SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
-----------------------
FORM 10-Q
Quarterly Report Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
for the Quarterly Period Ended June 30, 1996
------------------------
Commission File Number 0-20050
PRINCETON NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 36-3210283
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
606 S. Main Street
Princeton, Illinois 61356
(Address of principal executive offices)
(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 June 30, 1996 the registrant had outstanding 2,721,410 shares
of its $5 par value common stock.
<PAGE> 2
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 (Loss)
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
(b) No reports on Form 8-K were filed during the quarter ended
June 30, 1996.
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: August 13, 1996 By /s/ Tony J. Sorcic
-----------------------------------
Tony J. Sorcic
Executive Vice-President
Date: August 13, 1996 By /s/ Todd D. Fanning
-----------------------------------
Todd D. Fanning
Controller
<PAGE> 3
Schedule 1
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
June 30, December 31,
1996 1995
--------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $14,434 $18,734
Federal funds sold 4,000 5,700
Interest-bearing time deposits in other banks 0 0
Loans held for sale 3,658 946
Marketable investment securities:
Available-for-sale 116,930 115,596
Held-to-maturity (market value of $11,375 and
$11,501 at 6/30/96 and 12/31/95, respectively) 11,531 11,498
-------- --------
Total investment securities 128,461 127,094
-------- --------
Loans:
Gross loans 244,097 232,693
Less: Unearned interest (169) (222)
Allowance for possible credit losses (1,965) (2,034)
-------- --------
Net loans 241,963 230,437
Premises and equipment 9,305 9,096
Interest receivable 5,139 5,505
Goodwill and intangibles, net of accumulated amortization 5,512 2,545
Other assets 2,715 2,336
-------- --------
TOTAL ASSETS $415,187 $402,393
======== ========
LIABILITIES
Deposits:
Demand $34,073 $39,315
Interest-bearing demand 81,954 77,094
Savings 55,131 49,527
Time 188,682 180,349
-------- --------
Total deposits 359,840 346,285
-------- --------
Short-term borrowings:
Securities repurchase agreements 5,731 9,172
Interest-bearing demand notes
issued to the U.S. Treasury 2,178 1,571
-------- --------
Total short-term borrowings 7,909 10,743
-------- --------
Long-term borrowings 5,400 4,700
Other liabilities 3,549 3,019
-------- --------
TOTAL LIABILITIES 376,698 364,747
-------- --------
STOCKHOLDERS' EQUITY
Common stock: 4,000,000 shares at 6/30/96 and at
12/31/95, of $5 par value authorized; 2,759,945
issued at 6/30/96 and 12/31/95 13,800 13,800
Surplus 6,067 6,067
Retained earnings 19,178 17,857
Unrealized (loss) gain on investments available-for-sale,
net of tax effect (288) 243
Less: Cost of 38,535 treasury shares at 6/30/96
and 41,639 treasury shares at 12/31/95 (268) (321)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 38,489 37,646
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $415,187 $402,393
======== ========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 4
Schedule 2
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited)
(In thousands, except share data)
For the Three Months For the Six Months
Ended June 30 Ended June 30
------------------- -------------------
1996 1995 1996 1995
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans 5,488 4,920 10,748 9,508
Interest and dividends on investment
securities 1,656 1,982 3,377 4,152
Interest on federal funds sold 33 13 77 17
Interest on interest-bearing time deposits
in other banks 13 1 23 2
--------- --------- --------- ---------
Total interest income 7,190 6,916 14,225 13,679
Interest expense:
Interest on deposits 3,358 3,442 6,738 6,605
Interest on short-term borrowings 80 67 173 171
Interest on long-term borrowings 100 117 199 234
--------- --------- --------- ---------
Total interest expense 3,538 3,626 7,110 7,010
--------- --------- --------- ---------
Net interest income 3,652 3,290 7,115 6,669
Provision (credit) for possible credit losses 0 (66) 0 (101)
--------- --------- --------- ---------
Net interest income after provision (credit)
for possible credit losses 3,652 3,356 7,115 6,770
Non-interest income:
Trust & farm management fees 244 207 496 454
Service charges on deposit accounts 282 275 545 535
Other service charges 116 62 211 129
Securities transactions, net (9) 59 (26) 202
Loan servicing fees and other charges 51 43 123 82
Other operating income 51 18 77 47
--------- --------- --------- ---------
Total other income 735 664 1,426 1,449
Non-interest expenses:
Salaries and employee benefits 1,590 1,462 3,160 2,908
Occupancy 218 224 458 443
Equipment expense 207 194 411 393
FDIC/OCC assessments 63 221 123 443
Intangibles amortization 86 104 139 409
Other real estate expense, net 6 1 7 (3)
Data processing 144 113 279 261
Trust expense 240 67 243 4,982
Other operating expense 683 567 1,328 1,083
--------- --------- --------- ---------
Total other expenses 3,237 2,953 6,148 10,919
--------- --------- --------- ---------
Income (loss) before income taxes 1,150 1,067 2,393 (2,700)
Applicable income taxes (benefit) 275 207 583 (1,371)
--------- --------- --------- ---------
Net income (loss) 875 860 1,810 (1,329)
========= ========= ========= =========
Net income (loss) per share: 0.32 0.32 0.67 (0.49)
Weighted average shares outstanding 2,720,175 2,713,112 2,719,271 2,711,898
Dividends per share 0.09 0.09 0.18 $0.18
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 5
Schedule 3
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Six Months
Ended June 30
--------------------
1996 1995
--------- ---------
(In thousands)
<S> <C> <C>
Balance, January 1 $37,646 $34,636
Net income (loss) 1,810 (1,329)
Cash dividends (489) (488)
Unrealized (loss) gain on investments
available-for-sale, net of tax (531) 2,520
effect
Sale of treasury stock 53 54
--------- ---------
Balance, June 30 $38,489 $35,393
========= =========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 6
SCHEDULE 4
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months For the Six Months
Ended June 30 Ended June 30
--------------------- ---------------------
(In thousands) 1996 1995 1996 1995
--------- --------- --------- ---------
<C> <S> <S> <S> <S>
Operating activities:
Net income (loss) $875 $860 $1,810 ($1,329)
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 232 216 459 419
Credits for possible credit losses 0 (66) 0 (101)
Amortization of goodwill 58 54 111 107
Amortization of investment securities, net of accretion 109 171 212 547
Loss (gain) on sales of securities 9 (59) 26 (202)
Loss (gain) on sales of other real estate 5 0 5 (8)
Loans originated for sale (2,572) (1,409) (6,413) (2,247)
Proceeds from sales of loans originated for sale 1,297 1,716 3,701 2,766
(Decrease) increase in accrued interest payable (51) 252 58 385
(Increase) decrease in accrued interest receivable (628) (829) 366 407
Increase in other assets (497) (36) (526) (319)
Increase (decrease) in other liabilities 582 284 746 (1,689)
--------- --------- --------- ---------
Net cash (used) provided by operating activities (581) 1,154 555 (1,264)
--------- --------- --------- ---------
Investing activities:
Proceeds from sales of available-for-sale investment securities 249 3,580 339 11,662
Proceeds from maturities of available-for-sale investment
securities 17,210 7,184 34,080 12,758
Purchase of available-for-sale investment securities (25,131) (491) (37,078) (3,152)
Proceeds from maturities of held-to-maturity investment
securities 140 400 1,070 865
Purchase of held-to-maturity investment securities (147) (1,651) (821) (1,838)
Proceeds from sales of other real estate owned 11 0 11 35
Net increase in loans (10,250) (5,733) (11,526) (11,767)
Purchases of premises or equipment (524) (173) (668) (369)
Payment for acquisition, net of cash and cash equivalents
acquired (2,947) 0 (2,947) 0
--------- --------- --------- ---------
Net cash (used) provided by investing activities (21,389) 3,116 (17,540) 8,194
--------- --------- --------- ---------
Financing activities:
Net increase (decrease) in deposits 22,229 3,508 13,555 (11,661)
Net increase (decrease) in short-term borrowings 136 (2,403) (2,834) (197)
Proceeds from long-term borrowings 1,000 0 1,000 0
Payments for long-term borrowings (150) (150) (300) (300)
Dividends paid (245) (244) (489) (488)
Sale of treasury stock 23 54 53 54
--------- --------- --------- ---------
Net cash provided (used) by financing activities 22,993 765 10,985 (12,592)
--------- --------- --------- ---------
Increase (Decrease) in cash and cash equivalents 1,023 5,035 (6,000) (5,662)
Cash and cash equivalents at beginning of quarter and year 17,411 11,049 24,434 21,746
--------- --------- --------- ---------
Cash and cash equivalents at June 30 $18,434 $16,084 $18,434 $16,084
========= ========= ========= =========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $3,405 $3,189 $6,666 $6,220
Interest on repurchase agreements $59 $61 $141 $103
Interest on long-term borrowings $100 $117 $199 $234
Income taxes $557 $0 $557 $325
Amounts transferred to other real estate owned $0 $0 $0 $0
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 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 1995 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.
<PAGE> 8
Schedule 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
June 30, 1996
(unaudited)
The following discussion provides information about Princeton
National Bancorp, Inc.'s (PNB) financial condition and results of
operations for the quarter ending June 30, 1996. This discussion
should be read in conjunction with the attached consolidated financial
statements and note thereto.
ACQUISITION
On June 7, 1996, PNB acquired the Sandwich, Illinois branch of
Superior Bank FSB for $3,455,000. The acquisition consisted solely of
deposits (approximately $24,700,000) and the associated branch
facilities. This acquisition, in combination with the nearby Plano
office, significantly enhances the subsidiary bank's market presence
in this rapidly growing area.
RESULTS OF OPERATIONS
Income for the second quarter of 1996 was $875,000, or $0.32 per
share, an increase from the second quarter of 1995 of $15,000 (or
1.74%). For the first six months of 1996, income was $1,810,000 (or
$0.67 per share), compared to a loss of $1,329,000 (or $0.49 per
share) in the first six months of 1996 due to the subsidiary bank's
reimbursement of trust customers for losses in the market value of
various inverse floater securities held in their trust accounts.
Without including the trust department matter, the income for the
first six months of 1995 would have been approximately $1,682,000
($.62 per share). Annualized return on assets and return on equity
were .88% and 9.22%, respectively, for the second quarter of 1996,
compared with .90% and 10.06% for the second quarter of 1995. For the
six-month periods, the annualized returns on assets and equity were
.91% and 9.56%, respectively, for 1996 compared to -.69% and -7.69% in
1995.
As average loans continue to increase, net interest income also
continues to climb increasing from $3,290,000, before any provisions
(credits) for possible credit losses, during the second quarter of
1995, to $3,652,000 in the second quarter of 1996 (an increase of
$362,000 or 11.00%). Additionally, for the six-month periods, net
interest income before any provisions (credits) for possible credit
losses was $7,115,000 for 1996, as compared to $6,669,000 for 1995,
representing an increase of $446,000 (or 6.69%).
Non-interest income increased by $71,000 (or 10.69%) during the
second quarter of 1996 as compared to the second quarter of 1995.
However, for the first six months of 1996, non-interest income
<PAGE> 9
decreased by $23,000 (or 1.59%) as compared to the first six months of
1995. While some categories of non-interest income showed significant
increases from 1995 to 1996 (other service charge income, loan service
fees, other operating income), income from securities transactions
decreased by $228,000 resulting in the overall decrease in non-
interest income.
Despite a decrease of $158,000 (or 71.49%) in FDIC/OCC
assessments (due to a reduction in the rates charged by the FDIC),
non-interest expense for the second quarter of 1996 amounted to
$3,237,000, an increase of $284,000 (or 9.62%) from the second quarter
of 1995. This increase is due to trust department expenses and other
increases in operating expenses associated with the Sandwich branch
acquisition.
Excluding trust expenses and FDIC/OCC assessments (for both 1996
and 1995), non-interest expenses increased by $288,000 (or 5.24%)
during the first six months of 1996 as compared to the first six
months of 1995. This increase can be attributed to higher salary
costs (increase of 8.67%) and other operating expenses (increase of
22.62%), which are partly a result of the expansion of the subsidiary
bank's staff and offices.
ANALYSIS OF FINANCIAL CONDITION
As a result of the acquisition described above, total assets at
June 30, 1996 increased to $415,187,000 from $402,393,000 at December
31, 1995 ($12.8 million or 3.2%). Although PNB acquired approximately
$24.7 million in deposits, total deposits have increased by only $13.5
million during the six months of 1996 from $346.3 million at December
31, 1995 to $359.8 million at June 30, 1996. Time certificate of
deposits continue to increase; up approximately $8.3 million (or
4.62%) from December 31, 1995 to June 30, 1996. Savings deposits and
interest-bearing demand deposits also increased $5.6 million (or
11.32%) and $4.9 million (or 6.30%), respectively, during the same
period, while demand deposits decreased by $5.2 million (or 13.33%).
Loan demand continues to be extremely strong with total loans,
net, at $245,621,000 at June 30, 1996, compared to $231,383,000 at
December 31, 1995 (an increase of $14.2 million or 6.15%). Non-
performing loans totaled $847,000 or 0.34% of net loans at June 30,
1996, as compared to $917,000 or 0.39% of net loans at December 31,
1995.
During the first six months of 1996, PNB charged off $639,000 of
loans and had recoveries of $570,000. The allowance for possible
credit 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 best judgement, deserve
evaluation. The adequacy of the allowance is monitored monthly. At
June 30, 1996, the allowance for possible credit losses was $1,965,000
which is 0.79% of total loans, net of unearned interest.
<PAGE> 10
At June 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with FASB Statement No.
114 totaled $189,000, all of which related to impaired loans which do
not require a related allowance for possible credit losses as the
carrying value of the loans exceeds 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 June 30, 1996, total risk-based capital was
13.83%, compared to 15.17% at December 31, 1995, a result of the
aforementioned acquisition. As of June 30, 1996, total stockholders'
equity decreased by $288,000 as a result of the mark to market of the
available-for-sale portion of the subsidiary bank's investment
portfolio. Accordingly, together with the acquisition, total
stockholders' equity to total assets at June 30, 1996 decreased to
9.27% from 9.36% at December 31, 1995.
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 financing and operating activities, offset by those
used by investing activities, resulted in a net decrease in cash and
cash equivalents of $6,000,000 from December 31, 1995 to June 30,
1996. This usage was due largely to net increases in loans and
investments (purchases greater than maturities and sales) as well as a
decrease in short-term borrowings, offset by a net increase in
deposits (resulting from the aforementioned acquisition). For more
detailed cash flow information, see PNB's Consolidated Statement of
Cash Flows.
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.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND> 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.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> JUN-30-1996
<CASH> 14,434
<INT-BEARING-DEPOSITS> 325,767
<FED-FUNDS-SOLD> 4,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 116,930
<INVESTMENTS-CARRYING> 11,531
<INVESTMENTS-MARKET> 11,375
<LOANS> 247,586
<ALLOWANCE> 1,965
<TOTAL-ASSETS> 415,187
<DEPOSITS> 359,840
<SHORT-TERM> 7,909
<LIABILITIES-OTHER> 3,549
<LONG-TERM> 5,400
0
0
<COMMON> 13,800
<OTHER-SE> 24,689
<TOTAL-LIABILITIES-AND-EQUITY> 415,187
<INTEREST-LOAN> 10,748
<INTEREST-INVEST> 3,377
<INTEREST-OTHER> 100
<INTEREST-TOTAL> 14,225
<INTEREST-DEPOSIT> 6,738
<INTEREST-EXPENSE> 7,110
<INTEREST-INCOME-NET> 7,115
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (26)
<EXPENSE-OTHER> 6,148
<INCOME-PRETAX> 2,393
<INCOME-PRE-EXTRAORDINARY> 2,393
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,810
<EPS-PRIMARY> 0.67
<EPS-DILUTED> 0.67
<YIELD-ACTUAL> 4.13
<LOANS-NON> 710,000
<LOANS-PAST> 137,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 159,000
<ALLOWANCE-OPEN> 2,034
<CHARGE-OFFS> 639
<RECOVERIES> 570
<ALLOWANCE-CLOSE> 1,965
<ALLOWANCE-DOMESTIC> 1,590
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 375
</TABLE>
