-----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, C9+sCSS+Sc+DGNCRaz5I+EABpV4MwPB+H537FvrF5iuIp6FBbcLhnCkCpn3ppE2o o5lyf3aiUccEKm6PeYSYHA== 0000897101-99-001094.txt : 19991117 0000897101-99-001094.hdr.sgml : 19991117 ACCESSION NUMBER: 0000897101-99-001094 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19990930 FILED AS OF DATE: 19991115 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: SEC FILE NUMBER: 000-20050 FILM NUMBER: 99755134 BUSINESS ADDRESS: STREET 1: 606 S MAIN ST CITY: PRINCETON STATE: IL ZIP: 61356 BUSINESS PHONE: 8158754444 10-Q 1 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 September 30, 1999 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 November 8, 1999, the registrant had outstanding 3,722,147 shares of its $5 par value common stock. Page 1 of 16 pages PART I: FINANCIAL INFORMATION The 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: Note 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: 27 - Financial Data Schedule for the period ended September 30, 1999. (b) A Form 8-K was filed by the Corporation on July 21, 1999 with respect to the implementation of a stock repurchase program whereby the Corporation may purchase up to 3% of its outstanding shares of common stock. 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: November 12, 1999 By ------------------------------------- Tony J. Sorcic President & Chief Executive Officer Date: November 12, 1999 By /s/ Todd D. Fanning ------------------------------------- Todd D. Fanning Chief Financial Officer 2 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 1 CONSOLIDATED BALANCE SHEETS (unaudited) (in thousands)
SEPTEMBER 30, December 31, 1999 1998 ------------- ------------- ASSETS Cash and due from banks $ 11,461 $ 31,133 Federal funds sold 1,400 23,000 Loans held for sale, at lower of cost or market 8,031 5,363 Investment securities: Available-for-sale, at fair value 99,323 109,530 Held-to-maturity (fair value of $19,639 and $21,643 at September 30, 1999 and December 31, 1998, respectively) 19,869 21,396 ------------- ------------- Total investment securities 119,192 130,926 ------------- ------------- Loans: Gross loans 296,435 265,655 Less: Unearned interest (14) (181) Allowance for possible loan losses (1,915) (1,800) ------------- ------------- Net loans 294,506 263,674 ------------- ------------- Premises and equipment, net of accumulated depreciation 11,210 10,627 Interest receivable 6,015 5,604 Goodwill and intangible assets, net of accumulated amortization 4,270 4,609 Other assets 4,677 3,975 ------------- ------------- TOTAL ASSETS $ 460,762 $ 478,911 ============= ============= LIABILITIES Deposits: Demand $ 39,973 $ 47,355 Interest-bearing demand 89,340 93,982 Savings 54,268 54,378 Time 201,564 212,123 ------------- ------------- Total deposits 385,145 407,838 Borrowings: Customer repurchase agreements 15,177 13,768 Advances from Federal Home Loan Bank 8,669 9,111 Federal funds purchased 3,000 0 Int.-bearing demand notes issued to the U.S. Treasury 2,400 217 Notes payable 1,700 1,200 ------------- ------------- Total borrowings 30,946 24,296 Other liabilities 3,318 4,171 ------------- ------------- TOTAL LIABILITIES 419,409 436,305 ------------- ------------- STOCKHOLDERS' EQUITY Common stock: $5 par value, 7,000,000 shares authorized; 4,139,841 issued and outstanding 20,699 20,699 Surplus 6,328 6,305 Retained earnings 21,434 19,588 Accumulated other comprehensive income (loss), net of tax (751) 862 Less: Cost of 407,694 treasury shares at September 30, 1999 and 312,061 treasury shares at December 31, 1998 (6,357) (4,848) ------------- ------------- TOTAL STOCKHOLDERS' EQUITY 41,353 42,606 ------------- ------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 460,762 $ 478,911 ============= =============
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 3 Schedule 2 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
For the Three Months For the Nine Months Ended September 30 Ended September 30 1999 1998 1999 1998 ---------- ---------- ---------- ---------- INTEREST INCOME: Interest and fees on loans $ 6,230 $ 6,315 $ 18,299 $ 18,681 Interest and dividends on investment securities 1,690 1,869 5,321 5,446 Interest on short-term funds 51 76 231 236 ---------- ---------- ---------- ---------- Total interest income 7,971 8,260 23,851 24,363 INTEREST EXPENSE: Interest on deposits 3,462 3,907 10,512 11,456 Interest on borrowings 363 344 969 873 ---------- ---------- ---------- ---------- Total interest expense 3,825 4,251 11,481 12,329 ---------- ---------- ---------- ---------- NET INTEREST INCOME 4,146 4,009 12,370 12,034 Provision for possible loan losses 200 134 385 262 ---------- ---------- ---------- ---------- NET INTEREST INCOME AFTER PROVISION FOR POSSIBLE LOAN LOSSES 3,946 3,875 11,985 11,772 NON-INTEREST INCOME: Trust & farm management fees 284 239 904 864 Service charges on deposit accounts 421 392 1,186 1,089 Other service charges 177 132 522 382 Gain on sales of securities 22 0 41 21 Loan servicing fees and other fees 30 77 169 236 Other income 104 61 226 226 ---------- ---------- ---------- ---------- Total non-interest income 1,038 901 3,048 2,818 NON-INTEREST EXPENSE: Salaries and employee benefits 2,016 1,951 5,885 5,551 Occupancy 255 273 774 773 Equipment expense 277 216 862 613 FDIC/OCC assessments 46 46 142 140 Goodwill and intangible assets amortization 108 116 339 350 Data processing 142 169 410 459 Other expense 887 847 2,571 2,408 ---------- ---------- ---------- ---------- Total non-interest expense 3,731 3,618 10,983 10,294 ---------- ---------- ---------- ---------- INCOME BEFORE INCOME TAXES 1,253 1,158 4,050 4,296 Income tax expense 526 263 1,217 1,077 ---------- ---------- ---------- ---------- NET INCOME $ 727 $ 895 $ 2,833 $ 3,219 ========== ========== ========== ========== NET INCOME PER SHARE: Basic 0.19 0.23 0.75 0.81 Diluted 0.19 0.23 0.75 0.81 Basic weighted average shares outstanding 3,761,031 3,959,711 3,788,247 3,988,497 Diluted weighted average shares outstanding 3,773,981 3,972,661 3,801,197 4,001,447 Dividends per share 0.09 0.08 0.26 0.24
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 4 Schedule 2 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED) (IN THOUSANDS, EXCEPT SHARE DATA)
For the Three Months For the Nine Months Ended September 30 Ended September 30 1999 1998 1999 1998 -------- -------- -------- -------- Net Income $ 727 $ 895 $ 2,833 $ 3,219 Other comprehensive income (loss), net of tax Unrealized holding gain (loss) arising during the period (318) 683 (1,551) 695 Less: Reclassification adjustment for realized gains included in net income (33) 0 (62) (32) -------- -------- -------- -------- Other comprehensive income (loss) (351) 683 (1,613) 663 -------- -------- -------- -------- Comprehensive income $ 376 $ 1,578 $ 1,220 $ 3,882 ======== ======== ======== ========
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 5 Schedule 3 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (UNAUDITED)
For the Nine Months Ended September 30 1999 1998 ---------- ---------- (IN THOUSANDS) Balance, January 1 $ 42,606 $ 42,668 Net income 2,833 3,219 Cash dividends (988) (934) Other comprehensive income (loss), net of tax (1,613) 663 Purchases of treasury stock (1,528) (1,783) Sales of treasury stock 43 25 ---------- ---------- Balance, September 30 $ 41,353 $ 43,858 ========== ==========
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 6 Schedule 4 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the Three Months For the Nine Months Ended September 30 Ended September 30 (IN THOUSANDS) 1999 1998 1999 1998 ---------- ---------- ---------- ---------- OPERATING ACTIVITIES: Net income $ 727 $ 895 $ 2,833 $ 3,219 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 266 169 828 481 Provision for possible loan losses 200 134 385 262 Amortization of goodwill and other intangible assets 108 116 339 350 Amortization of premiums on investment securities, net of accretion 85 48 154 133 Gain on sales of securities, net (22) 0 (41) (21) Loss (gain) on sales of other real estate 5 (8) 5 (8) Loans originated for sale (2,666) (9,527) (12,303) (19,439) Proceeds from sales of loans originated for sale 1,884 9,948 9,635 19,793 Decrease (increase) in accrued interest payable (98) 165 (201) (1) Increase in accrued interest receivable (1,225) (1,185) (411) (501) Increase in other assets (41) (111) (810) (685) Increase (decrease) in other liabilities 162 (48) 179 332 ---------- ---------- ---------- ---------- NET CASH (USED) PROVIDED BY OPERATING ACTIVITIES (615) 596 592 3,915 ---------- ---------- ---------- ---------- INVESTING ACTIVITIES: Proceeds from sales of investment securities available-for-sale 1,064 0 4,054 5,016 Proceeds from maturities of investment securities available-for-sale 9,268 9,677 28,481 27,968 Purchase of investment securities available-for-sale (2,242) (4,355) (26,293) (34,347) Proceeds from maturities of investment securities held-to-maturity 260 172 14,615 768 Purchase of investment securities held-to-maturity (608) (600) (11,679) (1,715) Proceeds from sales of other real estate owned 70 34 102 79 Net increase in loans (18,484) (7,418) (31,217) (9,345) Purchases of premises and equipment (265) (1,061) (1,411) (1,549) ---------- ---------- ---------- ---------- NET CASH USED BY INVESTING ACTIVITIES (10,937) (3,551) (23,348) (13,125) ---------- ---------- ---------- ---------- FINANCING ACTIVITIES: Net increase (decrease) in deposits 843 6,004 (22,693) (5,225) Net increase in borrowings (1,834) (8,261) 6,650 4,854 Dividends paid (340) (318) (988) (934) Purchase of treasury stock (680) (852) (1,528) (1,783) Sales of treasury stock 21 5 43 25 ---------- ---------- ---------- ---------- NET CASH USED FOR FINANCING ACTIVITIES (1,990) (3,422) (18,516) (3,063) ---------- ---------- ---------- ---------- DECREASE IN CASH AND CASH EQUIVALENTS (13,542) (6,377) (41,272) (12,273) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 26,403 27,272 54,133 33,168 ---------- ---------- ---------- ---------- CASH AND CASH EQUIVALENTS AT SEPTEMBER 30 $ 12,861 $ 20,895 $ 12,861 $ 20,895 ========== ========== ========== ========== - -------------------------------------------------------------------------------------------------------------------------------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $ 3,920 $ 4,615 $ 11,679 $ 12,330 Income taxes $ 342 $ 515 $ 1,399 $ 1,279 Supplemental disclosures of non-cash flow activities: Amounts transferred to other real estate owned $ 0 $ 0 $ 202 $ 34
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 7 Schedule 5 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Note 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 generally accepted accounting principles 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 financial statements and notes included in the Registrant's 1998 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. 8 Schedule 6 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS SEPTEMBER 30, 1999 (UNAUDITED) The following discussion provides information about Princeton National Bancorp, Inc.'s ("PNB" or the "Corporation") financial condition and results of operations for the quarter ended September 30, 1999. 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. PNB 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 third quarter of 1999 was $727,000, or basic and diluted earnings per share of $0.19 as compared to net income of $895,000 in the third quarter of 1998, or basic and diluted earnings per share of $0.23. This represents a decrease of $168,000 (18.8%) or $0.04 per share. For the first nine months of 1999, net income was $2,833,000, or basic and diluted earnings per share of $0.75, compared to $3,219,000, or basic and diluted earnings per share of $0.81 in the first nine months of 1998. Annualized return on average assets and return on average equity were 0.62% and 6.93%, respectively, for the third quarter of 1999, compared with 0.78% and 8.19% for the third quarter of 1998. For the nine-month periods, the annualized returns on average assets and average equity were 0.82% and 8.99%, respectively, for 1999, compared to 0.97% and 10.00% in 1998. The decrease in net income for the three months ended September 30, 1999 was largely the result of the Corporation utilizing all available state net operating loss carryforwards in 1998 thereby becoming taxable for state income tax purposes in 1999. The use of the remaining carryforwards was realized in conjunction with the filing of the 1998 state income tax return during the third quarter of 1999. Accordingly, income tax expense for the quarter and nine months ending September 30, 1999, as compared to the same periods ending September 30, 1998, has increased by approximately $263,000 and $140,000, respectively. 9 Net interest income before provision for loan losses was $4,146,000 for the third quarter of 1999, compared to $4,009,000 for the third quarter of 1998 (an increase of $137,000 or 3.4%). Additionally, for the nine-month periods, net interest income before provision for loan losses was $12,370,000 for 1999, as compared to $12,034,000 for 1998, representing an increase of $336,000 (or 2.8%). This increase is a result of an increase in average interest-earning assets from $413.1 million for the nine months ended September 30, 1998, to $425.9 million for the nine months ended September 30, 1999. Likewise, the average interest-earning assets for the three months ended September 30, 1999 increased to $425.3 million from $420.2 million for the three months ended September 30, 1998. The net yield on interest-earning assets (on a fully taxable equivalent basis) increased from 4.05% for the third quarter of 1998 to 4.14% for the third quarter of 1999. Additionally, the net yield on interest-earning assets (on a fully taxable equivalent basis) remained the same at 4.11% for the first nine months of 1998 and the first nine months of 1999. The PNB loan loss provision was $200,000 in the third quarter of 1999 compared to $134,000 in the third quarter of 1998. This is a result of continued loan growth and is also determined by the risk characteristics of the loan portfolio. For the first nine months of 1999, PNB has recorded $385,000 in loan loss provision compared to $262,000 for the same period in 1998. Non-interest income increased by $137,000 (or 15.2%) during the third quarter of 1999 as compared to the third quarter of 1998 from $901,000 to $1,038,000. For the first nine months of 1999, non-interest income has increased to $3,048,000 from $2,818,000 in the first nine months of 1998 (an increase of $230,000 or 8.2%). For the three-month period, the largest increases were seen in other service charges (increase of $45,000 or 34.1%), trust and farm management fees (increase of $45,000 or 18.9%), and other income (increase of $43,000 or 70.5%). Notable increases for the nine-month period were seen in service charges on deposits (up $97,000 or 8.9%) and in other service charges (up $140,000 or 36.7%), both of which have increased as the number of deposit accounts have grown. Non-interest expenses for the third quarter of 1999 were $3,731,000, an increase of $113,000 (or 3.1%) from $3,618,000 in the third quarter of 1998. 1999 year-to-date non-interest expenses at $10,983,000 have increased $689,000 (or 6.7%) from 1998. The most notable increases were in salaries/employee benefits and equipment expense (caused by increased depreciation). The salaries increase is due mainly to additional staffing needs during the first nine months of 1999 as compared to 1998, along with normal salary increases. It is anticipated that salary expense will increase only marginally over the remainder of 1999. Equipment expense has increased due to additional depreciation expense being incurred due to an upgrade of the subsidiary bank's computer system. EARNINGS PER SHARE Basic income per share is computed by dividing net income by the weighted average number of shares outstanding which were 3,761,031 and 3,959,711 for the quarters ending 10 September 30, 1999 and 1998, respectively, and 3,788,247 and 3,988,497 for the nine-month periods ending September 30, 1999 and 1998, respectively. Diluted earnings per share is computed by dividing net income by the weighted average number of basic shares plus potential common stock. This total was 3,773,981 for the quarter ending September 30, 1999 and 3,801,197 for the nine-month period ending September 30, 1999. ANALYSIS OF FINANCIAL CONDITION Total assets at September 30, 1999 decreased to $460,762,000 from $478,911,000 at December 31, 1998 ($18.1 million or 3.8%). This decrease is attributable mainly to deposit growth at the end of 1998 followed by a normal drop in the first half of the year. Of the total decrease in deposits over the first nine months of 1999, demand deposits showed the largest decrease (15.6%), while time deposits (5.0%), interest-bearing deposits (4.9%) , and savings deposits (0.2%) all decreased. However, in comparing average balances for the first nine months of 1999 to the first nine months of 1998, total average assets have increased by $17.8 million (or 4.0%) from $445,026,000 in 1998 to $462,808,000 in 1999. Likewise, total average deposits have also increased from $376,078,000 in 1998 to $389,889,000 in 1999 (an increase of $13.8 million or 3.7%). Borrowings, consisting of repurchase agreements and Federal Home Loan Bank advances, increased from $24,296,000 at December 31, 1998 to $30,946,000 at September 30, 1999 (increase of 27.4%). This increase is attributable, in part, to an increased loan demand coupled with the aforementioned decrease in deposits. The investment balances totaled $119,192,000 at September 30, 1999, compared to $130,926,000 at December 31, 1998 (a decrease of $11.7 million or 9.0%). A very strong demand for loans has caused loan balances to increase sharply during the first nine months of 1999. Accordingly, loan balances, net of unearned interest, increased to $304,452,000 at September 30, 1999, compared to $270,837,000 at December 31, 1998 (an increase of $33.6 million or 12.4%). Non-performing loans totaled $1,733,000 or 0.57% of net loans at September 30, 1999, as compared to $1,406,000 or 0.52% of net loans at December 31, 1998. For three months ended September 30, 1999, PNB charged off $235,000 of loans and had recoveries of $70,000, compared to charge-offs of $235,000 and recoveries of $138,000 during the three months ended September 30, 1998. During the first nine months of 1999, PNB charged off $494,000 of loans and had recoveries of $224,000, compared to charge-offs of $709,000 and recoveries of $542,000 during the first nine months of 1998. The allowance for possible 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 September 30, 1999, the balance in the allowance was $1,915,000 which is 110.5% of total non-performing loans, compared with $1,800,000 or 128.0% of total non-performing loans at December 31, 1998. 11 At September 30, 1999, the recorded balance in impaired loans totaled $1,264,000 (compared to $485,000 at September 30, 1998), 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. Interest recognized on impaired loans (during both periods that they were impaired) is not considered material. Loans 90 days or more past due and still accruing interest at September 30, 1999 were $42,000, compared to $16,000 at December 31, 1998. 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 September 30, 1999, total risk-based capital was 12.23%, compared to 13.68% at December 31, 1998. The Tier 1 capital ratio decreased from 8.35% at December 31, 1998, to 8.24% at September 30, 1999. Total stockholders' equity to total assets at September 30, 1999 increased to 8.97% from 8.90% at December 31, 1998. The Board of Directors announced on July 21, 1999 that another stock repurchase program will be implemented whereby up to 3% of its outstanding shares might be repurchased in the open market over the next twelve months. Through September 30, 1999, the Corporation had purchased 47,500 shares in the plan at an average cost of $14.32. It is anticipated that the repurchase program will continue to enhance shareholder value. 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, including cash flow from both the repayment of loans and the securitization of assets, are also considered in determining whether liquidity is satisfactory. Cash flows used by investing activities, as well as those used for investing and financing activities, resulted in a net decrease in cash and cash equivalents of $41,272,000 from December 31, 1998 to September 30, 1999. This usage was due to a net decrease in deposits and a net increase in loans, offset by an increase in borrowings. For more detailed cash flow information, see PNB's Consolidated Statement of Cash Flows. CURRENT EVENTS The Corporation's lawsuit against Cincinnati Insurance Company regarding the 1995 trust issues remains in the U.S. Court of Appeals for the Seventh Circuit. Oral arguments on the merits of Cincinnati's appeal are scheduled for November. It is anticipated this case may come to a conclusion during the latter part of the fourth quarter or in the first quarter of 2000. 12 YEAR 2000 COMPLIANCE As of September 30, 1999, the subsidiary bank has successfully met all critical time frames established by the regulatory authorities. PNB expects that the principal costs will be those associated with the replacement of non-compliant computer equipment, which was fully depreciated and scheduled for replacement. These costs, which will be capitalized and amortized over the equipment's useful lives, will be met from existing resources. As a result, management does not anticipate significant cost savings to occur after the year 2000 issue is satisfactorily remedied. In total, PNB expects the cost of solving the year 2000 issue, and regular replacement of equipment, to be approximately $1.3 million, consisting of the following: Estimated capital costs for technology upgrades $1.2 million Estimated testing costs $ .1 million Total estimated spending $1.3 million IMPACT OF NEW ACCOUNTING STANDARDS In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities" (FAS 133). FAS 133 establishes accounting and reporting standards for derivative instruments and for hedging activities. It requires all derivatives to be recognized as either assets or liabilities in the statement of financial position and to be measured at fair value. As issued, FAS 133 is effective for all fiscal quarters of fiscal years beginning after June 15, 1999. In June 1999, the FASB issued Statement No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" (FAS 137). FAS 137 is effective upon issuance and it amends FAS 133 to be effective for all fiscal quarters of fiscal years beginning after June 15, 2000. PNB is in the process of assessing the impact of adopting the Statements on its financial position, results of operations, and liquidity. LEGAL PROCEEDINGS There are various claims pending against PNB's subsidiary bank, arising in the normal course of business. Management believes, based upon consultation with counsel, that liabilities arising from these proceedings, if any, will not be material to PNB's financial condition. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK There has been no material change in market risk since December 31, 1998, as reported in PNB's Annual Report on Form 10-K. 13 EFFECTS OF INFLATION The consolidated financial statements and related consolidated financial data presented herein have been prepared in accordance with generally accepted accounting principles 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 CONSOLIDATED AVERAGE BALANCE SHEETS (unaudited) (in thousands)
For the Three Months For the Nine Months Ended September 30 Ended September 30 1999 1998 1999 1998 ---------- ---------- ---------- ---------- ASSETS Cash and due from banks $ 17,437 $ 17,706 $ 18,951 $ 16,605 Federal funds sold 4,002 5,499 6,609 5,724 Loans held for sale, at lower of cost or market 7,977 1,659 6,274 1,349 Investment securities: Available-for-sale 104,607 111,313 109,165 110,683 Held-to-maturity 19,494 15,170 21,459 16,686 ---------- ---------- ---------- ---------- Total investment securities 124,101 126,483 130,624 127,369 Loans: Gross loans 285,571 280,687 277,405 273,303 Less: Unearned interest (18) (66) (27) (84) Allowance for possible loan losses (1,904) (1,892) (1,845) (1,831) ---------- ---------- ---------- ---------- Net loans 283,649 278,729 275,533 271,388 Premises and equipment 11,152 9,395 10,986 8,901 Interest receivable 5,069 5,541 4,816 5,225 Goodwill and intangible assets, net of accumulated amortization 4,801 5,086 4,895 5,156 Other assets 4,440 3,378 4,120 3,309 ---------- ---------- ---------- ---------- TOTAL ASSETS $ 462,628 $ 453,476 $ 462,808 $ 445,026 ========== ========== ========== ========== LIABILITIES Deposits: Demand 39,314 36,104 39,409 35,972 Interest-bearing demand 93,179 88,449 92,651 86,904 Savings 56,322 53,641 56,029 53,673 Time 199,564 201,663 201,800 199,529 ---------- ---------- ---------- ---------- Total deposits 388,379 379,857 389,889 376,078 Borrowings: Customer repurchase agreements 17,412 14,858 15,075 12,620 Advances from Federal Home Loan Bank 8,744 9,486 8,926 6,228 Federal funds purchased 103 0 116 2 Int.-bearing demand notes issued to the U.S. Treasury 1,248 1,072 1,054 1,041 Notes payable 1,286 92 1,178 1,370 ---------- ---------- ---------- ---------- Total borrowings 28,793 25,508 26,349 21,261 Other liabilities 3,798 4,745 4,424 4,645 ---------- ---------- ---------- ---------- TOTAL LIABILITIES 420,970 410,110 420,662 401,984 STOCKHOLDERS' EQUITY Common stock 20,699 20,700 20,699 17,338 Surplus 6,318 6,232 6,312 6,200 Retained earnings 21,080 18,340 20,415 20,854 Accumulated other comprehensive income, net of tax (501) 626 225 568 Less: Treasury stock (5,938) (2,532) (5,505) (1,918) ---------- ---------- ---------- ---------- TOTAL STOCKHOLDERS' EQUITY 41,658 43,366 42,146 43,042 ---------- ---------- ---------- ---------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 462,628 $ 453,476 $ 462,808 $ 445,026 ========== ========== ========== ==========
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS 15 EX-27 2 FINANCIAL DATA SCHEDULE
9 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY CONSOLIDATED BALANCE SHEETS AND STATEMENTS OF INCOME AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 9-MOS DEC-31-1999 SEP-30-1999 11,461 345,172 1,400 0 99,323 19,869 19,639 304,452 1,915 460,762 385,145 30,946 3,318 0 0 0 20,699 20,654 460,762 18,299 5,321 231 23,851 10,512 11,481 12,370 385 41 10,983 4,050 4,050 0 0 2,833 0.75 0.75 4.11 1,691 42 0 49 1,915 494 224 1,915 1,915 0 0
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