.54% Net loans 336,113 6,287 7.59% 351,329 7,470 8.62% --------------- ------------- --------------- ------------- Total interest-earning assets 497,030 8,569 6.99% $476,665 9,544 8.12% --------------- ------------- --------------- ------------- Average non-interest earning assets 51,551 40,204 --------------- --------------- Total average assets $548,581 $516,869 =============== =============== AVERAGE INTEREST-BEARING LIABILITIES Interest-bearing demand deposits $118,822 539 1.84% $91,216 556 2.47% Savings deposits 56,452 200 1.44% $46,715 230 2.00% Time deposits 246,246 2,710 4.46% 248,881 3,631 5.92% Interest-bearing demand notes issued to the U.S. Treasury 1,370 7 1.98% 1,012 13 5.21% Federal funds purchased and securities repurchase agreements 11,913 33 1.14% 19,129 243 5.15% Advances from Federal Home Loan Bank 6,425 88 5.58% 12,197 185 6.15% Borrowings 1,550 15 3.81% 1,847 42 9.22% --------------- ------------- --------------- ------------- Total interest-bearing liabilities 442,780 3,591 3.29% 420,997 4,900 4.72% --------------- ------------- --------------- ------------- Net yield on average interest-earning assets $4,978 4.06% $4,644 3.95% ============= ============= Average non-interest-bearing liabilities 57,973 49,365 Average stockholders' equity 47,829 46,507 --------------- --------------- Total average liabilities and stockholders' equity $548,581 $516,869 =============== ===============
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