FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE EXCHANGE ACT OF
1934
For the quarterly period ended March 31, 1997
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 (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 March 31, 1997, the registrant had outstanding 2,724,597
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
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
March 31, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
PRINCETON NATIONAL BANCORP, INC.
Date: May 12, 1997 By: /s/ Tony J. Sorcic
-------------------------------
Tony J. Sorcic
President
Date: May 12, 1997 By: /s/ Todd D. Fanning
-------------------------------
Todd D. Fanning
Chief Financial Officer
<PAGE> 3
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 1
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $15,144 $18,033
Federal funds sold 3,900 3,100
Loans held for sale 2,595 2,849
Investment securities:
Available-for-sale, at fair value 101,670 105,893
Held-to-maturity (fair value of $10,850 and $11,135
at March 31, 1997 and December 31, 1996, respectively) 10,871 11,135
---------- ------------
Total investment securities 112,541 117,028
---------- ------------
Loans:
Gross loans 259,460 258,118
Less: Unearned interest (165) (187)
Allowance for possible loan losses (1,667) (1,630)
---------- ------------
Net loans 257,628 256,301
---------- ------------
Premises and equipment 9,059 9,147
Interest receivable 4,844 5,725
Goodwill and intangible assets, net of accumulated amortization 5,423 5,541
Other assets 2,682 2,683
---------- ------------
TOTAL ASSETS $413,816 $420,407
========== ============
LIABILITIES
Deposits:
Demand $36,741 $41,258
Interest-bearing demand 81,539 78,883
Savings 57,230 55,077
Time 182,046 183,483
---------- ------------
Total deposits 357,556 358,701
---------- ------------
Short-term borrowings:
Customer repurchase agreements 5,498 11,597
Interest-bearing demand notes
issued to the U.S. Treasury 2,074 1,940
---------- ------------
Total short-term borrowings 7,572 13,537
Long-term borrowings 4,200 4,350
Other liabilities 3,830 3,622
---------- ------------
TOTAL LIABILITIES 373,158 380,210
---------- ------------
<PAGE> 4
STOCKHOLDERS' EQUITY
Common stock: $5 par value, 4,000,000 shares authorized;
2,759,945 issued at March 31, 1997
and December 31, 1996 13,800 13,800
Surplus 6,067 6,067
Retained earnings 21,055 20,250
Unrealized (loss) gain on investment securities
available-for-sale, net of tax effect (55) 300
Less: Cost of 35,348 treasury shares at March 31, 1997
and 35,979 treasury shares at December 31, 1996 (209) (220)
---------- ------------
TOTAL STOCKHOLDERS' EQUITY 40,658 40,197
---------- ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $413,816 $420,407
========== ============
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 5
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited) For the Three Months
(In thousands, except share data) Ended March 31
1997 1996
------------ ------------
<S> <C> <C>
Interest income:
Interest and fees on loans 5,707 5,260
Interest and dividends on investment securities 1,634 1,721
Interest on federal funds sold 50 44
Interest on interest-bearing time deposits in other banks 0 10
------------ -----------
Total interest income 7,391 7,035
Interest expense:
Interest on deposits 3,398 3,380
Interest on short-term borrowings 94 93
Interest on long-term borrowings 90 99
------------ -----------
Total interest expense 3,582 3,572
------------ -----------
Net interest income 3,809 3,463
Provision for possible loan losses 105 0
------------ -----------
Net interest income after provision for possible loan losses 3,704 3,463
Non-interest income:
Trust & farm management fees 309 252
Service charges on deposit accounts 320 263
Other service charges 102 95
Securities transactions, net (3) (17)
Loan servicing fees and other charges 30 72
Other operating income 83 26
------------ -----------
Total non-interest income 841 691
Non-interest expenses:
Salaries and employee benefits 1,666 1,570
Occupancy 249 240
Equipment expense 225 204
FDIC/OCC assessments 9 60
Goodwill and intangible assets amortization 118 53
Data processing 167 135
Trust customer charges 10 0
Other operating expense 648 649
------------ -----------
Total non-interest expense 3,092 2,911
------------ -----------
Income before income taxes 1,453 1,243
Income tax expense 376 308
------------ -----------
Net income 1,077 935
============ ===========
Net income per share: 0.40 0.34
Weighted average shares outstanding 2,723,973 2,718,366
Dividends per share 0.10 0.09
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 6
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
For the Three Months
Ended March 31
1997 1996
------------- ------------
(In thousands)
<S> <C> <C>
Balance, January 1 $40,197 $37,646
Net income 1,077 935
Cash dividends (272) (244)
Change in unrealized loss on investment securities
available-for-sale, net of tax effect (355) (389)
Sale of treasury stock 11 30
------------- -------------
Balance, March 31 $40,658 $37,978
============= =============
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 7
<TABLE>
<CAPTION>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Three Months
Ended March 31
(In thousands) 1997 1996
------------ ------------
<S> <C> <C>
Operating activities:
Net income $1,077 $935
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 226 227
Provision for possible loan losses 105 0
Amortization of goodwill and other intangible assets 118 53
Amortization of premiums (discounts) on
investment securities, net of accretion 40 103
Loss on sales of securities, net 3 17
Loans originated for sale (668) (3,841)
Proceeds from sales of loans originated for sale 922 2,404
Increase in accrued interest payable 33 109
Decrease in accrued interest receivable 881 994
Increase in other assets (54) (29)
Increase in other liabilities 358 164
------------ -----------
Net cash provided by operating activities 3,041 1,136
------------ -----------
Investing activities:
Proceeds from sales of investment securities available-for-sale 241 90
Proceeds from maturities of investment securities available-for-sale 12,724 16,870
Purchase of investment securities available-for-sale (9,279) (11,947)
Proceeds from maturities of investment securities held-to-maturity 490 930
Purchase of investment securities held-to-maturity (270) (674)
Proceeds from sales of other real estate owned 55 0
Net increase in loans (1,432) (1,276)
Purchases of premises and equipment (138) (144)
------------ ------------
Net cash provided by investing activities 2,391 3,849
------------ ------------
Financing activities:
Net decrease in deposits (1,145) (8,674)
Net decrease in short-term borrowings (5,965) (2,970)
Payments for long-term borrowings (150) (150)
Dividends paid (272) (244)
Sale of treasury stock 11 30
------------ ------------
Net cash used by financing activities (7,521) (12,008)
------------ ------------
Decrease in cash and cash equivalents (2,089) (7,023)
Cash and cash equivalents at January 1 21,133 24,434
------------ ------------
Cash and cash equivalents at March 31 $19,044 $17,411
============ ============
<PAGE> 8
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $3,530 $3,464
Income taxes $150 $0
Supplemental disclosures of non-cash flow activities:
Amounts transferred to other real estate owned $108 $16
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 9
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 1996 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> 10
Schedule 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1997
(UNAUDITED)
The following discussion provides information about Princeton National
Bancorp, Inc.'s (PNB) financial condition and results of operations for
the quarter ending March 31, 1997. This discussion should be read in
conjunction with the attached consolidated financial statements and note
thereto.
RESULTS OF OPERATIONS
Net income for the first quarter of 1997 was $1,077,000, or $0.40 per
share as compared to net income of $935,000 in the first quarter of 1996,
or $0.34 per share, which represents an increase of 15.2%. Annualized
return on assets and return on equity were 1.05% and 10.82%,
respectively, for the first quarter of 1997, compared with 0.94% and
9.89% for the first quarter of 1996.
The change in net interest margin was the most significant reason for
the increase in net income. Net interest income increased from
$3,463,000 in the first quarter of 1996 to $3,809,000 in the first
quarter of 1997 (an increase of $346,000 or 10.0%). While total interest
expense increased only $10,000 between these quarters, total interest
income increased $356,000, or 5.1%. This is a reflection of the
continued increase in the average balance of loans outstanding. As of
March 31, 1997, total loans represented 63.3% of total assets compared to
60.3% as of March 31, 1996. Accordingly, the net yield on interest-
earning assets (on a fully taxable equivalent basis) increased from 4.05%
for the first three months of 1996 to 4.31% for the first three months of
1997.
Non-interest income increased by $150,000 (or 21.7%) during the first
quarter of 1997 as compared to the first quarter of 1996. While almost
all categories of non-interest income had increases from 1996 to 1997,
the majority of the overall increase was in two categories. Trust and
farm management fees increased by $57,000 (or 22.6%), largely a
reflection of the increase in clients served and assets under management
from a year ago. Also, service charges on deposits increased by $57,000
(or 21.7%), as a result of an increase in overdraft charges and an
increase in the number and fee income from checking accounts.
Non-interest expense for the first quarter of 1997 amounted to
$3,092,000, an increase of $181,000 (6.2%) from the first quarter of
1996. As a result of additional costs incurred in connection with the
Sandwich acquisition in June 1996, this increase is attributed to
increases in the following three categories: salaries and employee
benefits ($96,000 or 6.1%), data processing ($32,000 or 23.7%), and
goodwill amortization ($61,000 or 115.1%).
<PAGE> 11
ANALYSIS OF FINANCIAL CONDITION
Total assets at March 31, 1997 decreased to $413,816,000 from
$420,407,000 at December 31, 1996 ($6.6 million or 1.6%). This decrease
is a result of the normal year-end increase in deposits followed by a
drop during the first three months of the year. This year, however, the
decrease was seen mostly in the area of customer repurchase agreements,
which fell from $11.6 million at December 31, 1996 to $5.5 million at
March 31, 1997. The reason for the decrease in customer repurchase
agreements is that many of our grain elevator customers have a surplus of
cash at year-end and then pay out to farmers during the first quarter.
Total deposits decreased by just $1.1 million during the first quarter of
1997. Interest-bearing demand deposits and savings deposits increased
($2.7 million and $2.1 million, respectively) offsetting decreases in
demand deposits ($4.5 million) and time certificates of deposits ($1.4
million).
As mentioned earlier, loan balances continue to increase with total
loans, net of unearned interest, at $261,890,000 at March 31, 1997,
compared to $260,780,000 at December 31, 1996 (an increase of $1.1
million or 0.43%). Non-performing loans totaled $1,265,000 or 0.48% of
net loans at March 31, 1997, as compared to $1,157,000 or 0.45% of net
loans at December 31, 1996. Corresponding to the decreases in customer
repurchase agreements and deposits, total investment securities decreased
from $117.0 million at December 31, 1996 to $112.5 million at March 31,
1997 ($4.5 million or 3.8%).
During the first three months of 1997, PNB charged off $221,000 of
loans and had recoveries of $153,000. This compares to charge-offs of
$379,000 and recoveries of $148,000 during the first three months of
1996. 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 best
judgement, deserve evaluation. The adequacy of the allowance is
monitored monthly. During the first quarter of 1997, PNB recorded a loan
loss expense of $105,000. This is a result of the higher charge-offs and
net losses incurred throughout 1996, particularly in the installment loan
category. While management has strengthened underwriting practices in
this area, management also expects to continue to increase the balance in
the allowance for possible loan losses. At March 31, 1997, the balance
in the allowance was $1,667,000 which is 0.64% of total loans, compared
with $1,630,000 or 0.63% of total loans at December 31, 1996.
At March 31, 1997, the recorded investment in loans for which
impairment has been recognized in accordance with FASB Statement No. 114
totaled $566,000, 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 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.
<PAGE> 12
CAPITAL RESOURCES
Federal regulations require all financial institutions to evaluate
capital adequacy by the risk-based capital method, which makes capital
requirements more sensitive to the differences in the level of risk
assets. At March 31, 1997, total risk-based capital was 14.16%, compared
to 13.88% at December 31, 1996. Accordingly, the Tier 1 capital ratio
also increased from 8.59% at December 31, 1996, to 8.67% at March 31,
1997. Total stockholders' equity to total assets at March 31, 1997
increased to 9.83% from 9.56% at December 31, 1996.
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 and investing activities, offset by those used by financing
activities, resulted in a net decrease in cash and cash equivalents of
$2,089,000 from December 31, 1996 to March 31, 1997. This usage was due
largely to a net decrease in short-term borrowings, as well as a net
increase in loans; offset by a decrease in investments (maturities and
sales greater than purchases). For more detailed cash flow information,
see PNB's Consolidated Statement of Cash Flows.
IMPACT OF NEW ACCOUNTING STANDARDS
In February 1997, FASB Statement No. 128, "Earnings Per Share" (FAS
128), was issued. FAS 128 supersedes APB Opinion No. 15, Earnings Per
Share and specifies the computation, presentation, and disclosure
requirements for earnings per share (EPS) for entities with publicly held
common stock or potential common stock. FAS 128 was issued to simplify
the computation of EPS and to make the U.S. standard more compatible with
the EPS standards of other countries and that of the International
Accounting Standards Committee. It replaces the presentation of primary
EPS with a presentation of basic EPS and fully diluted EPS with diluted
EPS. It also requires dual presentation of basic and diluted EPS on the
face of the income statement for all entities with complex capital
structures and requires a reconciliation of the numerator and denominator
of the basic EPS computation to the numerator and denominator of the
diluted EPS computation.
Basic EPS, unlike primary EPS, excludes dilution and is computed by
dividing income available to common stockholders by the weighted-average
number of common shares outstanding for the period. Diluted EPS reflects
the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock that
then shared in the earnings of the entity. Diluted EPS is a computed
similarity to fully diluted EPS under APB 15.
<PAGE> 13
FAS 128 is effective for financial statements for both interim and
annual periods ending after December 15, 1997. Earlier application is
not permitted (although pro forma EPS disclosure in the footnotes for
periods prior to required adoption is permitted). After adoption, all
prior-period EPS data presented shall be restated to conform with FAS
128. PNB does not expect adoption of FAS 128 to have a significant
impact on its financial statements.
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 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> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> MAR-31-1997
<CASH> 15,144
<INT-BEARING-DEPOSITS> 320,815
<FED-FUNDS-SOLD> 3,900
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 101,670
<INVESTMENTS-CARRYING> 10,871
<INVESTMENTS-MARKET> 10,850
<LOANS> 261,890
<ALLOWANCE> 1,667
<TOTAL-ASSETS> 413,816
<DEPOSITS> 357,556
<SHORT-TERM> 7,572
<LIABILITIES-OTHER> 3,830
<LONG-TERM> 4,200
0
0
<COMMON> 13,800
<OTHER-SE> 26,858
<TOTAL-LIABILITIES-AND-EQUITY> 413,816
<INTEREST-LOAN> 5,707
<INTEREST-INVEST> 1,634
<INTEREST-OTHER> 50
<INTEREST-TOTAL> 7,391
<INTEREST-DEPOSIT> 3,398
<INTEREST-EXPENSE> 3,582
<INTEREST-INCOME-NET> 3,809
<LOAN-LOSSES> 105
<SECURITIES-GAINS> ($3)
<EXPENSE-OTHER> 3,092
<INCOME-PRETAX> 1,453
<INCOME-PRE-EXTRAORDINARY> 1,453
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,077
<EPS-PRIMARY> 0.40
<EPS-DILUTED> 0.40
<YIELD-ACTUAL> 4.31
<LOANS-NON> 1,101
<LOANS-PAST> 18
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 147
<ALLOWANCE-OPEN> 1,630
<CHARGE-OFFS> 221
<RECOVERIES> 153
<ALLOWANCE-CLOSE> 1,667
<ALLOWANCE-DOMESTIC> 1,667
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
