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 June 30, 2000
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 July 31, 2000, the registrant had outstanding 3,486,550 shares of
its $5 par value common stock.
Page 1 of 15 pages
<PAGE>
PART I: FINANCIAL INFORMATION
The unaudited 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Annual Meeting of Shareholders of Princeton National Bancorp, Inc. was
held on April 11, 2000, for the purpose of electing three directors each to
serve for a term of three years. Proxies for the meeting were solicited by
Management pursuant to Regulation 14A under the Securities Exchange Act of 1934,
and there was no solicitation in opposition to Management's solicitation.
All three of Management's nominees for director listed in the proxy
statement were elected. The results of the vote were as follows:
Shares
Voted Shares
"For" "Withheld" Abstain
------------ -------------- -------------
John R. Ernat 2,632,945 38,076 343,148
Thomas M. Longman 2,636,355 34,666 343,148
Tony J. Sorcic 2,640,946 30,075 343,148
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
27 - Financial Data Schedule for the period ended June 30, 2000
(b) No reports on Form 8-K were filed by the Corporation for the quarter
ending June 30, 2000.
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 9, 2000 By /s/ Tony J. Sorcic
-------------------------------------
Tony J. Sorcic
President & Chief Executive Officer
Date: August 9, 2000 By /s/ Todd D. Fanning
-------------------------------------
Todd D. Fanning
Chief Financial Officer
2
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 1
CONSOLIDATED BALANCE SHEETS
(unaudited)
(in thousands)
<TABLE>
<CAPTION>
JUNE 30, December 31,
2000 1999
------------ ------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 12,045 $ 19,325
Federal funds sold 0 7,900
Loans held for sale, at lower of cost or market 4,850 8,646
Investment securities:
Available-for-sale, at fair value 102,335 100,043
Held-to-maturity (fair value of $15,011 and $13,612 at
June 30, 2000 and December 31, 1999, respectively) 15,320 13,923
------------ ------------
Total investment securities 117,655 113,966
------------ ------------
Loans:
Gross loans 324,328 308,356
Less: Unearned interest (4) (9)
Allowance for loan losses (2,551) (1,950)
------------ ------------
Net loans 321,773 306,397
------------ ------------
Premises and equipment, net of accumulated depreciation 12,218 12,127
Interest receivable 5,329 5,799
Goodwill and intangible assets, net of accumulated amortization 4,339 4,600
Other assets 4,637 4,060
------------ ------------
TOTAL ASSETS $ 482,846 $ 482,820
============ ============
LIABILITIES
Deposits:
Demand $ 42,509 $ 45,514
Interest-bearing demand 89,746 93,521
Savings 51,190 52,277
Time 213,845 213,496
------------ ------------
Total deposits 397,290 404,808
Borrowings:
Customer repurchase agreements 17,700 15,663
Advances from Federal Home Loan Bank 12,920 13,320
Federal funds purchased 2,000 0
Interest-bearing demand notes issued to the U.S. Treasury 2,404 2,366
Notes payable 2,050 2,150
------------ ------------
Total borrowings 37,074 33,499
Other liabilities 4,349 3,567
------------ ------------
TOTAL LIABILITIES 438,713 441,874
------------ ------------
STOCKHOLDERS' EQUITY
Common stock: $5 par value, 7,000,000 shares
authorized; 4,139,841 issued 20,699 20,699
Surplus 6,345 6,335
Retained earnings 27,033 22,118
Accumulated other comprehensive loss, net of tax (793) (1,031)
Less: Cost of 653,291 treasury shares at June 30, 2000
and 472,112 treasury shares at December 31, 1999 (9,151) (7,175)
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 44,133 40,946
------------ ------------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $ 482,846 $ 482,820
============ ============
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
2000 1999 2000 1999
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> c
INTEREST INCOME:
Interest and fees on loans $ 7,094 $ 6,058 $ 13,909 $ 12,069
Interest and dividends on investment securities 1,665 1,779 3,274 3,631
Interest on short-term funds 49 61 84 180
------------ ------------ ------------ ------------
Total interest income 8,808 7,898 17,267 15,880
INTEREST EXPENSE:
Interest on deposits 3,720 3,450 7,293 7,050
Interest on borrowings 444 311 858 606
------------ ------------ ------------ ------------
Total interest expense 4,164 3,761 8,151 7,656
------------ ------------ ------------ ------------
NET INTEREST INCOME 4,644 4,137 9,116 8,224
Provision for loan losses 205 175 720 185
------------ ------------ ------------ ------------
NET INTEREST INCOME AFTER PROVISION
FOR LOAN LOSSES 4,439 3,962 8,396 8,039
NON-INTEREST INCOME:
Trust & farm management fees 308 275 612 620
Service charges on deposit accounts 468 401 891 765
Other service charges 228 189 429 345
Loss on sale of loans 0 0 (259) 0
Gain (loss) on sales of securities available-for-sale 0 8 (86) 19
Loan servicing fees and other charges 23 56 44 139
Settlement of trust litigation 0 0 6,235 0
Other operating income 64 53 232 122
------------ ------------ ------------ ------------
Total non-interest income 1,091 982 8,098 2,010
NON-INTEREST EXPENSE:
Salaries and employee benefits 2,185 1,981 4,218 3,869
Occupancy 254 256 503 519
Equipment expense 308 294 631 585
FDIC/OCC assessments 47 48 94 96
Goodwill and intangible assets amortization 109 114 217 231
Data processing 148 137 291 268
Other operating expense 902 843 1,906 1,684
------------ ------------ ------------ ------------
Total non-interest expense 3,953 3,673 7,860 7,252
------------ ------------ ------------ ------------
INCOME BEFORE INCOME TAXES 1,577 1,271 8,634 2,797
Income tax expense 454 300 3,058 691
------------ ------------ ------------ ------------
NET INCOME $ 1,123 $ 971 $ 5,576 $ 2,106
============ ============ ============ ============
NET INCOME PER SHARE:
Basic 0.32 0.26 1.57 0.55
Diluted 0.32 0.26 1.55 0.55
Basic weighted average shares outstanding 3,485,224 3,785,317 3,551,682 3,802,080
Diluted weighted average shares outstanding 3,519,674 3,798,267 3,586,132 3,815,030
Dividends per share 0.095 0.090 0.185 0.170
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 2
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(UNAUDITED)
(IN THOUSANDS)
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30 Ended June 30
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Net Income $ 1,123 $ 971 $ 5,576 $ 2,106
Other comprehensive income (loss), net of tax
Unrealized holding (loss) gain arising during the period (86) (956) 181 (1,249)
Less: Reclassification adjustment for realized (losses) gains
included in net income 0 (5) 56 (13)
---------- ---------- ---------- ----------
Other comprehensive income (loss) (86) (961) 237 (1,262)
---------- ---------- ---------- ----------
Comprehensive income $ 1,037 $ 10 $ 5,813 $ 844
========== ========== ========== ==========
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
5
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 3
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(UNAUDITED)
<TABLE>
<CAPTION>
For the Three Months
Ended June 30
2000 1999
---------- ----------
(IN THOUSANDS)
<S> <C> <C>
Balance, January 1 $ 40,946 $ 42,606
Net income 5,576 2,106
Cash dividends (661) (648)
Other comprehensive income (loss), net of tax 237 (1,262)
Purchases of treasury stock (1,990) (848)
Sales of treasury stock 25 22
---------- ----------
Balance, June 30 $ 44,133 $ 41,976
========== ==========
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
6
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY Schedule 4
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
For the Six Months
Ended June 30
(IN THOUSANDS) 2000 1999
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income $ 5,576 $ 2,106
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation 579 562
Provision for loan losses 720 185
Amortization of goodwill and intangible assets 217 231
Amortization of premiums on investment
securities, net of accretion 47 69
Loss (gain) on sales of securities, net 86 (19)
Loans originated for sale (2,464) (9,637)
Proceeds from sales of loans originated for sale 6,260 7,751
Increase (decrease) in interest payable 35 (103)
Decrease in interest receivable 470 814
Increase in other assets (654) (769)
Increase in other liabilities 557 17
----------- -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 11,429 1,207
----------- -----------
INVESTING ACTIVITIES:
Proceeds from sales of investment securities available-for-sale 1,007 2,990
Proceeds from maturities of investment securities available-for-sale 18,787 19,213
Purchase of investment securities available-for-sale (21,790) (24,051)
Proceeds from maturities of investment securities held-to-maturity 864 14,355
Purchase of investment securities held-to-maturity (2,263) (11,071)
Proceeds from sales of other real estate owned 121 32
Net increase in loans (16,096) (12,733)
Purchases of premises and equipment (670) (1,146)
----------- -----------
NET CASH USED FOR INVESTING ACTIVITIES (20,040) (12,411)
----------- -----------
FINANCING ACTIVITIES:
Net decrease in deposits (7,518) (23,536)
Net increase in borrowings 3,575 8,484
Dividends paid (661) (648)
Purchase of treasury stock (1,990) (848)
Sales of treasury stock 25 22
----------- -----------
NET CASH USED FOR FINANCING ACTIVITIES (6,569) (16,526)
----------- -----------
DECREASE IN CASH AND CASH EQUIVALENTS (15,180) (27,730)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 27,225 54,133
----------- -----------
CASH AND CASH EQUIVALENTS AT JUNE 30 $ 12,045 $ 26,403
=========== ===========
--------------------------------------------------------------------------------------------------------
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest $ 8,116 $ 7,759
Income taxes $ 2,383 $ 1,057
Supplemental disclosures of non-cash flow activities:
Loans transferred to other real estate owned $ 68 $ 202
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
7
<PAGE>
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 consolidated financial
statements and notes included in the Registrant's 1999 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.
8
<PAGE>
Schedule 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
JUNE 30, 2000
(UNAUDITED)
The following discussion provides information about Princeton National
Bancorp, Inc.'s ("PNB" or the "Corporation") financial condition and results of
operations for the quarter and six months ended June 30, 2000. 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, including,
but not limited to those statements that include the words "believes",
"expects", "anticipates", "estimates", or similar expressions. PNB cautions that
such forward-looking statements involve risks and uncertainties that may cause
actual results to differ materially from those expressed or implied. Such risks
and uncertainties include potential change in interest rates, competitive
factors in the financial services industry, general economic conditions, the
effect of new legislation, and other risks detailed in documents filed by the
Corporation with the Securities and Exchange Commission from time to time.
RESULTS OF OPERATIONS
Net income for the second quarter of 2000 was $1,123,000, or basic and
diluted earnings per share of $0.32 as compared to net income of $971,000 in the
second quarter of 1999, or basic and diluted earnings per share of $0.26. This
represents an increase of $152,000 (15.7%) or $.06 per share (23.1%). For the
first six months of 2000, net income was $5,576,000 , or diluted earnings per
share of $1.55 (basic earnings per share of $1.57), compared to $2,106,000, or
basic and diluted earnings per share of $0.55 in the first six months of 1999.
The primary reason for the large increase in net income for the six-month
period was due to PNB's subsidiary bank receiving $6,235,000 in the first
quarter of 2000, representing the settlement proceeds from the lawsuit against
Cincinnati Insurance Company stemming from the 1995 Trust Department issue.
Annualized return on average assets and return on average equity were 0.94% and
10.45%, respectively, for the second quarter of 2000, compared with 0.85% and
9.20% for the second quarter of 1999. For the six-month periods, the annualized
returns on average assets and average equity were 2.34% and 26.41%,
respectively, for 2000, compared to 0.92% and 10.02% in 1999.
Net interest income before provision for loan losses was $4,644,000 for
the second quarter of 2000, compared to $4,137,000 for the second quarter of
1999 (an increase of $507,000 or 12.3%). Additionally, for the six-month
periods, net interest income before provision for loan losses was $9,116,000 for
2000, as compared to $8,224,000 for 1999,
9
<PAGE>
representing an increase of $892,000 (or 10.9%). This increase is a result of an
increase in average interest-earning assets from $426.2 million for the six
months ended June 30, 1999, to $441.7 million for the six months ended June 30,
2000, as well as a change in the mix of assets from investments to loans.
Specifically, the average balance of loans increased from $277.2 million for the
six months ended June 30, 1999 to $321.3 million for the six months ended June
30, 2000, an increase of $44.1 million, while the average balance of investments
decreased $19.3 million (from $133.9 million to $114.6 million) over the same
period. Because of the change in mix, the net yield on interest-earning assets
(on a fully taxable equivalent basis) increased from 4.14% for the second
quarter of 1999 to 4.40% for the second quarter of 2000. Additionally, the net
yield on interest-earning assets (on a fully taxable equivalent basis) increased
from 4.10% for the first six months of 1999 to 4.36% for the first six months of
2000.
The loan loss provision recorded by PNB was $205,000 in the second
quarter of 2000 compared to $175,000 in the second quarter of 1999. This is a
result of continued loan growth and is also determined by the risk
characteristics of the loan portfolio. For the first six months of 2000, PNB has
recorded $720,000 in loan loss provision compared to $185,000 for the same
period in 1999. During the first quarter of 2000, the subsidiary bank had an
increase in debt carryover from previous years with regard to its agricultural
customers. Also, there was some uncertainty regarding government assistance for
the agricultural customers as well as the direction of, and continued, depressed
commodity prices These factors, coupled with the uncertainty of the weather and
the previously mentioned loan growth, led to the subsidiary bank increasing the
allowance for loan losses through the first five months of 2000. As of June 30,
however, much of this uncertainty has been removed and it is anticipated that
the loan loss provision will be lower in the last six months, compared to the
first six months of 2000.
Non-interest income totaled $1,091,000 for the second quarter of 2000,
as compared to $982,000 during the second quarter of 1999, an increase of
$109,000 (or 11.1%). For the first six months of 2000, non-interest income has
increased to $8,098,000 from $2,010,000 in the first six months of 1999. Not
considering non-recurring transactions from the first quarter of 2000 (loss on
sale of loans of $259,000; loss on sales of securities of $86,000; settlement
proceeds from trust litigation of $6,235,000), non-interest income has increased
by $198,000, or 9.9%. The largest increases were in service charges on deposit
accounts (increase of $126,000 or 16.52%), which have increased as the number of
deposit accounts has grown, and in other service charges (increase of $84,000 or
24.4%) most notably due to an increase in fee income from Prime Vest brokerage
services.
Non-interest expenses for the second quarter of 2000 were $3,953,000,
an increase of $280,000 (or 7.6%) from $3,673,000 in the second quarter of 1999.
Year-to-date non-interest expenses for 2000 of $7,860,000 have increased
$608,000 (or 8.4%) from the same period for 1999, but are below expected levels.
The most notable increases were in salaries/employee benefits (increase of
$349,000 or 9.0%) and other operating expenses (increase of $222,000 or 13.2%).
One of the contributing factors to the salaries increase is the addition of
another Prime Vest investment executive and the overall increase in Prime Vest
sales. Several smaller items comprise the increase in other operating expense
and have individually experienced small general increases.
10
<PAGE>
INCOME PER SHARE
Basic income per share is computed by dividing net income by the
weighted average number of shares outstanding which were 3,485,224 and 3,785,317
for the quarters ending June 30, 2000 and 1999, respectively, and 3,551,682 and
3,802,080 for the six-month periods ending June 30, 2000 and 1999, respectively.
Diluted income per share is computed by dividing net income by the weighted
average number of basic shares plus potential common stock. This total was
3,519,674 and 3,798,267 for the quarters ending June 30, 2000 and 1999,
respectively, and 3,586,132 and 3,815,030 for the six-month periods ending June
30, 2000 and 1999.
ANALYSIS OF FINANCIAL CONDITION
Total assets at June 30, 2000 remained at $482,800,000. Total deposits
have decreased by $7,518,000 from December 31, 1999 to June 30, 2000 (or 1.9%).
This decrease is attributable mainly to seasonal deposit growth at the end of
1999 followed by a normal drop in the first part of the year. In comparing
categories of deposits for the first six months of 2000 to the December 31,
1999, three categories had decreasing balances: demand deposits (decrease of
$3.0 million or 6.6%), interest-bearing demand deposits (decrease of $3.8
million or 4.0%), and savings deposits (decrease of $1.1 million or 2.1%); while
time deposits increased ($0.3 million or 0.2%). Borrowings, consisting of
customer repurchase agreements, notes payable, treasury, tax, and loan deposits,
Federal funds purchased, and Federal Home Loan Bank advances, increased from
$33,499,000 at December 31, 1999 to $37,074,000 at June 30, 2000 (increase of
$3.6 million or 10.7%). This increase is attributable to an increase in customer
repurchase agreements as well as Federal funds purchased. Investments totaled
$117,655,000 at June 30, 2000, compared to $113,966,000 at December 31, 1999 (an
increase of $3.7 million or 3.2%).
Loan demand continued to be strong in the first six months of 2000, as
loan balances, net of unearned interest, increased to $329,174,000 at June 30,
2000, compared to $316,993,000 at December 31, 1999 (an increase of $12.2
million or 3.8%). Not including loans held for sale, there was a net increase in
loans of $16.0 million, or 5.2%. Non-performing loans totaled $1,372,000 or
0.42% of net loans at June 30, 2000, as compared to $1,385,000 or 0.44% of net
loans at December 31, 1999.
For six months ended June 30, 2000, the subsidiary bank charged off
$295,000 of loans and had recoveries of $176,000, compared to charge-offs of
$259,000 and recoveries of $154,000 during the six months ended June 30, 1999.
The allowance for 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. At June 30, 2000, the allowance
was $2,551,000 which is 185.9% of non-performing loans and 0.77% of total loans,
compared with $1,950,000 which is 140.8% of non-performing loans and 0.66% of
total loans at December 31, 1999.
11
<PAGE>
At June 30, 2000, impaired loans totaled $760,000 compared to $845,000
at December 31, 1999, all of which related to impaired loans which do not have a
specific allowance as the carrying value of the loans is less than the
discounted present value of expected future cash flows or collateral value.
Interest recognized on impaired loans (during both periods that they were
impaired) is not considered material. Loans 90 days or more past due and still
accruing interest at June 30, 2000 were $24,000, compared to $111,000 at
December 31, 1999.
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, 2000, total risk-based capital was 12.55%, compared to 12.31% at
December 31, 1999. The Tier 1 capital ratio increased from 8.21% at December 31,
1999, to 8.55% at June 30, 2000. Total stockholders' equity to total assets at
June 30, 2000 increased to 9.14% from 8.48% at December 31, 1999.
During the first quarter of 2000, a stock repurchase program was
completed with the Corporation having purchased 183,386 shares at an average
cost of $10.85.
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 the repayment of loans
is also considered a liquidity source. Major uses of cash is the origination of
loans and purchase of investment securities. Cash flows used by investing and
financing activities, offset by those provided by operating activities, resulted
in a net decrease in cash and cash equivalents of $15,180,000 from December 31,
1999 to June 30, 2000. This usage was due to net decreases in deposits, as well
as a net increase in loans, offset by the trust litigation settlement proceeds
and proceeds from the sale of loans. For more detailed cash flow information,
see PNB's Consolidated Statements of Cash Flows.
CURRENT EVENTS
Work continues on the subsidiary bank's new facility in Huntley,
Illinois. The facility is adjacent to the new Dell Webb community being
constructed in Huntley. It is anticipated the office will be completed in
September of this year.
The Corporation implemented a dividend reinvestment plan in May of this
year, to provide an added convenience to our shareholders as requested.
12
<PAGE>
IMPACT OF NEW ACCOUNTING STANDARDS
In June 1998, the FASB issued Statement 133, "Accounting for Derivative
Instruments and Hedging Activities" (FAS 133). FAS 133 establishes accounting
and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts, (collectively referred to as
derivatives) and for hedging activities.
In June 1999, the FASB issued Statement 137, "Accounting for Derivative
Instruments and Hedging Activities-Deferral of the Effective Date of FASB
Statement 133, an Amendment of FASB Statement 133" (FAS 137). FAS 137 defers the
effective date to no later than January 1, 2001.
In June, 2000, the FASB issued Statement 138,"Accounting for Derivative
Instruments and Hedging Activities, an Amendment of FASB Statement 133" (FAS
138). FAS 138 is effective at the later of the first fiscal quarter beginning
after June 15, 2000 of upon the adoption of FAS 133, and should be adopted
concurrently with FAS 133. Management, at this time, does not anticipate the
adoption of this statement will have a material effect on the financial
statements of the Corporation
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 legal counsel, that liabilities arising from these proceedings, if any,
will not be material to PNB's financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in market risk since December 31,
1999, as reported in PNB'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 condition 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.
13
<PAGE>
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
The following table sets forth details of average balances, interest
income, and expense, and resulting annualized rates for the Corporation for the
periods indicated, reported on a fully taxable equivalent basis, using a tax
rate of 34%.
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------
SIX MONTHS ENDED, JUNE 30, 2000 Six Months Ended, June 30, 1999
-----------------------------------------------------------------------------
AVERAGE YIELD/ Average Yield/
BALANCE INTEREST COST Balance Interest Cost
------- -------- ---- ------- -------- ----
<S> <C> <C> <C> <C> <C> <C>
AVERAGE INTEREST-EARNING ASSETS
Interest-bearing deposits $ 2,799 $ 78 5.57% $ 7,174 $ 164 4.57%
Taxable investment securities 78,292 2,356 6.02% 97,504 2,720 5.58%
Tax-exempt investment securities 36,289 1,392 7.67% 36,439 1,380 7.57%
Federal funds sold 2,942 84 5.71% 7,933 180 4.54%
Net loans 321,348 13,861 8.63% 277,171 11,939 8.61%
--------- --------- --------- ---------
Total interest-earning assets 441,671 17,771 8.05% $ 426,222 16,383 7.69%
--------- --------- --------- ---------
Average non-interest earning assets 38,379 36,683
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Total average assets $ 480,050 $ 462,905
========= =========
AVERAGE INTEREST-BEARING LIABILITIES
Interest-bearing demand deposits $ 92,058 1,100 2.39% $ 92,383 1,102 2.39%
Savings deposits 52,573 523 1.99% $ 55,881 575 2.06%
Time deposits 212,309 5,670 5.34% 202,936 5,373 5.30%
Interest-bearing demand notes
issued to the U.S. Treasury 1,410 38 5.39% 955 22 4.51%
Federal funds purchased and
securities repurchase agreements 13,735 363 5.29% 14,009 291 4.15%
Advances from Federal Home Loan Bank 13,201 374 5.67% 9,019 255 5.66%
Borrowings 2,115 83 7.85% 1,123 38 6.79%
--------- --------- --------- ---------
Total interest-bearing liabilities 387,402 8,151 4.21% 376,306 7,656 4.07%
--------- --------- --------- ---------
Net yield on average interest-earning assets 9,620 4.36% 8,727 4.10%
========= =========
Average non-interest-bearing liabilities 50,186 44,204
Average stockholders' equity 42,463 42,395
--------- ---------
Total average liabilities and
stockholders' equity $ 480,050 $ 462,905
========= =========
</TABLE>
SEE ACCOMPANYING NOTE TO CONSOLIDATED FINANCIAL STATEMENTS
14
