FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2007
Commission File Number 0-20050
PRINCETON NATIONAL BANCORP, INC.
(Exact name of registrant as specified in its charter)
| Delaware | 36-3210283 |
|---|---|
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer 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 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 o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.
|
Large accelerated filer |
o |
|
Accelerated filer |
x |
|
Non-accelerated filer |
o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o No x
As of April 17, 2007, the registrant had outstanding 3,342,423 shares of its $5 par value common stock.
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 operation 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: |
Notes to Consolidated Financial Statements |
|
|
Schedule 6: |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
|
|
Schedule 7: |
Controls and Procedures |
Part II: OTHER INFORMATION
Item 1A. Risk Factors
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2006, which could materially affect our business, financial condition or future results. The risks described in our Annual Report on Form 10-K are not the only risks facing our Corporation. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.
2
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
|
|
(c) |
The following table provides information about purchases of the Corporation’s common stock by the Corporation during the quarter ended March 31, 2007: |
|
Period |
|
(a) Total number of |
|
(b) Average price paid |
|
(c) Total number |
|
(d) Maximum number |
| |
|
1/1/07 -1/31/07 |
|
0 |
|
$ |
0.00 |
|
0 |
|
40,000 |
|
|
2/1/07 -2/28/07 |
|
10,000 |
|
$ |
32.00 |
|
10,000 |
|
30,000 |
|
|
3/1/07 – 3/31/07 |
|
0 |
|
$ |
0.00 |
|
0 |
|
30,000 |
|
|
Total |
|
10,000 |
|
$ |
32.00 |
|
10,000 |
|
30,000 |
|
On April 25, 2006, the Board of Directors approved the repurchase of up to an aggregate of 100,000 shares of our common stock pursuant to a repurchase program announced the same day (“the Program”). The expiration date of this Program is April 25, 2007. Unless terminated earlier by resolution of our Board of Directors, the Program will expire on the earlier of such expiration date or when we have repurchased all shares authorized for repurchase under the Program.
Item 6. Exhibits
|
31.1 |
Certification of Tony J. Sorcic required by Rule 13a-14(a). |
|
31.2 |
Certification of Todd D. Fanning required by Rule 13a-14(a). |
|
32.1 |
Certification of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
|
32.2 |
Certification of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
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.
|
By: |
/s/ Tony J. Sorcic |
|
By: |
/s/ Todd D. Fanning |
|
|
Tony J. Sorcic |
|
|
Todd D. Fanning |
3
Schedule 1
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data)
|
|
|
March 31, |
|
December 31, |
| ||
|
|
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
Cash and due from banks |
|
$ |
19,192 |
|
$ |
33,882 |
|
|
Interest-bearing deposits with financial institutions |
|
|
168 |
|
|
103 |
|
|
Federal funds sold |
|
|
5,700 |
|
|
5,200 |
|
|
|
|
|
|
|
|
|
|
|
Total cash and cash equivalents |
|
|
25,060 |
|
|
39,185 |
|
|
|
|
|
|
|
|
|
|
|
Loans held for sale, at lower of cost or market |
|
|
1,577 |
|
|
4,512 |
|
|
|
|
|
|
|
|
|
|
|
Investment securities: |
|
|
|
|
|
|
|
|
Available-for-sale, at fair value |
|
|
238,517 |
|
|
252,467 |
|
|
Held-to-maturity, at amortized cost (fair value of $16,068 and $15,567) |
|
|
15,946 |
|
|
15,449 |
|
|
|
|
|
|
|
|
|
|
|
Total investment securities |
|
|
254,463 |
|
|
267,916 |
|
|
|
|
|
|
|
|
|
|
|
Loans: |
|
|
|
|
|
|
|
|
Loans, net of unearned interest |
|
|
656,748 |
|
|
629,472 |
|
|
Allowance for loan losses |
|
|
(3,137 |
) |
|
(3,053 |
) |
|
|
|
|
|
|
|
|
|
|
Net loans |
|
|
653,611 |
|
|
626,419 |
|
|
|
|
|
|
|
|
|
|
|
Premises and equipment, net of accumulated depreciation |
|
|
31,938 |
|
|
28,670 |
|
|
Land held for sale, at lower of cost or market |
|
|
1,344 |
|
|
0 |
|
|
Bank-owned life insurance |
|
|
21,810 |
|
|
21,470 |
|
|
Accrued interest receivable |
|
|
8,882 |
|
|
11,139 |
|
|
Goodwill |
|
|
24,521 |
|
|
23,029 |
|
|
Intangible assets, net of accumulated amortization |
|
|
5,731 |
|
|
5,921 |
|
|
Other real estate owned |
|
|
482 |
|
|
0 |
|
|
Other assets |
|
|
3,994 |
|
|
3,698 |
|
|
TOTAL ASSETS |
|
$ |
1,033,413 |
|
$ |
1,031,959 |
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES |
|
|
|
|
|
|
|
|
Deposits: |
|
|
|
|
|
|
|
|
Demand |
|
$ |
100,835 |
|
$ |
107,834 |
|
|
Interest-bearing demand |
|
|
238,061 |
|
|
231,953 |
|
|
Savings |
|
|
121,274 |
|
|
116,246 |
|
|
Time |
|
|
423,882 |
|
|
425,866 |
|
|
|
|
|
|
|
|
|
|
|
Total deposits |
|
|
884,052 |
|
|
881,899 |
|
|
Borrowings: |
|
|
|
|
|
|
|
|
Customer repurchase agreements |
|
|
29,608 |
|
|
31,344 |
|
|
Advances from the Federal Home Loan Bank |
|
|
6,973 |
|
|
6,970 |
|
|
Interest-bearing demand notes issued to the U.S. Treasury |
|
|
1,193 |
|
|
2,333 |
|
|
Trust Preferred securities |
|
|
25,000 |
|
|
25,000 |
|
|
Note payable |
|
|
10,500 |
|
|
8,500 |
|
|
|
|
|
|
|
|
|
|
|
Total borrowings |
|
|
73,274 |
|
|
74,147 |
|
|
|
|
|
|
|
|
|
|
|
Other liabilities |
|
|
10,273 |
|
|
10,558 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES |
|
|
967,599 |
|
|
966,604 |
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Common stock: $5 par value, 7,000,000 shares authorized; 4,478,295 issued at March 31, 2007 and December 31, 2006 |
|
|
22,391 |
|
|
22,391 |
|
|
Surplus |
|
|
18,183 |
|
|
18,158 |
|
|
Retained earnings |
|
|
48,634 |
|
|
48,109 |
|
|
Accumulated other comprehensive loss, net of tax |
|
|
(748 |
) |
|
(960 |
) |
|
Less: Cost of 1,135,872 and 1,126,885 treasury shares at March 31, 2007 and December 31, 2006, respectively |
|
|
(22,646 |
) |
|
(22,343 |
) |
|
|
|
|
|
|
|
|
|
|
TOTAL STOCKHOLDERS’ EQUITY |
|
|
65,814 |
|
|
65,355 |
|
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ EQUITY |
|
$ |
1,033,413 |
|
$ |
1,031,959 |
|
See accompanying notes to unaudited consolidated financial statements
4
Schedule 2
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(dollars in thousands, except share data)
|
|
|
For the Three Months |
| ||||
|
|
|
2007 |
|
2006 |
| ||
|
Interest income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest and fees on loans |
|
$ |
11,607 |
|
$ |
9,744 |
|
|
Interest on investment securities: |
|
|
|
|
|
|
|
|
Taxable |
|
|
1,885 |
|
|
1,374 |
|
|
Non-taxable |
|
|
1,128 |
|
|
1,177 |
|
|
Interest on federal funds sold |
|
|
147 |
|
|
14 |
|
|
Interest on interest-bearing time deposits in other banks |
|
|
50 |
|
|
4 |
|
|
|
|
|
|
|
|
|
|
|
Total interest income |
|
|
14,817 |
|
|
12,313 |
|
|
|
|
|
|
|
|
|
|
|
Interest expense: |
|
|
|
|
|
|
|
|
Interest on deposits |
|
|
7,478 |
|
|
4,854 |
|
|
Interest on borrowings |
|
|
947 |
|
|
930 |
|
|
|
|
|
|
|
|
|
|
|
Total interest expense |
|
|
8,425 |
|
|
5,784 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income |
|
|
6,392 |
|
|
6,529 |
|
|
Provision for loan losses |
|
|
185 |
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
Net interest income after provision for loan losses |
|
|
6,207 |
|
|
6,519 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest income: |
|
|
|
|
|
|
|
|
Trust & farm management fees |
|
|
414 |
|
|
405 |
|
|
Service charges on deposit accounts |
|
|
990 |
|
|
997 |
|
|
Other service charges |
|
|
461 |
|
|
390 |
|
|
Gain on sales of securities available-for-sale |
|
|
47 |
|
|
60 |
|
|
Gain on sale of loans |
|
|
0 |
|
|
90 |
|
|
Brokerage fee income |
|
|
203 |
|
|
144 |
|
|
Mortgage banking income |
|
|
272 |
|
|
186 |
|
|
Bank-owned life insurance income |
|
|
196 |
|
|
186 |
|
|
Other operating income |
|
|
62 |
|
|
41 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest income |
|
|
2,645 |
|
|
2,499 |
|
|
|
|
|
|
|
|
|
|
|
Non-interest expense: |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
4,180 |
|
|
4,032 |
|
|
Occupancy |
|
|
602 |
|
|
471 |
|
|
Equipment expense |
|
|
779 |
|
|
705 |
|
|
Federal insurance assessments |
|
|
85 |
|
|
79 |
|
|
Intangible assets amortization |
|
|
188 |
|
|
163 |
|
|
Data processing |
|
|
272 |
|
|
305 |
|
|
Advertising |
|
|
173 |
|
|
195 |
|
|
Other operating expense |
|
|
994 |
|
|
1,132 |
|
|
|
|
|
|
|
|
|
|
|
Total non-interest expense |
|
|
7,273 |
|
|
7,082 |
|
|
|
|
|
|
|
|
|
|
|
Income before income taxes |
|
|
1,579 |
|
|
1,936 |
|
|
Income tax expense |
|
|
150 |
|
|
286 |
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,429 |
|
$ |
1,650 |
|
|
|
|
|
|
|
|
|
|
|
Earnings per share: |
|
|
|
|
|
|
|
|
Basic |
|
|
0.43 |
|
|
0.49 |
|
|
Diluted |
|
|
0.42 |
|
|
0.49 |
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average shares outstanding |
|
|
3,347,099 |
|
|
3,362,332 |
|
|
Diluted weighted average shares outstanding |
|
|
3,363,959 |
|
|
3,385,248 |
|
See accompanying notes to unaudited consolidated financial statements
5
Schedule 2
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(Unaudited)
(dollars in thousands)
|
|
|
For the Three Months |
| ||||
|
|
|
2007 |
|
2006 |
| ||
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,429 |
|
$ |
1,650 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss), net of tax |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized holding gains (losses) arising during the period, net of tax |
|
|
237 |
|
|
(862 |
) |
|
Less: Reclassification adjustment for realized gains on sales of securities included in net income, net of tax |
|
|
(29 |
) |
|
(37 |
) |
|
Plus: Amortization of transition obligation of post retirement healthcare continuation |
|
|
4 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
|
212 |
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
Comprehensive income |
|
$ |
1,641 |
|
$ |
751 |
|
See accompanying notes to unaudited consolidated financial statements
6
Schedule 3
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Unaudited)
(dollars in thousands except per share data)
|
For the Three Months Ended |
Common |
|
Surplus |
|
Retained |
|
Accumulated |
|
Treasury |
|
Total |
| |||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2007 |
$ |
22,391 |
|
$ 18,158 |
|
$ |
48,109 |
|
$ |
(960 |
) |
$ |
(22,343 |
) |
$ |
65,355 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
1,429 |
|
|
|
|
|
|
|
|
1,429 |
|
|
Sale of 1,013 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of treasury stock |
|
|
|
13 |
|
|
|
|
|
|
|
|
17 |
|
|
30 |
|
|
Purchase of 10,000 shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of treasury stock |
|
|
|
|
|
|
|
|
|
|
|
|
(320 |
) |
|
(320 |
) |
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(.27 per share) |
|
|
|
|
|
|
(904 |
) |
|
|
|
|
|
|
|
(904 |
) |
|
Stock option compensation expense |
|
|
|
12 |
|
|
|
|
|
|
|
|
|
|
|
12 |
|
|
Other comprehensive income, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of $134 tax effect |
|
|
|
|
|
|
|
|
|
212 |
|
|
|
|
|
212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2007 |
$ |
22,391 |
|
$ 18,183 |
|
$ |
48,634 |
|
$ |
(748 |
) |
$ |
(22,646 |
) |
$ |
65,814 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Three Months Ended |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, January 1, 2006 |
$ |
22,392 |
|
16,968 |
|
$ |
45,786 |
|
$ |
(482 |
) |
$ |
(21,520 |
) |
$ |
63,144 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
1,650 |
|
|
|
|
|
|
|
|
1,650 |
|
|
Exercise of stock options and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
re-issuance of treasury |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
stock (48,351 shares) |
|
|
|
867 |
|
|
(480 |
) |
|
|
|
|
918 |
|
|
1,305 |
|
|
Cash dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$(.24 per share) |
|
|
|
|
|
|
(805 |
) |
|
|
|
|
|
|
|
(805 |
) |
|
Other comprehensive loss, |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
net of $626 tax effect |
|
|
|
|
|
|
|
|
|
(899 |
) |
|
|
|
|
(899 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2006 |
$ |
22,392 |
|
$ 17,835 |
|
$ |
46,151 |
|
$ |
(1,381 |
) |
$ |
(20,602 |
) |
$ |
64,395 |
|
7
Schedule 4
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(dollars in thousands)
|
|
|
For the Three Months Ended |
| ||||
|
|
|
2007 |
|
2006 |
| ||
|
Operating activities: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,429 |
|
$ |
1,650 |
|
|
Adjustments to reconcile net income to net |
|
|
|
|
|
|
|
|
cash provided by operating activities: |
|
|
|
|
|
|
|
|
Depreciation |
|
|
613 |
|
|
531 |
|
|
Provision for loan losses |
|
|
185 |
|
|
10 |
|
|
Amortization of other intangible assets and purchase accounting adjustments |
|
|
188 |
|
|
163 |
|
|
Amortization of premiums and discounts on investment securities |
|
|
(84 |
) |
|
189 |
|
|
Gain on sales of securities, net |
|
|
(47 |
) |
|
(60 |
) |
|
Gain on sale of loans |
|
|
0 |
|
|
(90 |
) |
|
FHLB stock dividends |
|
|
0 |
|
|
(24 |
) |
|
Loans originated for sale |
|
|
(7,481 |
) |
|
(10,495 |
) |
|
Proceeds from sales of loans originated for sale |
|
|
10,416 |
|
|
9,556 |
|
|
Increase in accrued interest payable |
|
|
240 |
|
|
154 |
|
|
Decrease in accrued interest receivable |
|
|
2,257 |
|
|
1,295 |
|
|
Increase in other assets |
|
|
(1,019 |
) |
|
(13,125 |
) |
|
Decrease in other liabilities |
|
|
(798 |
) |
|
(2,457 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities |
|
|
5,899 |
|
|
(12,703 |
) |
|
|
|
|
|
|
|
|
|
|
Investing activities: |
|
|
|
|
|
|
|
|
Proceeds from sales of investment securities available-for-sale |
|
|
5,018 |
|
|
4,004 |
|
|
Proceeds from maturities of investment securities available-for-sale |
|
|
15,380 |
|
|
11,086 |
|
|
Purchase of investment securities available-for-sale |
|
|
(6,044 |
) |
|
(2,598 |
) |
|
Proceeds from maturities of investment securities held-to-maturity |
|
|
645 |
|
|
852 |
|
|
Purchase of investment securities held-to-maturity |
|
|
(1,075 |
) |
|
(1,080 |
) |
|
Proceeds from sale of loans |
|
|
0 |
|
|
16,590 |
|
|
Net increase in loans |
|
|
(10,334 |
) |
|
(1,699 |
) |
|
Purchases of premises and equipment |
|
|
(725 |
) |
|
(1,504 |
) |
|
Payment related to acquisition, net of cash and cash equivalents |
|
|
(10,110 |
) |
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by investing activities |
|
|
(7,245 |
) |
|
25,651 |
|
|
|
|
|
|
|
|
|
|
|
Financing activities: |
|
|
|
|
|
|
|
|
Net decrease in deposits |
|
|
(10,712 |
) |
|
(10,526 |
) |
|
Net decrease in borrowings |
|
|
(873 |
) |
|
(4,665 |
) |
|
Dividends paid |
|
|
(904 |
) |
|
(805 |
) |
|
Purchases of treasury stock |
|
|
(320 |
) |
|
0 |
|
|
Exercise of stock options and issuance of treasury stock |
|
|
0 |
|
|
1,305 |
|
|
Sales of treasury stock |
|
|
30 |
|
|
0 |
|
|
|
|
|
|
|
|
|
|
|
Net cash used in financing activities |
|
|
(12,779 |
) |
|
(14,691 |
) |
|
|
|
|
|
|
|
|
|
|
Decrease in cash and cash equivalents |
|
|
(14,125 |
) |
|
(1,743 |
) |
|
Cash and cash equivalents at beginning of period |
|
|
39,185 |
|
|
23,745 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at March 31 |
|
$ |
25,060 |
|
$ |
22,002 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of cash flow information: |
|
|
|
|
|
|
|
|
Cash paid during the period for: |
|
|
|
|
|
|
|
|
Interest |
|
$ |
8,185 |
|
$ |
5,630 |
|
|
Income taxes |
|
$ |
680 |
|
$ |
125 |
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures of non-cash flow activities: |
|
|
|
|
|
|
|
|
Loans transferred to other real estate owned |
|
$ |
482 |
|
$ |
7 |
|
|
Land transferred to held for sale |
|
$ |
1,344 |
|
$ |
0 |
|
See accompanying notes to unaudited consolidated financial statements
8
Schedule 5
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
Notes to Consolidated Financial Statements
(Unaudited)
The accompanying unaudited condensed consolidated financial statements reflect all adjustments, which, in the opinion of management, are necessary for a fair presentation of the results of the interim periods ended March 31, 2007 and 2006, and all such adjustments are of a normal recurring nature. The 2006 year-end consolidated balance sheet data was derived from audited financial statements, but do not include all disclosures required by generally accepted accounting principles.
The 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 accounting principles generally accepted in the United States of America 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 2006 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. Certain amounts in the 2006 consolidated financial statements have been reclassified to conform to the 2007 presentation.
(1) EARNINGS PER SHARE CALCULATION
The following table sets forth the computation of basic and diluted earnings per share for the periods indicated (in thousands, except share data):
|
|
|
Three Months Ended |
| ||||
|
|
|
2007 |
|
2006 |
| ||
|
Numerator: |
|
|
|
|
|
|
|
|
Net income |
|
$ |
1,429 |
|
$ |
1,650 |
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
Basic earnings per share– |
|
|
|
|
|
|
|
|
weighted average shares |
|
|
3,347,099 |
|
|
3,362,332 |
|
|
|
|
|
|
|
|
|
|
|
Effect of dilutive securities– |
|
|
|
|
|
|
|
|
stock options |
|
|
16,860 |
|
|
22,916 |
|
|
Diluted earnings per share– |
|
|
|
|
|
|
|
|
adjusted weighted average shares |
|
|
3,363,959 |
|
|
3,385,248 |
|
|
|
|
|
|
|
|
|
|
|
Net income per share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.43 |
|
$ |
0.49 |
|
|
Diluted |
|
$ |
0.42 |
|
$ |
0.49 |
|
The earnings per share calculation for the three months ended, March 31, 2007 and 2006 does not include 160,283 shares and 76,500 shares, respectively, which were anti-dilutive.
9
(2) ACQUISITION
On February 23, 2007, the Corporation completed the acquisition of the Plainfield office of HomeStar Bank in Manteno, Illinois, for $10.2 million in cash, including goodwill of $1.5 million, in order to expand its market presence in the area. The Corporation purchased the existing facility for $4.5 million plus $17.0 million in loans (at book value) and assumed $12.9 million in deposit liabilities. The Plainfield office operates as a branch of the subsidiary bank.
The transaction has been accounted for as a purchase, and the results of operations of the Plainfield office since the acquisition date have been included in the consolidated financial statements. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of this transaction (in thousands):
|
Cash and cash equivalents |
|
$ |
93 |
|
|
Loans |
|
|
17,043 |
|
|
Premises and equipment |
|
|
4,500 |
|
|
Goodwill |
|
|
1,492 |
|
|
Other assets |
|
|
85 |
|
|
|
|
|
|
|
|
Total assets acquired |
|
|
23,213 |
|
|
|
|
|
|
|
|
Deposits |
|
|
12,865 |
|
|
Other liabilities |
|
|
145 |
|
|
|
|
|
|
|
|
Total liabilities assumed |
|
|
13,010 |
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
10,203 |
|
Transaction costs related to the completion of the transaction were considered immaterial. The total fair value of the assets and liabilities acquired exceeded the book value, resulting in goodwill of $1,492, which is not subject to amortization. The goodwill is deductible for tax purposes.
The following unaudited pro forma condensed combined financial information presents the results of operations of the Corporation, including the effects of the purchase accounting adjustments, had the acquisition taken place at the beginning of each period (in thousands):
10
| For the three months ended March 31, 2007 | For the three months ended March 31, 2006 | |||||||
|---|---|---|---|---|---|---|---|---|
| Net interest income | $ | 6,432 | $ | 6,597 | ||||
| Provision for loan losses | 185 | 10 | ||||||
| Non-interest income | 2,680 | 2,554 | ||||||
| Non-interest expense | 7,288 | 7,252 | ||||||
| Income before income taxes | 1,639 | 1,889 | ||||||
| Income tax expense | 174 | 268 | ||||||
| Net income | $ | 1,465 | $ | 1,621 | ||||
| Earnings per share | ||||||||
| Basic | $ | 0.44 | $ | 0.48 | ||||
| Diluted | $ | 0.44 | $ | 0.48 | ||||
| Basic weighted average shares outstanding | 3,347,099 | 3,362,332 | ||||||
| Diluted weighted average shares outstanding | 3,363,959 | 3,385,248 | ||||||
The unaudited pro forma condensed combined financial statements do not reflect any anticipated cost savings and revenue enhancements. Additionally, the income statement for the first three months of 2007 includes merger-related expenses. Accordingly, the pro forma results of operations of the Corporation as of and after the merger may not be indicative of the results that actually would have occurred if the merger had been in effect during the periods presented or of the results that may be attained in the future.
The balance of goodwill, net of accumulated amortization, totaled $24,521,000 at March 31, 2007 and $23,029,000 at December 31, 2006, with the increase of $1,492,000 resulting from the acquisition of the Plainfield branch of HomeStar Bank in February, 2007. The balance of intangible assets, net of accumulated amortization, totaled $5,731,000 and $5,921,000 at March 31, 2007 and December 31, 2006, respectively.
The following table summarizes the Corporation’s intangible assets, which are subject to amortization, as of March 31, 2007 and December 31, 2006.
11
| (in thousands) |
2007 | 2006 | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Gross Carrying Amount | Accumulated Amortization | Gross Carrying Amount | Accumulated Amortization | |||||||||||
| Core deposit intangible | $ | 9,004 | $ | (3,348 | ) | $ | 9,004 | $ | (3,112 | ) | ||||
| Other intangible assets | 209 | (134 | ) | 160 | (131 | ) | ||||||||
| Total | $ | 9,213 | $ | (3,482 | ) | $ | 9,164 | $ | (3,243 | ) | ||||
Amortization expense of all intangible assets totaled $188,000 for the three months ended March 31, 2007 and $163,000 for the three months ended March 31, 2006, respectively. The amortization expense of these intangible assets will be approximately $175,000 for the each of the remaining quarters in 2007.
The Corporation has originated mortgage servicing rights which are included in other assets on the consolidated balance sheets. Mortgage servicing rights are amortized in proportion to, and over the period of, estimated net servicing income on a basis similar to the interest method using an accelerated amortization method and are subject to periodic impairment testing. As of March 31, 2007, no impairment had been recorded during the year. Changes in the carrying value of capitalized mortgage servicing rights are summarized as follows:
| (in thousands) |
|||||
|---|---|---|---|---|---|
| Balance, January 1, 2007 | $ | 2,079 | |||
| Servicing rights capitalized | 141 | ||||
| Amortization of servicing rights | (29 | ) | |||
| Impairment of servicing rights | 0 | ||||
| Balance, March 31, 2007 | $ | 2,191 | |||
The Corporation services loans for others with unpaid principal balances at March 31, 2007 and December 31, 2006 of approximately $245,117,000, and $236,893,000, respectively.
The following table shows the future estimated amortization expense for mortgage servicing rights based on existing balances as of March 31, 2007. The Corporation’s actual amortization expense in any given period may be significantly different from the estimated amounts displayed depending on the amount of additional servicing rights, changes in mortgage interest rates, actual prepayment speeds, and market conditions.
| Amount (in thousands) | |||||
|---|---|---|---|---|---|
| For the nine months ended December 31, 2007 | $ | 189 | |||
| For the year ended December 31, 2008 | 240 | ||||
| For the year ended December 31, 2009 | 226 | ||||
| For the year ended December 31, 2010 | 212 | ||||
| For the year ended December 31, 2011 | 198 | ||||
| For the year ended December 31, 2012 | 186 | ||||
| Thereafter | 940 | ||||
12
Effective November 17, 2006, the FDIC implemented a one-time credit of $4.7 billion to eligible institutions. The purpose of the credit is to recognize contributions made by certain institutions to capitalize the Bank Insurance Fund and Savings Association Insurance Fund, which have now been merged into the Deposit Insurance Fund. The Bank is an eligible institution and has now received notice from the FDIC that its share of the credit is $647. This amount is not reflected in the accompanying financial statements as it represents contingent future credits against future insurance assessment payments. As such, the timing and ultimate recoverability of the one-time credit may change.
The Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, on January 1, 2007. The implementation of FIN 48 did not impact the Corporation’s financial statements. The Corporation files income tax returns in the U.S. federal jurisdiction and state of Illinois jurisdiction. The Corporation is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2003.
In September 2006, FASB issued SFAS No. 157 (FAS 157), “Fair Value Measurements,” which provides enhanced guidance for using fair value to measure assets and liabilities. FAS 157 establishes a common definition of fair value, provides a framework for measuring fair value under U.S. GAAP and expands disclosures requirements about fair value measurements. FAS 157 is effective for financial statements issued in fiscal years beginning after November 15, 2007 and interim periods within those fiscal years. The Corporation is currently evaluating the impact, if any, the adoption of FAS 157 will have on its financial reporting and disclosures.
In September 2006, the FASB issued SFAS No. 158 (FAS 158), “Employers’ Accounting for Defined Benefit Pension and Other Postretirement Plans – an amendment of FASB Statements 87, 88, 106, and 132 (R),” which requires recognition of a net liability or asset to report the funded status of defined benefit pension and other postretirement plans on the balance sheet and recognition (as a component of other comprehensive income) of changes in the funded status in the year in which the changes occur. Additionally, FAS 158 requires measurement of a plan’s assets and obligations as of the balance sheet date and additional annual disclosures in the notes to the financial statements. The recognition and disclosure provisions of FAS 158 were adopted during 2006, while the requirement to measure a plan’s assets and obligations as of the balance sheet date is effective for fiscal years ending after December 15, 2008. The Corporation does not expect the adoption of the measurement provisions to have a material impact on its financial reporting and disclosures.
In September 2006, the FASB ratified Emerging Issues Task Force No. 06-4, “Postretirement Benefits Associated with Split-Dollar Life Insurance” (EITF 06-4). EITF 06-4 requires deferred-compensation or postretirement benefit aspects of an endorsement-type split-dollar life insurance arrangement to be recognized as a liability by the employer and the obligation is not effectively settled by the purchase of a life insurance policy. The liability for future benefits should be recognized based on the substantive agreement with the employee, which may be either to provide a future death benefit or to pay for the future cost of the life insurance. EITF 06-4 is effective for fiscal years beginning after December 15, 2007. The Corporation is currently evaluating the impact, if any, the adoption of EITF 06-4 will have on its financial reporting and disclosures.
13
In February 2007, the FASB issued SFAS No. 159 (FAS 159), “The Fair Value Option for Financial Assets and Financial Liabilities — Including an amendment of FASB Statement No. 115". FAS 159 allows companies to report selected financial assets and liabilities at fair value. The changes in fair value are recognized in earnings and the assets and liabilities measured under this methodology are required to be displayed separately in the balance sheet. The main intent of the Statement is to mitigate the difficulty in determining reported earnings caused by a “mixed-attribute model” (or reporting some assets at fair value and others using a different valuation attribute such as amortized cost). The project is separated into two phases. This first phase addresses the creation of a fair value option for financial assets and liabilities. A second phase will address creating a fair value option for selected non-financial items. FAS 159 is effective for all financial statements issued for fiscal years beginning after November 15, 2007. The Corporation is currently evaluating the impact, if any, the adoption of FAS 159 will have on its financial reporting and disclosures.
14
Schedule 6
PRINCETON NATIONAL BANCORP, INC. AND SUBSIDIARY
MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
For the three months ended March 31, 2007 and 2006
The following discussion provides information about Princeton National Bancorp, Inc.’s (“PNBC” or the “Corporation”) financial condition and results of operations for the quarters ended March 31, 2007 and 2006. This discussion should be read in conjunction with the attached consolidated financial statements and notes 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. PNBC 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 first quarter of 2007 was $1,429,000, or basic earnings per share of $0.43 and diluted earnings per share of $0.42, as compared to net income of $1,650,000 in the first quarter of 2006, or basic earnings and diluted earnings per share of $0.49. This represents a decrease of $221,000 (13.4%) or $.06 per basic share and $.07 per diluted share. The lower net income figure is attributable to a decrease in the net tax equivalent yield on interest-earning assets from 3.52% for the first quarter of 2006 to 3.11% in the first quarter of 2007, which is discussed in the paragraph below, along with one-time expenses incurred in relation to the acquisition of the Plainfield office, deposits and loans of approximately $100,000. The annualized return on average assets and return on average equity were 0.57% and 8.80%, respectively, for the first quarter of 2007, compared with 0.72% and 10.54% for the first quarter of 2006.
Net interest income before the provision for loan losses was $6,392,000 for the first quarter of 2007, compared to $6,529,000 for the first quarter of 2006 (a decrease of $137,000 or 2.1%). Although there has been an increase in average interest-earning assets of $85.4 million over the past twelve months, the resulting net yield on interest-earning assets (on a fully taxable equivalent basis) decreased to 3.11% in the first quarter of 2007 from 3.52% in the first quarter of 2006, causing the decrease to net income reported above. As interest rates continued to rise over the past year, the yield on interest-earning assets (increased 50 basis points) has not been able to keep pace with the rising cost of interest-bearing liabilities (increased 94 basis points). A further increase to the cost of interest-bearing liabilities has occurred because more deposits are moving into time deposits versus lower-costing interest-bearing demand deposits.
15
The Corporation’s provision for loan loss expense recorded each quarter is determined by management’s evaluation of the risk characteristics of the loan portfolio. For the first quarter of 2007, PNBC had net charge-offs of $101,000, compared to net charge-offs of $109,000 for the first quarter of 2006. PNBC recorded a loan loss provision of $185,000 in the first quarter of 2007 compared to a provision of $10,000 in the first quarter of 2006.
Non-interest income totaled $2,645,000 for the first quarter of 2007, compared to $2,499,000 in the first quarter of 2006, an increase of $146,000 (or 5.8%). The categories of mortgage banking income, other service charges and brokerage fee income recorded the largest increases of $86,000, $71,000 and $59,000, respectively, due to increases in the volume of transactions. The Corporation recorded gains from the sales of securities available-for-sale of $47,000 in the first three months of 2007 compared to $60,000 for the first three months of 2006. Annualized non-interest income as a percentage of total average assets decreased slightly from 1.09% for the first three months of 2006, to 1.05% for the same period in 2007.
Total non-interest expense for the first quarter of 2007 was $7,273,000, an increase of $191,000 (or 2.7%) from $7,082,000 in the first quarter of 2006. Contributing to the difference was an increase in salaries/employee benefits of $148,000 due to an increase in the number of full-time employees. Smaller increases were seen in the categories of occupancy and equipment expense, increasing $131,000 and $74,000, respectively, caused by the additional offices in Aurora and Plainfield in the past twelve months. Offsetting these increases were decreases in other operating expense, data processing and advertising which decreased $138,000, $33,000 and $22,000, respectively. Annualized non-interest expense as a percentage of total average assets decreased to 2.89% for the first three months of 2007, compared to 3.09% for the same period in 2006.
INCOME TAXES
Income tax expense totaled $150,000 for the first quarter of 2007, as compared to $286,000 for the first quarter of 2006. The effective tax rate was 9.5% for the three month period ended March 31, 2007 and 14.8% for the three month period ended March 31, 2006. The lower effective tax rate in 2007 is due to the amount of tax-exempt investment securities in the Corporation’s investment portfolio as well as a lower pre-tax income.
The Corporation adopted the provisions of FASB Interpretation No. 48 (“FIN 48”), Accounting for Uncertainty in Income Taxes, on January 1, 2007. The implementation of FIN 48 did not impact the Corporation’s financial statements. The Corporation files income tax returns in the U.S. federal jurisdiction and state of Illinois jurisdiction. The Corporation is no longer subject to U.S. federal or state income tax examinations by tax authorities for years before 2003.
ANALYSIS OF FINANCIAL CONDITION
Total assets at March 31, 2007 increased to $1,033,413,000 from $1,031,959,000 at December 31, 2006 (an increase of $1.5 million or 0.1%). Investment balances totaled $254,463,000 at March 31, 2007, compared to $267,916,000 at December 31, 2006 (a decrease of $13.5 million or 5.0%). The decrease in the investment portfolio is a result of management’s decision to fund new loans with maturing investments rather than be overly competitive with the rising price of deposits. Accordingly, total deposits increased only slightly to $884,052,000 at March 31, 2007 from $881,899,000 at December 31, 2006 (an increase of $2.2 million or 0.2%). This increase includes $13.1 million in deposits acquired from the
16
Plainfield acquisition. Comparing categories of deposits at March 31, 2007 to December 31, 2006, interest-bearing demand deposits increased $6.1 million (or 2.6%) and savings deposits increased $5.0 million (or 4.3%). Conversely, time deposits decreased by $2.0 million (or 0.5%) and demand deposits decreased $7.0 million (or 6.5%). Borrowings, consisting of customer repurchase agreements, notes payable, treasury, tax, and loan (“TT&L”) deposits, and Federal Home Loan Bank advances, decreased from $74,147,000 at December 31, 2006 to $73,274,000 at March 31, 2007 (a decrease of $873,000 or 1.2%).
Loan balances, net of unearned interest, increased to $656,748,000 at March 31, 2007, compared to $629,472,000 at December 31, 2006 (an increase of $27.3 million or 4.3%). This increase is mainly the result of the $16.8 million in loans purchased in the aforementioned Plainfield acquisition. Non-performing loans increased to $4,909,000 or 0.75% of net loans at March 31, 2007, as compared to $4,519,000 or 0.80% of net loans at December 31, 2006. Although non-performing loans have increased in terms of total dollars, all are individually evaluated and management continues to maintain adequate reserves in the allowance for loan losses.
ASSET QUALITY
For the three months ended March 31, 2007, the subsidiary bank charged off $176,000 of loans and had recoveries of $75,000, compared to charge-offs of $148,000 and recoveries of $39,000 during the three months ended March 31, 2006. The allowance for loan losses is based on factors that include the overall composition of the loan portfolio, types of loans, underlying collateral, past loss experience, loan delinquencies, 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 March 31, 2007, the allowance was $3,137,000 which is 63.9% of non-performing loans and 0.48% of total loans, compared with $3,053,000 which was 67.6% of non-performing loans and 0.49% of total loans at December 31, 2006.
At March 31, 2007 non-accrual loans were $4,896,000 compared to $3,893,000 at December 31, 2006. Impaired loans totaled $2,982,000 at March 31, 2007 compared to $2,123,000 at December 31, 2006. The total amount of loans ninety days or more past due and still accruing interest at March 31, 2007 was $14,000 compared to $33 at December 31, 2006. There was a specific loan loss reserve of $262,000 established for impaired loans as of March 31, 2007 compared to a specific loan loss reserve of $150,000 at December 31, 2006. PNBC’s management analyzes the allowance for loan losses monthly and believes the current level of allowance is adequate to meet probable losses as of March 31, 2007.
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, 2007, total risk-based capital of PNBC was 8.79%, compared to 9.18% at December 31, 2006. The Tier 1 capital ratio decreased from 6.33% at December 31, 2006, to 6.14% at March 31, 2007. Total stockholders’ equity to total assets at March 31, 2007 increased to 6.37% from 6.33% at December 31, 2006.
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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 include cash flow from the repayment of loans and the maturity of investment securities. Major uses of cash include the origination of loans and purchase of investment securities. Cash flows used in financing and investing activities, offset by those provided by operating activities, resulted in a net decrease in cash and cash equivalents of $14,125,000 from December 31, 2006 to March 31, 2007. This decrease was primarily due to the payment for the Plainfield acquisition, a net increase in loans and a net decrease in deposits, offset by proceeds from the sales and maturities of investment securities. For more detailed information, see PNBC’s Consolidated Statements of Cash Flows.
FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK
The Corporation generates agribusiness, commercial, mortgage and consumer loans to customers located primarily in North Central Illinois. The Corporation’s loans are generally secured by specific items of collateral including real property, consumer assets and business assets. Although the Corporation has a diversified loan portfolio, a substantial portion of its debtors’ ability to honor their contracts is dependent upon economic conditions in the agricultural industry.
In the normal course of business to meet the financing needs of its customers, the subsidiary bank is party to financial instruments with off-balance sheet risk. These financial instruments include commitments to extend credit and standby letters of credit. These instruments involve, to varying degrees, elements of credit and interest rate risk in excess of the amount recognized in the consolidated balance sheets. The contract amounts of those instruments reflect the extent of involvement the subsidiary bank has in particular classes of financial instruments.
The subsidiary bank’s exposure to credit loss in the event of non-performance by the other party to the financial instrument for commitments to extend credit and standby letters of credit is represented by the contractual notional amount of those instruments. The subsidiary bank uses the same credit policies in making commitments and conditional obligations as they do for on-balance-sheet instruments. At March 31, 2007, commitments to extend credit and standby letters of credit were approximately $124,998 and $6,339, respectively.
Commitments to extend credit are agreements to lend to a customer as long as there is no violation of any condition established in the contract. Commitments generally have fixed expiration dates or other termination clauses and may require payment of a fee. Since many of the commitments are expected to expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements. The subsidiary bank evaluates each customer’s creditworthiness on a case-by-case basis. The amount of collateral obtained, if deemed necessary, by the subsidiary bank upon extension of credit is based on management’s credit evaluation of the counterparty. Collateral held varies, but may include real estate, accounts receivable, inventory, property, plant and equipment, and income-producing properties.
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Standby letters of credit are conditional commitments issued by the subsidiary bank to guarantee the performance of a customer to a third party. The credit risk involved in issuing standby letters of credit is essentially the same as that involved in extending loan facilities to customers. The subsidiary bank secures the standby letters of credit with the same collateral used to secure the loan. The maximum amount of credit that would be extended under standby letters of credit is equal to the off-balance sheet contract amount. The standby letters of credit have terms that expire in one year or less.
MERGERS AND ACQUISITIONS
On February 23, 2007, the Company completed the acquisition, for $10.2 million in cash, of the fixed assets and loans while assuming the deposit liabilities of the Plainfield, Illinois branch of HomeStar Bank in order to expand its market presence in this area. The Company financed the purchase price with existing cash and federal funds sold on the balance sheet at the time of purchase. Since the completion of the merger, the Plainfield location operates as a branch of the Company’s subsidiary bank.
The transaction has been accounted for as a purchase, and the results of operations of Plainfield since the acquisition date have been included in the consolidated financial statements.
LAND HELD FOR SALE
In 2004, the Corporation purchased approximately 14 acres of land in Aurora, Illinois in anticipation of the construction of a new branch facility. This construction of the facility was completed in May, 2006 using approximately 55% of the available acreage. The remaining 45% was sub-divided into two lots and needed infrastructure was completed. These lots, with a cost basis of $1,344,000, were determined to be held for sale as of March 31, 2007. A real estate appraisal has been completed indicating the market value of each lot to be approximately $2,000,000. Accordingly, these lots are now shown on the Corporation’s balance sheet as land held for sale, at the lower of cost or market.
LEGAL PROCEEDINGS
There are various claims pending against PNBC’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 PNBC’s financial condition.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There has been no material change in market risk since December 31, 2006, as reported in PNBC’s 2006 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 accounting principles generally accepted in the United States of America 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.
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The following table sets forth (in thousands) details of average balances, interest income and expense, and resulting annualized yields/costs for the Corporation for the periods indicated, reported on a fully taxable equivalent basis, using a tax rate of 34%.
| Three Months Ended, March 31, 2007 | Three Months Ended, March 31, 2006 | |||||||||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Average Balance | Interest | Yield/ Cost | Average Balance | Interest | Yield/ Cost | |||||||||||||||
| Average Interest-Earning Assets | ||||||||||||||||||||
| Interest-bearing deposits | $ | 4,569 | $ | 50 | 4.44 | % | $ | 335 | $ | 4 | 4.51 | % | ||||||||
| Taxable investment securities | 155,724 | 1,885 | 4.91 | % | 140,460 | 1,375 | 3.97 | % | ||||||||||||
| Tax-exempt investment securities | 106,940 | 1,709 | 6.48 | % | 106,648 | 1,783 | 6.78 | % | ||||||||||||
| Federal funds sold | 10,804 | 147 | 5.52 | % | 1,356 | 14 | 4.19 | % | ||||||||||||
| Net loans | 633,229 | 11,631 | 7.45 | % | 577,091 | 9,769 | 6.87 | % | ||||||||||||
| Total interest-earning assets | 911,266 | 15,422 | 6.86 | % | 825,890 | 12,945 | 6.36 | % | ||||||||||||
| Average non-interest earning assets | 114,624 | 104,612 | ||||||||||||||||||
| Total average assets | $ | 1,025,890 | $ | 930,502 | ||||||||||||||||
| Average Interest-Bearing Liabilities | ||||||||||||||||||||
| Interest-bearing demand deposits | $ | 231,312 | 1,569 | 2.75 | % | $ | 208,803 | 918 | 1.78 | % | ||||||||||
| Savings deposits | 66,029 | 74 | 0.45 | % | 74,330 | 85 | 0.46 | % | ||||||||||||
| Time deposits | 482,595 | 5,835 | 4.90 | % | 403,953 | 3,850 | 3.87 | % | ||||||||||||
| Interest-bearing demand notes issued to the U.S. Treasury | 929 | 12 | 5.24 | % | 651 | 7 | 4.51 | % | ||||||||||||
| Federal funds purchased | 72 | 1 | 5.63 | % | 5,412 | 60 | 4.53 | % | ||||||||||||
| Customer repurchase agreements | 29,999 | 347 | 4.69 | % | 29,862 | 303 | 4.12 | % | ||||||||||||
| Advances from Federal Home Loan Bank | 6,972 | 87 | 5.06 | % | 8,348 | 97 | 4.69 | % | ||||||||||||
| Trust preferred securities | 25,000 | 355 | 5.76 | % | 25,000 | 355 | 5.68 | % | ||||||||||||
| Note payable | 8,544 | 145 | 6.88 | % | 6,663 | 107 | 6.51 | % | ||||||||||||
| Total interest-bearing liabilities | 851,452 | 8,425 | 4.01 | % | 763,023 | 5,783 | 3.07 | % | ||||||||||||
| Net yield on average interest-earning assets | $ | 6,997 | 3.11 | % | $ | 7,162 | 3.52 | % | ||||||||||||
| Average non-interest-bearing liabilities | 108,593 | 103,994 | ||||||||||||||||||
| Average stockholders’ equity | 65,845 | 63,485 | ||||||||||||||||||
| Total average liabilities and | ||||||||||||||||||||
| stockholders' equity | $ | 1,025,890 | $ | 930,502 | ||||||||||||||||
The following table reconciles tax-equivalent net interest income (as shown above) to net interest income as reported on the Consolidated Statements of Income.
| For the Three Months Ended March 31, | ||||||||
|---|---|---|---|---|---|---|---|---|
| 2007 | 2006 | |||||||
| Net interest income as stated | $ | 6,392 | $ | 6,529 | ||||
| Tax equivalent adjustment-investments | 581 | 606 | ||||||
| Tax equivalent adjustment-loans | 24 | 27 | ||||||
| Tax equivalent net interest income | $ | 6,997 | $ | 7,162 | ||||
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Schedule 7. Controls and Procedures
|
(a) |
Disclosure controls and procedures. We evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2007. Our disclosure controls and procedures are the controls and other procedures that we designed to ensure that we record, process, summarize and report in a timely manner the information we must disclose in reports that we file with or submit to the SEC. Tony J. Sorcic, President and Chief Executive Officer, and Todd D. Fanning, Senior Vice-President and Chief Financial Officer, reviewed and participated in this evaluation. Based on this evaluation, Messrs. Sorcic and Fanning concluded that, as of the date of their evaluation, our disclosure controls were effective. |
|
(b) |
Internal controls. There have not been any significant changes in our internal accounting controls or in other factors during the quarter ended March 31, 2007 that could significantly affect those controls. |
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INDEX TO EXHIBITS
|
Exhibit |
Exhibit |
|
31.1 |
Certification of Tony J. Sorcic required by Rule 13a-14(a). |
|
31.2 |
Certification of Todd D. Fanning required by Rule 13a-14(a). |
|
32.1 |
Certification of Tony J. Sorcic required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
|
32.2 |
Certification of Todd D. Fanning required by Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350. |
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