-----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, PCcLayqf1QYzuBNr2Bgun5x5GCrv/5zpJaNO8gS024LfOzLhir77FOtdnd+sms8J YRkq4OdyEuva2RXSAGBDPQ== 0001061655-98-000047.txt : 19981118 0001061655-98-000047.hdr.sgml : 19981118 ACCESSION NUMBER: 0001061655-98-000047 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 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: 98750911 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, 1998 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 of incorporation or organization) Identification No.) 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 2, 1998, the registrant had outstanding 3,824,990 shares of its $5 par value common stock. Page 1 of 14 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, 1998. (b) A Form 8-K was filed by the Corporation on July 30, 1998 with respect to the implementation of a stock repurchase program whereby the Corporation may purchase up to 5% of its outstanding shares of common stock. A Form 8-K was also filed by the Corporation on August 26, 1998 with respect to the Corporation's subsidiary bank's lawsuit against Cincinnati Insurance Company (see Schedule 6: Management's Discussion and Analysis of Financial Condition and Results of Operations--Current Events.) 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, 1998 By /s/ Tony J. Sorcic --------------------------------- Tony J. Sorcic President & Chief Executive Officer Date: November 12, 1998 By /S/ Todd D. Fanning --------------------------------- Todd D. Fanning Chief Financial Officer 2 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 1 CONSOLIDATED BALANCE SHEETS (in thousands)
September 30, December 31, 1998 1997 ------------- ------------ (Unaudited) ASSETS Cash and due from banks $ 12,663 $ 21,268 Short-term funds 8,232 11,900 Loans held for sale 1,222 1,576 Investment securities: Available-for-sale, at fair value 109,299 107,042 Held-to-maturity (fair value of $13,714 and $12,661 at September 30, 1998 and December 31, 1997, respectively) 13,444 12,498 -------- -------- Total investment securities 122,743 119,540 -------- -------- Loans: Gross loans 283,841 274,725 Less: Unearned interest (58) (120) Allowance for possible loan losses (1,925) (1,830) -------- -------- Net loans 281,858 272,775 -------- -------- Premises and equipment 9,820 8,752 Interest receivable 6,309 5,808 Goodwill and intangible assets, net of accumulated amortization 5,044 5,272 Other assets 3,261 2,769 -------- -------- TOTAL ASSETS $451,152 $449,660 -------- -------- -------- -------- LIABILITIES Deposits: Demand $ 35,817 $ 42,333 Interest-bearing demand 88,005 87,364 Savings 53,449 52,193 Time 203,444 204,050 -------- -------- Total deposits 380,715 385,940 Short-term borrowings 21,341 13,237 Long-term borrowings 500 3,750 Other liabilities 4,738 4,065 -------- -------- TOTAL LIABILITIES 407,294 406,992 -------- -------- STOCKHOLDERS' EQUITY Common stock: $5 par value, 7,000,000 shares authorized; 4,139,841 issued at September 30, 1998 and 4,139,917 issued at December 31, 1997 20,700 20,700 Surplus 6,232 6,235 Retained earnings 18,855 16,569 Accumulated other comprehensive income, net of tax 1,223 560 Less: Cost of 214,851 treasury shares at September 30, 1998 and 123,604 treasury shares at December 31, 1997 (3,152) (1,396) -------- -------- TOTAL STOCKHOLDERS' EQUITY 43,858 42,668 -------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $451,152 $449,660 -------- -------- -------- --------
See accompanying note to consolidated financial statements 3 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2 CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three Months For the Nine Months (In thousands, except share data) Ended September 30 Ended September 30 1998 1997 1998 1997 -------- -------- -------- -------- Interest income: Interest and fees on loans $6,315 $6,290 $18,681 $17,999 Interest and dividends on investment securities 1,869 1,631 5,446 4,912 Interest on short-term funds 76 43 236 127 -------- -------- -------- -------- Total interest income 8,260 7,964 24,363 23,038 Interest expense: Interest on deposits 3,907 3,784 11,456 10,716 Interest on short-term borrowings 343 129 786 321 Interest on long-term borrowings 1 88 87 268 -------- -------- -------- -------- Total interest expense 4,251 4,001 12,329 11,305 -------- -------- -------- -------- Net interest income 4,009 3,963 12,034 11,733 Provision for possible loan losses 134 173 262 485 ------ -------- -------- -------- Net interest income after provision for possible loan losses 3,875 3,790 11,772 11,248 Non-interest income: Trust & farm management fees 239 250 864 805 Service charges on deposit accounts 392 364 1,089 1,017 Other service charges 132 122 382 332 Gain on sales of securities 0 26 21 94 Loan servicing fees and other charges 77 52 236 122 Other income 61 45 226 168 ------ ------ ------- ------ Total non-interest income 901 859 2,818 2,538 Non-interest expense: Salaries and employee benefits 1,951 1,706 5,551 5,025 Occupancy 273 245 773 732 Equipment expense 216 208 613 663 FDIC/OCC assessments 46 45 140 99 Goodwill and intangible assets amortization 116 114 350 348 Data processing 169 176 459 508 Other expense 847 691 2,408 2,007 -------- -------- -------- -------- Total non-interest expense 3,618 3,185 10,294 9,382 -------- -------- -------- -------- Income before income taxes 1,158 1,464 4,296 4,404 Income tax expense 263 382 1,077 1,148 -------- -------- -------- -------- Net income $ 895 $1,082 $ 3,219 $ 3,256 -------- -------- -------- -------- -------- -------- -------- -------- Basic and diluted earnings per share: 0.23 0.27 0.81 0.80 Weighted average shares outstanding 3,959,711 4,064,685 3,988,497 4,079,109 Dividends per share 0.08 0.07 0.24 0.21
See accompanying note to consolidated financial statements 4 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2 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 1998 1997 1998 1997 -------- -------- -------- -------- Net Income $ 895 $ 1,082 $ 3,219 $ 3,256 Other comprehensive income, net of tax Unrealized holding gain arising during the period 683 221 684 296 Less: Reclassification adjustment for realized gains included in income statement 0 (26) (21) (94) -------- -------- -------- -------- Other comprehensive income 683 195 663 202 -------- -------- -------- -------- Comprehensive income $ 1,578 $ 1,277 $ 3,882 $ 3,458 -------- -------- -------- -------- -------- -------- -------- --------
See accompanying note to consolidated financial statements 5 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 3 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (Unaudited)
For the Nine Months Ended September 30 1998 1997 -------- -------- (In thousands) Balance, January 1 $42,668 $40,197 Net income 3,219 3,256 Cash dividends (934) (845) Other comprehensive income, net of tax 663 202 Purchases of treasury stock (1,783) (959) Sales of treasury stock 25 46 ------- ------- Balance, September 30 $43,858 $41,897 ------- ------- ------- -------
See accompanying note to consolidated financial statements 6 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 4 CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
For the Three Months For the Nine Months Ended September 30 Ended September 30 (In thousands) 1998 1997 1998 1997 ---------- --------- -------- -------- Operating activities: Net income $ 895 $ 1,082 $ 3,219 $ 3,256 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 169 213 481 665 Provision for possible loan losses 134 173 262 485 Amortization of goodwill and other intangible assets 116 114 350 348 Amortization of premiums on investment securities, net of accretion 48 9 133 67 Gain on sales of securities, net 0 (26) (21) (94) (Gain) loss on sales of other real estate (8) 0 (8) 1 Loans originated for sale (9,527) (3,016) (19,439) (5,281) Proceeds from sales of loans originated for sale 9,948 2,681 19,793 5,437 Increase (decrease) in accrued interest payable 165 181 (1) 309 Increase in accrued interest receivable (1,185) (1,102) (501) (327) (Increase) decrease in other assets (111) 514 (685) (444) (Decrease) increase in other liabilities (48) (543) 332 (99) -------- -------- -------- ------- Net cash provided by operating activities 596 280 3,915 4,323 -------- -------- -------- ------- Investing activities: Proceeds from sales of investment securities available-for-sale 0 3,026 5,016 6,514 Proceeds from maturities of investment securities available- for-sale 9,677 11,643 27,968 35,294 Purchase of investment securities available-for-sale (4,355) (12,868) (34,347) (32,679) Proceeds from maturities of investment securities held-to- maturity 172 40 768 615 Purchase of investment securities held-to-maturity (600) (1,565) (1,715) (2,458) Proceeds from sales of other real estate owned 34 0 79 181 Net increase in loans (7,418) (6,430) (9,345) (17,685) Purchases of premises and equipment (1,061) (79) (1,549) (355) -------- -------- -------- -------- Net cash used for investing activities (3,551) (6,233) (13,125) (10,573) -------- -------- -------- -------- Financing activities: Net increase (decrease) in deposits 6,004 10,646 (5,225) 19,054 Net (decrease) increase in short-term borrowings (8,761) 713 8,104 (1,790) Net increase (decrease) in long-term borrowings 500 (300) (3,250) (450) Dividends paid (318) (300) (934) (845) Purchase of treasury stock (852) (959) (1,783) (959) Sale of treasury stock 5 14 25 46 -------- -------- -------- -------- Net cash provided by financing activities (3,422) 9,814 (3,063) 15,056 -------- -------- -------- -------- (Decrease) increase in cash and cash equivalents (6,377) 3,861 (12,273) 8,806 Cash and cash equivalents at beginning of quarter and year 27,272 26,078 33,168 21,133 -------- -------- -------- -------- Cash and cash equivalents at September 30 $20,895 $29,939 20,895 29,939 -------- -------- -------- -------- -------- -------- -------- -------- Supplemental disclosures of cash flow information: Cash paid during the period for: Interest $4,615 $3,730 $12,330 $10,906 Income taxes $515 $433 $1,279 $1,367 Supplemental disclosures of non- cash flow activities: Amounts transferred to other real estate owned $0 $0 $34 $108
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 1997 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. Schedule 6 PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS September 30, 1998 (unaudited) The following discussion provides information about Princeton National Bancorp, Inc.'s (PNB) financial condition and results of operations for the quarter and nine months ended September 30, 1998. 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. PNB cautions that such forward-looking statements involve risks and uncertainties that may cause actual results to differ materially from those expressed or implied. STOCK DIVIDEND - -------------- On April 14, 1998, the Board of Directors of PNB declared a three-for-two stock split in the form of a 50% stock dividend which was distributed May 15, 1998 to shareholders of record on April 24, 1998. Each shareholder of record received one new share of common stock for each two shares owned as of the record date. Cash was paid in lieu of fractional shares. Accordingly, all per share data stated in this Form 10-Q has been adjusted to reflect this dividend. RESULTS OF OPERATIONS - --------------------- Net income for the third quarter of 1998 was $895,000, or basic and diluted earnings per share of $0.23 as compared to net income of $1,082,000 in the second quarter of 1997, or basic and diluted earnings per share of $0.27. This represents a decrease of $187,000 (17.3%) or $0.04 per share. This decrease is attributable to a tightening of the net interest margin, an increase in salary costs, and an increase in legal expenses relating to the subsidiary bank's lawsuit (see Current Events section). For the first nine months of 1998, net income was $3,219,000, or basic and diluted earnings per share of $0.81, compared to $3,256,000, or basic and diluted earnings per share of $0.80 in the first nine months of 1997. Annualized return on average assets and return on average equity were 0.78% and 8.19%, respectively, for the third quarter of 1998, compared with 1.01% and 10.36% for the third quarter of 1997. For the nine-month periods, the annualized returns on average assets and average equity were 0.97% and 10.00%, respectively, for 1998, compared to 1.03% and 10.59% in 1997. Net interest income before any provision for loan losses was $4,009,000 for the third quarter of 1998, compared to $3,963,000 for the third quarter of 1997 (an increase of $46,000 or 1.2%). Additionally, for the nine-month periods, net interest income before any provision for loan losses was $12,034,000 for 1998, as compared to $11,733,000 for 1997, representing an increase of $301,000 (or 2.6%). This increase can be attributed to an increase in average interest- earning assets from $386.0 million at September 30, 1997, to $413.1 million at September 30, 1998. However, as mentioned previously, due to a decrease in the net yield on average interest-earning assets and the cost of average interest- bearing liabilities staying fairly constant the net interest margin has tightened. Accordingly, the net yield on interest-earning assets (on a fully taxable equivalent basis) decreased from 4.27% for the first nine months of 1997 to 4.11% for the first nine months of 1998. Non-interest income increased by $42,000 (or 4.9%) during the third quarter of 1998 as compared to the third quarter of 1997 from $859,000 to $901,000. For the first nine months of 1998, non-interest income has increased to $2,818,000 from $2,538,000 in the first nine months of 1997 (an increase of $280,000 or 11.0%). With the exception of net gains from securities transactions, which decreased from $94,000 for the first nine months of 1997 to $21,000 for the first nine months of 1998, all categories had increases over the same time frame. Most notably, loan servicing fees increased $114,000 (due to an increase in activity in the secondary market), service charges on deposit accounts increased $72,000, trust and farm management fees increased $59,000, and other service charges increased $40,000. Non-interest expenses for the third quarter of 1998 were $3,618,000, an increase of $433,000 (or 13.6%) from the total of $3,185,000 in the third quarter of 1997. Again, the majority of this increase is due to additional staff resulting in salaries and employee benefits increasing by $245,000 (or 14.4%) during the aforementioned periods. Year-to-date non-interest expenses of $10,294,000 for 1998, represents an increase of $912,000 (or 9.7%) from 1997. On a year-to-date basis, comparing 1998 to 1997, salaries and employee benefits have increased $526,000 (or 10.5%). Also worth noting is an increase in other operating expenses from $2,007,000 for the first three quarters of 1997, to $2,408,000 for the first three quarters of 1998. This is a result of several small increases over many categories of PNB's operating expenses and additional legal expenses incurred in the aforementioned lawsuit. Offsetting these increases was a $50,000 reduction in equipment expense, primarily reduced depreciation expense. EARNINGS PER SHARE - ------------------ Basic income per share is computed by dividing net income by the weighted average number of shares outstanding which were 3,959,711 and 4,064,685 for the quarters ending September 30, 1998 and 1997, respectively, and 3,988,497 and 4,079,109 for the nine-month periods ending September 30, 1998 and 1997, respectively. There were no common stock equivalents during any of these periods, therefore diluted earnings per share is the same calculation. ANALYSIS OF FINANCIAL CONDITION - ------------------------------- Total assets at September 30, 1998 increased to $451,152,000 from $449,660,000 at December 31, 1997 ($1.5 million or 0.3%). Total deposits and repurchase agreements as a whole have decreased from $395.7 million at December 31, 1997 to $391.8 million at September 30, 1998 (an decrease of $3.9 million or 1.0%). The investment balances total $122,743,000 at September 30, 1998, compared to $119,540,000 at December 31, 1997 (an increase of $3.2 million or 2.7%). Loan demand and refinancing activity continued very strong during the third quarter of 1998. Accordingly, loan balances, net of unearned interest, increased to $285,005,000 at September 30, 1998, compared to $276,181,000 at December 31, 1997 (an increase of $8.8 million or 3.2%). Non-performing loans totaled $1,157,000 or 0.41% of net loans at September 30, 1998, as compared to $837,000 or 0.30% of net loans at December 31, 1997. During the first nine months of 1998, PNB charged off $709,000 of loans and had recoveries of $542,000. This compares favorably to charge-offs of $763,000 and recoveries of $493,000 during the first nine months of 1997. 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. During the first nine months of 1998, PNB recorded a loan loss expense of $262,000, compared to $485,000 during the first nine months of 1997. As loan volume grows during the remainder of 1998, as anticipated, management expects to continue to increase the balance in the allowance for possible loan losses. At September 30, 1998, the balance in the allowance was $1,925,000 which is 166.4% of total non-performing loans, compared with $1,830,000 or 218.6% of total non-performing loans at December 31, 1997. At September 30, 1998, the recorded balance in loans for which impairment has been recognized in accordance with FASB Statement No. 114 totaled $485,000, all of which related to impaired loans which do not require a related allowance for possible loan losses as the carrying value of the loans is less than the discounted present value of expected future cash flows. Interest recognized on impaired loans (during the portion of this quarter that they were impaired) is not considered material. 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, 1998, total risk-based capital was 13.33%, compared to 13.88% at December 31, 1997. The Tier 1 capital ratio increased from 8.36% at December 31, 1997, to 8.44% at September 30, 1998. Total stockholders' equity to total assets at September 30, 1998 increased to 9.72% from 9.49% at December 31, 1997. The Corporation's plan (announced in July, 1997) to repurchase 3% of its own stock was completed during the second quarter of 1998. In that plan, PNB repurchased a total of 122,656 shares at an average cost of $16.43. The Board of Directors announced on July 20, 1998 that it was implementing another stock repurchase program whereby up to 5% of its outstanding shares of common stock might be repurchased in the open market over the next twelve months. As of September 30, 1998, the Corporation had repurchased 47,500 shares in the new plan at an average cost of $17.91. It is anticipated that the repurchase program will continue to have a positive impact on future diluted earnings per share as well as market 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 provided by operating activities have been offset by those used for investing and financing activities, resulting in a net decrease in cash and cash equivalents of $12,273,000 from December 31, 1997 to September 30, 1998. This usage was due to a net decrease in deposits, a net increase in loans, a net decrease in long-term borrowings, and an increase in investments (purchases greater than sales and maturities), offset by a net increase in short-term borrowings. For more detailed cash flow information, see PNB's Consolidated Statement of Cash Flows. CURRENT EVENTS - -------------- A ruling was received during the third quarter on the subsidiary bank's lawsuit, stemming from the 1995 Trust Department issue, against Cincinnati Insurance Company. The case was heard in the United States District Court for the Northern District of Illinois, Eastern Division, in Chicago, Illinois. The judge ruled in favor of the bank on all issues and awarded $4,900,000 in damages, pre-judgment interest, post-judgment interest, and reasonable attorney fees and costs. Cincinnati Insurance Company has filed an appeal to the ruling. Citizens First National Bank continues to expense legal fees and if successful, the majority of such expenses would be reimbursed through the insurance coverage and the court's judgment. IMPACT OF NEW ACCOUNTING STANDARDS - ---------------------------------- In June 1997, FASB Statement No. 131, 'Disclosures about Segments of an Enterprise and Related Information' (FAS 131), was issued. FAS 131 establishes standards for the way public business enterprises are to report information about operating segments in annual financial statements and requires those enterprises to report selected information about operating segments in interim financial reports issued to shareholders. FAS 131 is effective for financial periods beginning after December 15, 1997, and is not expected to have a material impact on the PNB. YEAR 2000 COMPLIANCE - -------------------- The Corporation through its subsidiary, Citizens First National Bank, has undertaken an initiative to address the year 2000 issue and has developed a comprehensive plan to prepare, as appropriate, the Corporation's computer systems to recognize the date change on January 1, 2000. If not remedied, potential risks include business interruption, financial loss, reputation loss, and/or legal liability. An assessment of the readiness of third parties that the Corporation interfaces with, such as vendors, counter-parties, customers, payment systems, and others, is ongoing to mitigate the potential risks that year 2000 poses to the Corporation. The Corporation's objective is to ensure that all aspects of the year 2000 issue affecting the Corporation, including those related to the efforts of third parties, will be fully resolved in time. The Corporation has consistently maintained contingency plans for vital systems and business processes to protect the Corporation's assets against unplanned events that would prevent normal operations. The millennium changeover presents unique risks, some of which would not be effectively addressed by existing plans. The Corporation is examining these risks and developing additional plans to mitigate the effect of potential impacts and ensure continuity of operation throughout the year 2000 and beyond. The use of the existing contingency planning infrastructure will ensure optimum coverage and re-usability of existing arrangements and responsibility assignments. A year 2000 committee, comprised of representatives from all areas of the subsidiary, has overall responsibility for ensuring that both the technical and the business risks imposed by the year 2000 issue are addressed. This committee regularly monitors the progress toward year 2000 compliance and provides periodic reporting to the subsidiary's Executive Committee and Board of Directors. The process for year 2000 compliance is following four major steps: inventory, impact assessment, validation, and implementation. The Corporation plans to substantially complete the implementation of the Corporation's critical systems by the end of 1998. It is anticipated that the implementation of all systems will be achieved by June 30, 1999. The Corporation 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, the Corporation's management does not anticipate significant cost savings to occur after the year 2000 issue is satisfactorily remedied. In total the Corporation expects the cost of solving the year 2000 issue, and regular replacement of equipment, to be approximately $1.3 million, consisting of following: Estimated capital costs for technology upgrades $1.2 million Estimated testing costs $ .1 million Total estimated spending $1.3 million As of September 30, 1998, the subsidiary bank has successfully met all critical time frames established by federal regulatory agencies. At this point, Management does not believe there will be a material impact on the Corporation's result of operations, liquidity, or capital resources. 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 position. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK - ---------------------------------------------------------- There has been no material change in market risk since December 31, 1997, as reported in the Corporation's 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 generally accepted accounting principles and practices within the banking industry which require the measurement of financial position 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. EX-27 2
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. 1000 9-MOS DEC-31-1997 SEP-30-1998 $12,663 $344,898 $2,600 $0 $109,299 $13,444 $13,714 $285,005 $1,925 $451,152 $380,715 $21,341 $4,738 $500 $0 $0 $20,700 $23,158 $451,152 $18,681 $5,446 $236 $24,383 $11,456 $12,329 $12,034 $262 $21 $10,294 $4,296 $4,296 $0 $0 $3,219 $0.81 $0.81 4.11 $1,124 $33 $0 $200 $1,925 $709 $542 $1,925 $1,925 $0 $0
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