<PAGE> 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 March 31, 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 Identification No.)
of incorporation or organization)
606 S. Main Street, Princeton, IL 61356
(Address of principal executive offices and Zip Code)
(815) 875-4444
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
----- -----
As of April 21, 1998, the registrant had outstanding 4,010,238 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 and Comprehensive
Income
Schedule 3: Consolidated Statements of Stockholders' Equity
Schedule 4: Consolidated Statements of Cash Flows
Schedule 5: Note to Consolidate Financial Statements
Schedule 6: Management's discussion and Analysis of
Financial Condition and Results of Operatons
PART II: OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits :
27 - Financial Data Schedule for the period ended March 31, 1998.
(b) No reports on Form 8-K were filed during the quarter ended March 31,
1998.
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 13, 1998 By /s/ Tony J. Sorcic
---------------------------------
Tony J. Sorcic
President & Chief Executive Officer
Date: May 13, 1998 By /s/ Todd D. Fanning
---------------------------------
Todd D. Fanning
Chief Financial Officer
<PAGE> 3
Schedule 1
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
March 31, December 31,
1998 1997
---------- ------------
(Unaudited)
<S> <C> <C>
ASSETS
Cash and due from banks $ 16,940 $ 21,268
Short-term funds 10,396 11,900
Loans held for sale 2,180 1,576
Investment securities:
Available-for-sale, at fair value 110,464 107,042
Held-to-maturity (fair value of $12,982 and $12,661 at
March 31, 1998 and December 31, 1997, respectively) 12,823 12,498
--------- ---------
Total investment securities 123,287 119,540
--------- ---------
Loans:
Gross loans 268,956 274,725
Less: Unearned interest (93) (120)
Allowance for possible loan losses (1,746) (1,830)
--------- ---------
Net loans 267,117 272,775
--------- ---------
Premises and equipment 8,741 8,752
Interest receivable 5,028 5,808
Goodwill and intangible assets, net of accumulated amortization 5,193 5,272
Other assets 2,919 2,769
--------- ---------
TOTAL ASSETS $ 441,801 $ 449,660
========= =========
LIABILITIES
Deposits:
Demand $ 36,633 $ 42,333
Interest-bearing demand 85,517 87,364
Savings 54,094 52,193
Time 198,091 204,050
--------- ---------
Total deposits 374,335 385,940
Short-term borrowings 16,264 13,237
Long-term borrowings 3,600 3,750
Other liabilities 4,319 4,065
--------- ---------
TOTAL LIABILITIES 398,518 406,992
--------- ---------
STOCKHOLDERS' EQUITY
Common stock: $5 par value, 7,000,000 shares
authorized and 4,139,917 issued at March 31, 1998
and December 31, 1997 20,700 13,800
Surplus 6,235 6,235
Retained earnings 17,380 23,469
Accumulated other comprehensive income, net of tax 487 560
Less: Cost of 129,679 treasury shares at March 31, 1998
and 123,604 treasury shares at December 31, 1997 (1,519) (1,396)
--------- ---------
TOTAL STOCKHOLDERS' EQUITY 43,283 42,668
--------- ---------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 441,801 $ 449,660
========= =========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 4
Schedule 2
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
(Unaudited) For the Three Months
(In thousands, except share data) Ended March 31
1998 1997
--------- ---------
<S> <C> <C>
INTEREST INCOME:
Interest and fees on loans $ 6,124 $ 5,707
Interest and dividends on investment securities 1,755 1,634
Interest on short-term funds 86 50
----------- -----------
Total interest income 7,965 7,391
INTEREST EXPENSE:
Interest on deposits 3,780 3,398
Interest on short-term borrowings 173 94
Interest on long-term borrowings 80 90
----------- -----------
Total interest expense 4,033 3,582
----------- -----------
NET INTEREST INCOME 3,932 3,809
Provision for possible loan losses 55 105
----------- -----------
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES 3,877 3,704
NON-INTEREST INCOME:
Trust & farm management fees 329 309
Service charges on deposit accounts 325 320
Other service charges 118 102
Gain (loss) on sales of securities 10 (3)
Loan servicing fees and other charges 75 30
Other operating income 96 83
----------- -----------
Total non-interest income 953 841
NON-INTEREST EXPENSE:
Salaries and employee benefits 1,804 1,666
Occupancy 251 249
Equipment expense 196 225
FDIC/OCC assessments 46 9
Goodwill and intangible assets amortization 117 118
Data processing 172 167
Other operating expense 758 658
----------- -----------
Total non-interest expense 3,344 3,092
----------- -----------
INCOME BEFORE INCOME TAXES 1,486 1,453
Income tax expense 381 376
----------- -----------
Net income $ 1,105 $ 1,077
=========== ===========
Basic and diluted earnings per share: 0.28 0.26
Weighted average shares outstanding 4,013,246 4,085,960
Dividends per share 0.08 0.07
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 5
Schedule 2
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
<TABLE>
<CAPTION>
(Unaudited) For the Three Months
(In thousands, except share data) Ended March 31
1998 1997
---------- ---------
<S> <C> <C>
Net Income $ 1,105 $ 1,077
Other comprehensive income, net of tax
Unrealized gains on securities:
Unrealized holding loss arising during the period (73) (355)
Less: Reclassification adjustment for gains (losses)
included in net income 10 (3)
------- -------
Other comprehensive income (83) (352)
------- -------
Comprehensive income $ 1,022 725
======= =======
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 6
Schedule 3
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
1998 1997
--------- ---------
(In thousands)
<S> <C> <C>
Balance, January 1 $ 42,668 $ 40,197
Net income 1,105 1,077
Cash dividends (294) (272)
Other comprehensive income, net of tax (73) (355)
Purchases of treasury stock (132) 0
Sales of treasury stock 9 11
-------- --------
Balance, March 31 $ 43,283 $ 40,658
======== ========
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 7
Schedule 4
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
For the Three Months
Ended March 31
(In thousands) 1998 1997
--------- ----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 1,105 $ 1,077
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 153 226
Provision for possible loan losses 55 105
Amortization of goodwill and other intangible assets 117 114
Amortization of premiums (discounts) on
investment securities, net of accretion 41 40
(Gain) loss on sales of securities, net (10) 3
Loans originated for sale (5,474) (668)
Proceeds from sales of loans originated for sale 4,870 922
(Decrease) increase in accrued interest payable (90) 33
Decrease in accrued interest receivable 780 881
Increase in other assets (233) (50)
Increase in other liabilities 381 358
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 1,695 3,041
-------- --------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale 3,008 241
Proceeds from maturities of investment securities available-for-sale 8,904 12,724
Purchase of investment securities available-for-sale (15,476) (9,279)
Proceeds from maturities of investment securities held-to-maturity 506 490
Purchase of investment securities held-to-maturity (830) (270)
Proceeds from sales of other real estate owned 45 55
Net (decrease) increase in loans 5,603 (1,432)
Purchases of premises and equipment (142) (138)
-------- --------
NET CASH PROVIDED BY INVESTING ACTIVITIES 1,618 2,391
-------- --------
FINANCING ACTIVITIES:
Net decrease in deposits (11,605) (1,145)
Net increase (decrease) in short-term borrowings 3,027 (5,965)
Payments for long-term borrowings (150) (150)
Dividends paid (294) (272)
Purchase of treasury stock (132) 0
Sale of treasury stock 9 11
-------- --------
NET CASH USED FOR FINANCING ACTIVITIES (9,145) (7,521)
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (5,832) (2,089)
CASH AND CASH EQUIVALENTS AT JANUARY 1 33,168 21,133
-------- --------
CASH AND CASH EQUIVALENTS AT MARCH 31 $ 27,336 $ 19,044
======== ========
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 3,870 $ 3,358
Income taxes $ 86 $ 150
Supplemental disclosures of non-cash flow activities:
Amounts transferred to other real estate owned $ 0 $ 108
</TABLE>
See accompanying note to consolidated financial statements
<PAGE> 8
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.
<PAGE> 9
Schedule 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
MARCH 31, 1998
(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, 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 to be distributed
May 15, 1998 to shareholders of record on April 24, 1998. Each shareholder of
record will receive one new share of common stock for each two shares owned as
of the record date. Cash will be 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 first quarter of 1998 was $1,105,000, or basic
earnings per share of $0.28 as compared to net income of $1,077,000 in the first
quarter of 1997, or basic earnings per share of $0.26. This represents an
increase of $0.02 per share. Annualized return on average assets and return on
average equity were 1.02% and 10.47%, respectively, for the first quarter of
1998, compared with 1.05% and 10.82% for the first quarter of 1997.
Net interest income before any provision for loan losses was $3,932,000
for the first quarter of 1998, compared to $3,809,000 for the first quarter of
1997 (an increase of $123,000 or 3.2%). This increase is a result of an
increase in average interest-earning assets from $378.4 million at March
31, 1997, to $409.5 million at March 31, 1998. However, as of March 31, 1998,
total loans represented 61.4% of total assets compared with 63.3% as of March
31, 1997. Accordingly, the net yield on interest-earning assets (on a fully
taxable equivalent basis) decreased from 4.27% for the first three months of
1997 to 4.08% for the first three months of 1998.
Non-interest income increased by $112,000 (or 13.3%) during the first
quarter of 1998 as compared to the first quarter of 1997, from $841,000 to
$953,000. All categories had marginal increases over the same time frame a year
ago, notably loan servicing fees increasing $45,000, trust and farm management
fees increasing $20,000, and other service charge categories
<PAGE> 10
increasing $16,000. Additionally, PNB realized net gains of $10,000 from
securities transactions in the first three months of 1998, while realizing net
losses of $3,000 in the first three months of 1997 (an improvement to
non-interest income of $13,000).
Non-interest expenses for the first quarter of 1998 were $3,344,000, an
increase of $252,000 (or 8.2%) from the first quarter of 1997. This is due
mainly to an increase in salaries and employee benefits of $138,000 (8.3%).
Additionally, FDIC/OCC premiums increased by $37,000 during the first quarter of
1998, a result of PNB receiving an adjustment during the first quarter of 1997.
Also worth noting is an increase in other operating expenses from $658,000 for
the first quarter of 1997, to $758,000 for the first quarter of 1998. This is a
result of several small increases over many categories of PNB's operating
expenses. Offsetting these increases was a $29,000 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 4,013,246 and 4,085,960
for the quarters ending March 31, 1998 and 1997, respectively. There were no
common stock equivalents during either of these quarters.
ANALYSIS OF FINANCIAL CONDITION
Total assets at March 31, 1998 decreased to $441,801,000 from
$449,660,000 at December 31, 1997 ($7.8 million or 1.7%). This decrease is
attributable mainly to seasonal deposit growth at the end of the year followed
by a drop in the first three months of the year. This year the largest decreases
occurred in the demand deposit category (falling from $42.3 million at December
31, 1997 to $36.6 million at March 31, 1998, a decrease of 13.5%) and in time
deposits (falling from $204.1 million at December 31, 1997 to $198.1 million at
March 31, 1998, a decrease of 2.9%). Offsetting decreases in total deposits was
an increase in customer repurchase agreements, from $9.8 million at December 31,
1997 to $11.4 million at March 31, 1998 (an increase of 16.3%).
Payoffs have exceeded loan demand during the first three months of
1998. Loan balances, net of unearned interest, decreased to $271,043,000 at
March 31, 1998, compared to $276,181,000 at December 31, 1997 (a decrease of
$5.1 million or 1.9%). This resulted in the aforementioned drop in yield on
interest-earning assets. Non-performing loans totaled $1,186,000 or 0.44% of net
loans at March 31, 1998, as compared to $860,000 or 0.31% of net loans at
December 31, 1997. Total investment securities increased from $119.5 million at
December 31, 1997 to $123.3 million at March 31, 1998.
During the first three months of 1998, PNB charged off $238,000 of
loans and had recoveries of $99,000. This compares to charge-offs of $221,000
and recoveries of $153,000 during the first three 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.
<PAGE> 11
During the first three months of 1998, PNB recorded a loan loss expense of
$55,000, compared to $105,000 during the first three 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
March 31, 1998, the balance in the allowance was $1,746,000 which is 0.64% of
total loans, compared with $1,830,000 or 0.66% of total loans at December 31,
1997.
At March 31, 1998, the recorded balance in loans for which impairment
has been recognized in accordance with FASB Statement No. 114 totaled $616,000,
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.
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, 1998, total risk-based capital was 14.37%, compared to 13.88% at
December 31, 1997. Similarly, the Tier 1 capital ratio also increased from 8.36%
at December 31, 1996, to 8.68% at March 31, 1998. Total stockholders' equity to
total assets at March 31, 1998 increased to 9.80% from 9.49% at December 31,
1997. This is primarily due to the reduction in total assets. The Corporation's
plan (announced in July, 1997) to repurchase its own stock continued during the
first quarter of 1998 as PNB repurchased 7,500 shares (split-adjusted). PNB has
now repurchased a total of 82,500 shares of its own stock since the announcement
of this plan, which represents 2% of the total issued.
LIQUIDITY
Liquidity is measured by a financial institution's ability to raise
funds through deposits, borrowed funds, capital, or the sale of assets.
Additional sources of liquidity, including cash flow from both the repayment of
loans and the securitization of assets, are also considered in determining
whether liquidity is satisfactory. Cash flows used by financing activities
offset those provided by investing and operating activities, resulting in a net
decrease in cash and cash equivalents of $5,832,000 from December 31, 1997 to
March 31, 1998. This usage was due to a net decrease in deposits and an increase
in investments (purchases greater than sales and maturities), offset by a net
decrease in loans. For more detailed cash flow information, see PNB's
Consolidated Statement of Cash Flows.
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1997, FASB Statement No. 131, "Disclosures about Segments of an
Enterprise and Related Information" (FAS 131), was
<PAGE> 12
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 PNB.
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.
<PAGE> 13
INDEX TO EXHIBITS
EXHIBIT NO. DESCRIPTION
- ----------- -----------
27 Financial Data Schedule
<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.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-END> MAR-31-1998
<CASH> 16,940
<INT-BEARING-DEPOSITS> 337,702
<FED-FUNDS-SOLD> 5,000
<TRADING-ASSETS> 0
<INVESTMENTS-HELD-FOR-SALE> 110,464
<INVESTMENTS-CARRYING> 12,823
<INVESTMENTS-MARKET> 12,982
<LOANS> 271,043
<ALLOWANCE> 1,746
<TOTAL-ASSETS> 441,801
<DEPOSITS> 374,335
<SHORT-TERM> 16,264
<LIABILITIES-OTHER> 4,319
<LONG-TERM> 3,600
0
0
<COMMON> 13,800
<OTHER-SE> 29,483
<TOTAL-LIABILITIES-AND-EQUITY> 441,801
<INTEREST-LOAN> 6,124
<INTEREST-INVEST> 1,755
<INTEREST-OTHER> 86
<INTEREST-TOTAL> 7,965
<INTEREST-DEPOSIT> 3,780
<INTEREST-EXPENSE> 4,033
<INTEREST-INCOME-NET> 3,932
<LOAN-LOSSES> 55
<SECURITIES-GAINS> 10
<EXPENSE-OTHER> 3,344
<INCOME-PRETAX> 1,486
<INCOME-PRE-EXTRAORDINARY> 1,486
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,105
<EPS-PRIMARY> .28
<EPS-DILUTED> .28
<YIELD-ACTUAL> 4.08
<LOANS-NON> 1,186
<LOANS-PAST> 101
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 149
<ALLOWANCE-OPEN> 1,746
<CHARGE-OFFS> 238
<RECOVERIES> 99
<ALLOWANCE-CLOSE> 1,746
<ALLOWANCE-DOMESTIC> 1,746
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
