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, 1996
Commission File No. 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, 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 September 30, 1996, the registrant had outstanding 2,722,039
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.
<PAGE> 3
<TABLE>
<CAPTION>
Schedule 1
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1996 1995
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $17,891 $18,734
Federal funds sold 2,000 5,700
Interest-bearing time deposits in other banks 0 0
Loans held for sale 3,490 946
Marketable investment securities:
Available-for-sale 105,280 115,596
Held-to-maturity (fair value of $11,608 and
$11,501 at 9/30/96 and 12/31/95, respectively) 11,652 11,498
-------- --------
Total investment securities 116,932 127,094
Loans:
Gross loans 255,587.0 232,693
Less: Unearned interest (175) (222)
Allowance for possible credit losses (1,739) (2,034)
-------- --------
Net loans 253,673 230,437
-------- --------
Premises and equipment 9,265 9,096
Interest receivable 6,275 5,505
Goodwill and intangibles, net of accumulated amortization 5,641 2,545
Other assets 2,614 2,336
-------- --------
TOTAL ASSETS $417,781 $402,393
======== ========
LIABILITIES
Deposits:
Demand $33,939 $39,315
Interest-bearing demand 80,482 77,094
Savings 54,843 49,527
Time 191,368 180,349
-------- --------
Total deposits 360,632 346,285
-------- --------
Short-term borrowings:
Securities repurchase agreements 6,638 9,172
Interest-bearing demand notes issued to
the U.S. Treasury 2,673 1571
-------- --------
Total short-term borrowings 9,311 10,743
-------- --------
Long-term borrowings 5,250 4,700
Other liabilities 3,452 3,019
-------- --------
TOTAL LIABILITIES 378,645 364,747
-------- --------
STOCKHOLDERS' EQUITY
<PAGE> 4
Common stock: 4,000,000 shares at 9/30/96 and at
12/31/95, of $5 par value authorized; 2,759,945
ssued at 9/30/96 and 12/31/95 13800 13,800
Surplus 6,067 6,067
Retained earnings 19,529 17,857
Unrealized (loss) gain on investments available-for-sale,
net of tax effect (4) 243
Less: Cost of 37,906 treasury shares at 9/30/96
and 41,639 treasury shares at 12/31/95 (256) (321)
-------- --------
TOTAL STOCKHOLDERS' EQUITY 39,136 37,646
------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $417,781 $402,393
======== ========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 5
<TABLE>
<CAPTION>
Schedule 2
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
(Unaudited) For the Three Months For the Nine Months
(In thousands, except share data) Ended September 30 Ended September 30
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest income:
Interest and fees on loans 5,643 5,177 16,390 14,709
Interest and dividends on investment securities 1,741 1,846 5,118 5,998
Interest on federal funds sold 6 47 84 64
Interest on interest-bearing time deposits in
other banks 0 6 23 9
-------- -------- -------- --------
Total interest income 7,390 7,076 21,615 20,780
Interest expense:
Interest on deposits 3,535 3,555 10,273 10,161
Interest on short-term borrowings 102 76 275 247
Interest on long-term borrowings 114 112 313 346
-------- -------- -------- --------
Total interest expense 3,751 3,743 10,861 10,754
-------- -------- -------- --------
Net interest income 3,639 3,333 10,754 10,026
Provision (credit) for possible credit losses 0 0 0 (101)
-------- -------- -------- --------
Net interest income after provision (credit)
for possible credit losses 3,639 3,333 10,754 10,127
Non-interest income:
Trust & farm management fees 215 201 711 656
Service charges on deposit accounts 311 281 855 816
Other service charges 108 66 319 195
Securities transactions, net (1) 0 (27) 202
Loan servicing fees and other charges 35 27 158 85
Other operating income 32 30 90 88
-------- -------- -------- --------
Total other income 700 605 2,106 2,042
Non-interest expenses:
Salaries and employee benefits 1,646 1,535 4,806 4,444
Occupancy 252 223 710 677
Equipment expense 221 205 632 598
FDIC/OCC assessments 390 41 513 484
Intangibles amortization 118 104 257 513
Other real estate expense, net 3 0 10 (4)
Data processing 151 111 430 372
Trust expense 119 0 362 4,919
Other operating expense 680 660 1,989 1,807
-------- -------- -------- --------
Total other expenses 3,580 2,879 9,709 13,810
-------- -------- -------- --------
Income (loss) before income taxes 759 1,059 3,151 (1,641)
Applicable income taxes (benefit) 135 251 718 (1,121)
-------- -------- -------- --------
Net income (loss) 624 808 2,433 (520)
======== ======== ======== ========
Net income (loss) per share: 0.23 0.30 0.89 0
<PAGE> 6
Weighted average shares outstanding 2,721,417 2,714,872 2,719,991 2,712,900
Dividends per share 0.10 0.09 0.28 $0.27
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 7
<TABLE>
<CAPTION>
Schedule 3
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
For the Nine Months
Ended September 30
1996 1995
-------- --------
(In thousands)
<S> <C> <C>
Balance, January 1 $37,646 $34,636
Net income (loss) 2,433 (520)
Cash dividends (761) (732)
Change in unrealized (loss) gain on investments
available-for-sale, net of tax effect
(247) 2,698
Sale of treasury stock 65 62
-------- --------
Balance, September 30 $39,136 $36,144
======= ========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 8
<TABLE>
<CAPTION>
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) 1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $624 $808 $2,433 ($520)
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 222 187 681 606
Credits for possible credit losses 0 0 0 (101)
Amortization of intangible assets 118 53 257 160
Amortization of investment securities,
net of accretion 78 164 290 711
Loss (gain) on sales of securities 1 0 27 (202)
Loss (gain) on sales of other real estate 0 0 5 (8)
Loans originated for sale (939) (3,491) (7,352) (5,738)
Proceeds from sales of loans originated for sale 1,107 2,998 4,808 5,764
(Decrease) increase in accrued interest payable (47) 326 9 711
Increase in accrued interest receivable (1,136) (920) (770) (513)
(Increase) decrease in other assets (149) 34 (700) (286)
(Decrease) increase in other liabilities (191) 487 555 (1,202)
-------- -------- -------- --------
Net cash (used) provided by operating
activities (312) 646 243 (618)
-------- -------- -------- --------
Investing activities:
Proceeds from sales of available-for-sale
investment securities 1,384 0 1,723 11,662
Proceeds from maturities of available-for-sale
investment securities 21,296 8,192 55,376 20,950
Purchase of available-for-sale investment securities (10,400) (3,431) (47,478) (6,583)
Proceeds from maturities of held-to-maturity
investment securities 643 429 1,713 1,294
Purchase of held-to-maturity investment securities (1,046) (173) (1,867) (2,011)
Proceeds from sales of other real estate owned 0 0 11 35
Net increase in loans (11,710) (12,306) (23,236) (24,073)
Purchases of premises or equipment (182) (237) (850) (606)
Payment for acquisition, net of cash and cash 0 0 (2,947) 0
equivalents acquired -------- -------- -------- --------
Net cash (used) provided by investing activities (15) (7,526) (17,555) 668
-------- -------- -------- --------
Financing activities:
Net increase (decrease) in deposits 792 1,829 14,347 (9,832)
Net increase (decrease) in short-term borrowings 1,402 775 (1,432) 578
Proceeds from long-term borrowings 0 0 1,000 0
Payments for long-term borrowings (150) (150) (450) (450)
Dividends paid (272) (244) (761) (732)
Sale of treasury stock 12 8 65 62
--------- -------- -------- --------
Net cash provided (used) by financing activities 1,784 2,218 12,769 (10,374)
-------- -------- -------- --------
Increase (decrease) in cash and cash equivalents 1,457 (4,662) (4,543) (10,324)
<PAGE> 9
Cash and cash equivalents at beginning of quarter and year 18,434 16,084 24,434 21,746
-------- -------- -------- --------
Cash and cash equivalents at September 30 $19,891 $11,422 $19,891 $11,422
======== ======== ======== ========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest on deposits $3,598 $3,218 $10,264 $9,438
Interest on repurchase agreements $75 $36 $216 $139
Interest on long-term borrowings $114 $112 $313 $346
Income taxes $387 $0 $944 $325
Amounts transferred to other real estate owned $168 $0 $168 $0
</TABLE>
See accompanying note to consolidated financial statements
Supplemental Schedule of Noncash Investing and Financing Activities:
The Corporation purchased all of the stock of Illinois Valley Bancshares,
Inc. for $5,195,000. In conjunction with the acquisition, liabilities were
assumed as follows:
Fair value of assets aquired $75,853
Cash paid for the Capital stock (5,195)
-------
Liabilites assumed $70,658
=======
<PAGE> 10
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> 11
SCHEDULE 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
September 30, 1996
(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 ending September 30, 1996.
This discussion should be read in conjunction with the attached
consolidated financial statements and note thereto.
RESULTS OF OPERATIONS
---------------------
Net income for the third quarter was negatively impacted by
$218,000 (after-tax), or $.08 per share, due to the passage of the
recent SAIF-FICO bill mandating a special one-time payment to the FDIC
to bring the SAIF fund up to its required reserve ratio. As a result,
income for the third quarter of 1996 was $624,000, or $0.23 per share,
a decrease from the third quarter of 1995 of $184,000 (or 22.77%).
For the first nine months of 1996, net income was $2,433,000 (or $0.89
per share), compared to a loss of $520,000 (or $0.19 per share) in the
first nine months of 1995 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, net income for the first nine months of
1995 would have been approximately $2,491,000 ($.92 per share).
Annualized return on assets and return on equity were .60% and 6.43%,
respectively, for the third quarter of 1996, compared with .83% and
9.11% for the third quarter of 1995. For the nine-month periods, the
annualized returns on assets and equity were .81% and 8.55%,
respectively, for 1996 and -.18% and -1.98% for 1995.
As average loans continue to increase and average interest-
bearing liabilities remain consistent, net interest income has
increased from $3,333,000, before any provisions (credits) for
possible credit losses, during the third quarter of 1995, to
$3,639,000 in the third quarter of 1996 (an increase of $306,000 or
9.18%). Additionally, for the nine-month periods, net interest income
before any provisions (credits) for possible credit losses was
$10,754,000 for 1996, as compared to $10,026,000 for 1995,
representing an increase of $728,000 (or 7.26%).
Non-interest income increased by $95,000 (or 15.70%) during the
third quarter of 1996 as compared to the third quarter of 1995.
However, for the first nine months of 1996, non-interest income
increased by only $64,000 (or 3.13%) as compared to the first nine
months of 1995. Several categories of non-interest income have shown
increases from 1995 to 1996 (other service charge income, loan service
fees, trust and farm management fees), however, income from securities
<PAGE> 12
transactions decreased by $229,000 resulting in the small overall
increase in non-interest income.
Non-interest expenses for the third quarter of 1996 increased to
$3,580,000, an increase of $701,000 (or 24.35%) from the third quarter
of 1995, primarily because of FDIC assessments and trust department
expenses as well as 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 $427,000 (or 5.08%)
during the first nine months of 1996 as compared to the first nine
months of 1995. This increase can be attributed to higher salary
costs (increase of 8.15%) and other operating expenses (increase of
10.07%), which are partly a result of the expansion of the subsidiary
bank's staff and offices.
ANALYSIS OF FINANCIAL CONDITION
-------------------------------
As a result of second quarter 1996 acquisition of the Sandwich,
Illinois branch of Superior Bank FSB, total assets at September 30,
1996 increased to $417,781,000 from $402,393,000 at December 31, 1995
($15.4 million or 3.8%). Although PNB acquired approximately $24.7
million in deposits, total deposits have increased by only $14.3
million during the first nine months of 1996 (reflecting the normal
year-end bulge in total deposits), from $346.3 million at December 31,
1995 to $360.6 million at September 30, 1996. Time certificate of
deposits continue to increase; up approximately $11.0 million (or
6.11%) from December 31, 1995 to September 30, 1996. Savings deposits
and interest-bearing demand deposits also increased $5.3 million (or
10.73%) and $3.4 million (or 4.39%), respectively, during the same
period, while demand deposits decreased by $5.4 million (or 13.67%).
Loan demand continues to be extremely strong with total loans,
net, at $257,163,000 at September 30, 1996, compared to $231,383,000
at December 31, 1995 (an increase of $25.8 million or 11.14%). Non-
performing loans totaled $1,169,000 or 0.45% of net loans at September
30, 1996, as compared to $917,000 or 0.39% of net loans at December
31, 1995.
During the first nine months of 1996, PNB charged off $1,032,000
of loans and had recoveries of $737,000. This compares to charge-offs
of $334,000 and recoveries of $415,000 during the first nine months of
1995. 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 September 30, 1996, the allowance for possible
credit losses was $1,739,000 which is 0.67% of total loans, net of
unearned interest. The number of charge-offs increased in 1996
primarily due to the rapid growth in the consumer portfolio. While
the current level of consumer charge-offs is higher than what
<PAGE> 13
management expects in the next twelve months, it is likely that net
losses will be higher than in the past several years. Accordingly,
management believes this will create a provision for loan loss
expense.
At September 30, 1996, the recorded investment in loans for which
impairment has been recognized in accordance with FASB Statement No.
114 totaled $571,000, 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. As a result of the June acquisition, at
September 30, 1996, total risk-based capital was 13.39%, compared to
15.17% at December 31, 1995. Accordingly, the Tier 1 capital ratio
also decreased from 8.72% at December 31, 1995, to 8.14% at September
30, 1995. Total stockholders' equity to total assets at September 30,
1996 increased only slightly to 9.37% 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 activities, offset by those used by
investing and operating activities, resulted in a net decrease in cash
and cash equivalents of $4,543,000 from December 31, 1995 to September
30, 1996. This usage was due largely to net increases in loans, as
well as a decrease in short-term borrowings; offset by the net
increase in deposits and a decrease in investments (maturities and
sales greater than purchases). 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
<PAGE> 14
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.
<PAGE> 15
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 13, 1996 By /s/ Tony J. Sorcic
-----------------------------
Tony J. Sorcic
Executive Vice-President
Date: November 13, 1996 By /s/ Todd D. Fanning
-----------------------------
Todd D. Fanning
Controller
<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 Statement of
Income and is qualified in its entirety by reference to
such financial statements.
<S> <C> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> SEP-30-1996
<CASH> 17,891
<INT-BEARING-DEPOSITS> 326,693
<FED-FUNDS-SOLD> 2,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 105,280
<INVESTMENTS-CARRYING> 1,652
<INVESTMENTS-MARKET> 11,608
<LOANS> 258,902
<ALLOWANCE> 1,739
<TOTAL-ASSETS> 417,781
<DEPOSITS> 360,632
<SHORT-TERM> 9,311
<LIABILITIES-OTHER> 3,452
<LONG-TERM> 5,250
0
0
<COMMON> 13,800
<OTHER-SE> 25,336
<TOTAL-LIABILITIES-AND-EQUITY> 417,781
<INTEREST-LOAN> 16,390
<INTEREST-INVEST> 3,377
<INTEREST-OTHER> 107
<INTEREST-TOTAL> 21,615
<INTEREST-DEPOSIT> 10,273
<INTEREST-EXPENSE> 10,861
<INTEREST-INCOME-NET> 10,754
<LOAN-LOSSES> 0
<SECURITIES-GAINS> (27)
<EXPENSE-OTHER> 9,709
<INCOME-PRETAX> 3,151
<INCOME-PRE-EXTRAORDINARY> 3,151
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,433
<EPS-PRIMARY> 0.89
<EPS-DILUTED> 0.89
<YIELD-ACTUAL> 4.11
<LOANS-NON> 1,131,000
<LOANS-PAST> 38,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 137,000
<ALLOWANCE-OPEN> 2,034
<CHARGE-OFFS> 1,032
<RECOVERIES> 737
<ALLOWANCE-CLOSE> 1,739
<ALLOWANCE-DOMESTIC> 1,612
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 127
</TABLE>
