FINANCIAL HIGHLIGHTS
In thousands, except per share data 2000 1999 % Increase
- ----------------------------------- ---- ---- ----------
Total Assets At Year End $1,067,781 $1,014,840 5.22%
Net Income $ 11,506 $ 10,435 10.26%
Earnings Per Share $ 3.79 $ 3.45 9.86%
Stockholders' Equity $ 96,034 $ 87,265 10.05%
Book Value Per Share $ 31.61 $ 28.78 9.83%
STOCKHOLDERS' EQUITY AT YEAR END
(IN THOUSANDS)
1998 $82,108
1999 $87,265
2000 $96,034
TOTAL ASSETS AT YEAR END
(IN THOUSANDS)
1998 $ 902,675
1999 $1,014,840
2000 $1,067,781
CONTENTS
Letter to Shareholders ...................................... 2
2000 Highlights ............................................. 4
Condensed Consolidated Balance Sheets ....................... 6
Condensed Consolidated Statements of Income ................. 7
Condensed Consolidated Statements of Stockholders' Equity ... 8
Report of Independent Auditors .............................. 8
Selected Financial & Common Stock Date ...................... 9
Directors ................................................... 10
Officers .................................................... 12
STANDING TALL
WITH OUR COMMUNITY
IN 2000, WE TOOK OUR ROLE AS A COMMUNITY BANK TO A NEW LEVEL
BY FOCUSING ON PERSONAL SERVICE; EXPANDING OUR LEVEL OF COMMUNITY
REINVESTMENT; AND INCREASING OUR PERSONAL INVOLVEMENT IN CIVIC AND
SERVICE ORGANIZATIONS. IN THE PAGES TO FOLLOW, YOU WILL MEET A FEW
INDIVIDUALS WHO MAKE ALL OF US PROUD TO BE A PART OF AN INSTITUTION
AND A COMMUNITY WHICH HAVE STOOD TALL TOGETHER FOR 143 YEARS.
NET INCOME
(IN THOUSANDS)
1998 $ 9,727
1999 $10,435
2000 $11,506
EARNINGS PER SHARE
1998 $3.21
1999 $3.45
2000 $3.79
[PICTURE OF KEVIN T. REARDON]
Kevin T. Reardon
Chairman of the Board and Chief Executive Officer
Meeting our customers' banking needs with comprehensive services, influencing
the success of the individuals we serve, and maintaining growth was our primary
objective for the year 2000, as it has been for the past 143 years.
We are pleased to report that First National Bancorp has once again produced
record net income and earnings per share.
Net income reached an all time high of $11.5 million, an increase of $1.1
million over last year. With this record net income, earnings per share
increased by 10% to $3.79 and stockholders' equity grew to $96.0 million by
year-end.
As you may recall, during 2000 our board of directors approved a 5-for-4 stock
split payable to shareholders of record on March 16, 2000. Cash dividends paid
in 2000 were $1.44 per share, a 5.9% increase from the previous year.
First National Bancorp's total assets grew to $1.07 billion, up $52.9 million
from 1999. Commercial loans also grew to a new year-end high of $237.0 million.
This growth is further indication of our strong market position in Will County,
the fastest growing county in the state.
We continue to focus on strengthening and expanding our market position in Will,
Grundy and Kendall Counties. First National Bancorp has continued to renovate
several facilities to maintain a high quality of service to our existing
customers and enhance visibility with potential clients. Our efforts to grow and
expand have also proved to be successful. In September, we opened our first
branch in Manhattan, Illinois south of Interstate 80, along with a drive-thru
ATM and future branch site in the nearby community of Elwood.
While convenient banking center locations are important in serving our
customers, an increasing number of consumers chose other convenient ways to
conduct their banking. This is evidenced by a record number of calls logged by
First Fone, our twenty-four hour telephone banking service. It received well
over one million inquiries during the past year. We see significant transaction
growth on our ATM network. In just the past year alone, the transactions on our
network increased over 18%. In an added effort to meet this growing demand, we
have also expanded our ATM
network by acquiring new ATM locations in retail shopping malls throughout
Chicago's suburbs.
We also continue to invest in upgrades to our information systems in order to
take advantage of new technologies, such as document imaging and Internet
banking. These products continue to give us a strong presence in the marketplace
by providing easy access to accounts, added convenience, and service for all of
our customers.
At First National Bancorp, we want our customers to know their bankers well. We
have created an environment that encourages a one-on-one relationship, and
developed a match between customers' needs and our ability to meet them. We
pride ourselves on retaining individuals who show a concern for their customers,
their workplace and community while keeping our traditional principles in place.
Principles we believe portray the spirit of First National Bancorp.
Facing the future with confidence, we anticipate our markets will continue to
grow and prosper. Our bank is well positioned to take advantage of this growth,
and our staff is well trained and ready to meet the challenges of a highly
competitive marketplace. As always, we strive to enhance shareholder value
through strategic expansion of our facilities, services and the use of
technology.
We gratefully acknowledge the efforts of our directors, officers and employees
who have contributed to the growth and profitability of First National Bancorp,
Inc. and their communities through their creativity, loyalty and dedication.
It is the core values of customer convenience, community, involvement and
consistent financial growth that epitomize First National as a pillar of
strength, standing tall in our community as we begin our 144th year.
/s/ Kevin T. Reardon
Kevin T. Reardon
Chairman of the Board and Chief Executive Officer
/s/ Albert G. D' Ottavio
Albert G. D' Ottavio
President and Chief Operating Officer
[PICTURE OF ALBERT G. D' OTTAVIO]
Albert G. D' Ottavio
President and Chief Operating Officer
SELECTED FINANCIAL DATA
(in thousands, except share data)
2000 1999 1998 1997 1996
---------- ---------- ---------- ---------- ----------
STATEMENT OF INCOME
Net interest income $ 37,695 $ 37,125 $ 35,068 $ 32,922 $ 30,440
Provision for loan losses 1,875 2,300 2,034 1,118 1,024
Noninterest income 7,808 7,218 7,139 5,899 5,491
Noninterest expense 26,889 26,402 25,632 24,227 22,249
Income before income taxes 16,739 15,641 14,541 13,476 12,658
Net income 11,506 10,435 9,727 9,174 8,521
BALANCE SHEET - END OF YEAR BALANCES
Securities $ 341,758 $ 269,416 $ 260,660 $ 216,701 $ 214,828
Loans, net 572,002 585,058 536,000 521,943 464,372
Total assets 1,067,781 1,014,840 902,675 860,756 824,570
Deposits 844,067 809,609 746,316 726,156 690,513
Stockholders' equity 96,034 87,265 82,108 76,945 71,391
BALANCE SHEET - AVERAGE BALANCES
Securities 307,339 $ 260,583 $ 211,946 $ 234,941 $ 213,653
Loans, net 579,007 560,077 529,752 493,790 441,619
Total assets 1,009,031 936,199 867,915 829,878 773,792
Deposits 818,288 781,893 724,894 696,068 640,485
Stockholders' equity 91,262 85,232 80,098 74,040 68,269
WEIGHTED AVERAGE SHARES OUTSTANDING (1)(2) 3,031,934 3,025,564 3,029,368 3,039,755 3,039,755
PER SHARE DATA (1)(2)
Book value $ 31.61 $26,78 $ 27.14 $ 25.31 $ 23.49
Earnings 3.79 3.45 3.21 3.02 2.80
Cash dividends 1.44 1.36 1.24 1.20 1.20
SELECTED FINANCIAL RATIOS
Average net loans to average deposits 70.76% 71.63% 73.08% 70.74% 68.95%
Return on average assets 1.14% 1.11% 1.12% 1.11% 1.10%
Return on average equity 12.61% 12.24% 12.14% 12.39% 12.48%
Net interest margin (3) 4.18% 4.44% 4.53% 4.47% 4.47%
Average equity to average assets 9.04% 9.10% 9.23% 8.92% 8.82%
Dividend payout ratio 37.95% 39.43% 38.61% 39.76% 42.80%
(1) Per share data for the years 1999, 1998, 1997, and 1996 have been restated
for a 5-for-4 stock split effected in the form of a 25% stock dividend in
2000.
(2) Per share data for the year 1996 has been restated for a 5-for-4 stock
split effected in the form of a 25% stock dividend in 2000 and a 2-for-1
stock split effected in the form of a 100% stock dividend in 1997.
(3) Net interest income (on a fully tax equivalent basis assuming an income tax
rate of 35%) divided by average interest earning assets.
COMMON STOCK PRICE RANGE, DIVIDENDS 2000-1999 (UNAUDITED)
Price Range Cash Dividends Price Range Cash Dividends
------------- Declared ------------- Declared
2000 High Low Per Share 1999 High Low Per Share
---- ---- -------------- ---- ---- --------------
4th quarter $ 68 $ 64 $ 0.36 4th quarter (1) $ 68 $ 64 $ 0.34
3rd quarter 69 60 0.36 3rd quarter (1) 66 62 0.34
2nd quarter 68 63 0.36 2nd quarter (1) 64 58 0.34
1st quarter (1) 69 60 0.36 1st quarter (1) 60 55 0.34
(1) Per share information restated for the 5-for-4 stock split effected in the
form of a 25% dividend in 2000.
[FIRST NATIONAL BANCORP, INC. GRAPHIC]
[FIRST NATIONAL BANCORP, INC. LOGO]
FINANCIAL REPORT 2000
-------------------------------------------------------------
CONTENTS
Management's Discussion and Analysis ..........................................1
Additional Statistical Information ...........................................12
Report of Independent Auditors ...............................................17
Financial Statements
Consolidated Balance Sheets .............................................18
Consolidated Statements of Income .......................................19
Consolidated Statements of Stockholders' Equity .........................20
Consolidated Statements of Cash Flows ...................................21
Notes to Consolidated Financial Statements ..............................22
MANAGEMENT'S DISCUSSION AND ANALYSIS
------------------------------------
(table dollar amounts in thousands)
The following presents management's discussion and analysis of the results of
operations and financial condition of First National Bancorp, Inc. (the Company)
as of the dates and for the periods indicated. This discussion should be read in
conjunction with the Company's Consolidated Financial Statements and the Notes
thereto and other financial data appearing elsewhere in the Annual Report.
The statements contained in this management's discussion and analysis that are
not historical facts are forward-looking statements subject to the safe harbor
created by the Private Securities Litigation Reform Act of 1995. Forward-looking
statements, which are based on certain assumptions and describe future plans,
strategies, and expectations of the Company, are generally identifiable by use
of the words "believe," "expect," "intend," "anticipate," "estimate," "project,"
or similar expressions. The Company's ability to predict results or the actual
effect of future plans or strategies is inherently uncertain. Factors which
could have a material adverse effect on the operations and future prospects of
the Company and its subsidiary bank include, but are not limited to, changes in:
interest rates; general economic conditions; legislation and regulation;
monetary and fiscal policies of the U.S. Government including policies of the
U.S. Treasury and the Federal Reserve Board; the quality or composition of the
loan or securities portfolios; demand for loan products; deposit flows;
competition; demand for financial services in the Company's market area; and
accounting principles, policies, and guidelines. These risks and uncertainties
should be considered in evaluating forward-looking statements, and undue
reliance should not be placed on such statements. Further information concerning
the Company and its business, including additional factors that could materially
affect the Company's financial results, is included in the Company's filings
with the Securities and Exchange Commission.
All per share data for years prior to 2000 has been restated to reflect the
5-for-4 stock split effected in the form of a 25% stock dividend in 2000.
OVERVIEW
The Company is a bank holding company providing financial and other banking
services to customers located primarily in the Will, Grundy, and Kendall
Counties, Illinois areas. The Company was originated on September 30, 1986 with
the merger of First National Bank of Joliet. While the principal office of the
Company and the First National Bank of Joliet continue to be located in Joliet,
Illinois, expansion has occurred through the acquisition in January 1989 of
Southwest Suburban Bank, located in Bolingbrook, Illinois (25 miles southwest of
Chicago), and the acquisition in December 1990 of Bank of Lockport (35 miles
southwest of Chicago). In March 1992, the First National Bank of Joliet acquired
the Minooka facility of Morris Federal Savings Bank. Plano Bancshares, Inc., the
parent of Community Bank of Plano (45 miles west of Chicago), was acquired in
October 1994. In 1998, the Company merged Southwest Suburban Bank, Bank of
Lockport, and Community Bank of Plano into First National Bank of Joliet. In
September 2000, the First National Bank of Joliet acquired the Manhattan branch
facility of Marquette National Bank. At December 31, 2000, the Company now has
18 customer banking locations and total assets of $1.1 billion compared to $1.0
billion at the end of 1999. Five new branch offices have been opened in the past
five years, including the branch facility acquired during 2000. These
acquisitions and branch openings are reflective of management's strategic plan
to expand in areas where the Company either already has market penetration or
where the Company's present customer service area borders the new market.
FINANCIAL CONDITION
In both 2000 and 1999, the Company experienced continued growth in deposits,
earning assets, total assets, and stockholders' equity. Average earning assets
for 2000 were $933.0 million, an increase of $72.7 million, or 8.4%, from $860.3
million in 1999. The 2000 average earning asset growth is primarily related to
increases in the average loan portfolio, which grew 3.4%, and the securities
portfolio, which grew 18.0%. This growth was funded through average deposit
growth of 4.7% in 2000 and 7.9% in 1999 and average short-term borrowing growth
of 51.9% in 2000 and 22.3% in 1999. Economic factors remain generally favorable,
and management expects loan and deposit growth to continue as the markets the
Company serves continue to expand.
Total deposits continued to grow in 2000, as they have for several years in a
row. Total deposits increased 4.3% and 8.5% in 2000 and 1999, respectively,
based on year-end amounts. Each category of deposits, except time deposits,
experienced growth in 2000. Time deposits showed a slight decrease of $83,000 in
2000, as the Company did not match the high certificate of deposit rates offered
by some competitors, particularly in the latter part of 2000. An important
source of deposit growth has been the opening of new branch offices during the
past few years.
1
In 2000, funding provided by short-term borrowings continued to increase.
Short-term borrowings consist of securities sold under agreements to repurchase,
federal funds purchased, and U.S. Treasury demand note accounts. The increase in
short-term borrowings over the past few years has been influenced by the amount
of funds available to municipalities and government offices in the market areas
served by the Company. The increase in available funds has been a result of
favorable economic factors related to the market areas served by the Company,
including continued commercial and residential development and overall
population growth. Future availability of these sources of funding cannot be
predicted with any certainty. Short-term borrowings represented 12.6% and 12.2%
of funding liabilities as of December 31, 2000 and 1999, respectively.
The Company's stockholders' equity increased 10.0% and 6.3% in 2000 and 1999,
respectively, based on year-end amounts. Retained earnings has been the primary
source of growth in stockholders' equity in 2000 and 1999. The fair value of the
Company's securities available-for-sale increased in value as market interest
rates changed, resulting in unrealized gains on securities available-for-sale,
net of tax, of $1.3 million in 2000.
Total stockholders' equity at December 31, 2000 was $96.0 million, an increase
of $8.8 million from the prior year end. Book value per share increased to a
record high of $31.61 at December 31, 2000. Total equity and book value per
share have increased for several consecutive years.
RESULTS OF OPERATIONS
For the year ended December 31, 2000, the Company earned $11.5 million, or $3.79
per share, as compared to $10.4 million, or $3.45 per share, and $9.7 million,
or $3.21 per share, in 1999 and 1998, respectively. Net income for 2000
increased by 10.3% over that of 1999, while a 7.3% increase was achieved in
1999. The operating performance of bank holding companies is often measured, and
comparisons made, based on net income to average assets and net income to
average equity. The Company's return on average assets was 1.14% in 2000,
compared to 1.11% and 1.12% in 1999 and 1998, respectively. Return on average
equity was 12.61% in 2000, 12.24% in 1999, and 12.14% in 1998.
NET INTEREST INCOME
Net interest income, the difference between total interest earned on earning
assets and total interest expense on interest-bearing liabilities, is the
Company's principal source of income. Net interest income is influenced by
changes in the volume and yield on earning assets as well as changes in the
volume and rates paid on interest-bearing liabilities. The Company attempts to
favorably impact net interest income through investment decisions and monitoring
interest rates offered to customers, particularly for time deposits and
short-term borrowings.
On a tax equivalent basis (35% income tax rate), the Company's net interest
income expressed as a percentage of average interest earning assets (net
interest margin) was 4.18% in 2000, as compared to 4.44% in 1999 and 4.53% in
1998. In 2000, the yield on earning assets increased 21 basis points to 7.77%
and the yield on interest-bearing liabilities increased 57 basis points to
4.37%. The increase in the yield on earning assets during 2000 was due primarily
to the generally higher level of interest rates in 2000 compared to 1999. For
example, the average prime rate in 2000 was approximately 9.2% compared to 8.0%
in 1999 and 8.4% in 1998. The increase in the yield on interest-bearing
liabilities is primarily due to the significantly higher volume and cost of time
deposits and short-term borrowings in 2000.
The yield on earning assets decreased 38 basis points to 7.56% and the yield on
interest-bearing liabilities decreased 34 basis points to 3.80% in 1999. The
decrease in the yield on earning assets was due primarily to the generally lower
level of market interest rates in 1999 compared to 1998. The decrease in the
yield during 1999 on interest-bearing liabilities is due primarily to a
combination of the increase in the volume of lower cost savings, NOW, and money
market deposits and the decrease in rates paid on higher cost time deposits and
short-term borrowings.
Net interest income on a tax-equivalent basis increased by $812,000 in 2000 and
$2.1 million in 1999. In 2000, the increase in volume of earning assets net of
interest-bearing liabilities produced $1.6 million of the net interest income
increase while changes in interest rates reduced income by $830,000. The
increase in the volume of earning assets net of interest-bearing liabilities
produced $3.0 million of the net interest income increase while changes in
interest rates reduced income by $856,000 in 1999.
2
The following table sets forth certain information relating to the Company's
average consolidated balance sheets and reflects the yield on average earning
assets and cost of average interest-bearing liabilities for the years indicated.
Such yields and costs are derived by dividing interest income or expense by the
average balance of assets or liabilities. Interest income is measured on a
tax-equivalent basis using a 35% income tax rate. The average balance sheet
amounts for loans include balances for non-performing loans, and the securities
average balance sheet amounts are based on amortized cost.
For the Years Ended December 31,
--------------------------------------------------------------------------------------------
2 0 0 0 1 9 9 9 1 9 9 8
----------------------------- ----------------------------- ---------------------------
Yield/ Yield/ Yield/
Average Rate Average Rate Average Rate
Balance Interest (%) Balance Interest (%) Balance Interest (%)
------- -------- --- ------- -------- --- ------- -------- ---
INTEREST-EARNING ASSETS:
Federal funds sold $ 46,646 $ 2,937 6.30% $ 39,669 $ 1,965 4.95% $ 54,945 $ 2,981 5.43%
Taxable securities 267,972 15,983 5.96 231,278 13,612 5.89 181,130 11,025 6.09
Tax-exempt securities 39,427 3,160 8.01 29,305 2,380 8.12 30,816 2,629 8.53
Loans 579,007 50,426 8.71 560,077 47,094 8.41 529,752 46,589 8.79
---------- ------- -------- ------- --------- -------
Total interest-
earning assets 933,052 72,506 7.77 860,329 65,051 7.56 796,643 63,224 7.94
---------- ------- -------- ------- --------- -------
NON-INTEREST-EARNING ASSETS:
Cash and due from banks 42,013 40,499 35,750
Premises and equipment 19,891 19,256 18,693
Intangibles and other
assets 14,075 16,115 16,829
---------- -------- ---------
Total non-interest-
earning assets 75,979 75,870 71,272
---------- -------- ---------
Total assets $1,009,031 $936,199 $867,915
========== ======== -========
INTEREST-BEARING LIABILITIES:
Deposits
NOW and
money market $ 149,358 $ 4,949 3.31% $144,378 $ 4,015 2.78% $123,460 $ 3,436 2.78%
Savings 179,023 4,114 2.30 188,505 4,093 2.17 173,803 4,264 2.45
Time 341,343 18,671 5.47 309,563 15,472 5.00 301,369 16,353 5.43
Short-term
borrowings 95,987 5,755 6.00 63,198 3,166 5.01 51,656 2,711 5.25
Long-term debt - - - 1,245 100 8.03 4,315 366 8.48
---------- ------- -------- ------- --------- -------
Total interest-
bearing
liabilities 765,711 33,489 4.37 706,889 26,846 3.80 654,603 27,130 4.14
---------- ------- ---- -------- ------- ---- --------- ------- ----
NON-INTEREST-BEARING LIABILITIES:
Demand deposits 148,564 139,447 126,262
Other liabilities 3,494 4,631 6,952
STOCKHOLDERS' EQUITY 91,262 85,232 80,098
---------- --------- ---------
Total liabilities and
stockholders' equity $1,009,031 $936,199 $867,915
========== ========= =========
NET INTEREST INCOME $39,017 $38,205 $36,094
======= ======= =======
NET INTEREST SPREAD 3.40% 3.76% 3.80%
==== ==== ====
NET INTEREST MARGIN
TO AVERAGE INTEREST
EARNING ASSETS 4.18% 4.44% 4.53%
==== ==== ====
3
As the following table illustrates, the Company has maintained consistent levels
of average interest earning assets to total average assets and to average
interest-bearing liabilities over the past three years. The ratio of average
time deposits and short-term borrowings to average interest-bearing liabilities
has also been relatively stable during this period.
2000 1999 1998
---- ---- ----
Interest-earning assets to total assets .92 .92 .92
Interest-earning assets to interest-
bearing liabilities 1.22 1.22 1.22
Time deposits and short-term borrowings
to interest-bearing liabilities .57 .53 .54
PROVISION FOR LOAN LOSSES
The provision for loan losses is based on management's judgment of the amount
necessary to maintain the allowance for loan losses at an adequate level. The
provision for loan losses amounted to $1.9 million in 2000 as compared to $2.3
million and $2.0 million in 1999 and 1998, respectively. The provision is
determined by management through an evaluation which takes into consideration
such factors as changes in the nature and volume of the loan portfolio, overall
portfolio quality, review of specific problem loans, and current economic
conditions. On December 31, 2000, the allowance for loan losses was $6.3
million, or 1.09% of outstanding loans, compared to $5.9 million, or .99% of
outstanding loans, at December 31, 1999.
One measurement used by management in assessing the risk inherent in the loan
portfolio is the level of nonperforming loans. Nonperforming loans are comprised
of those loans on which interest income is not being accrued and those loans
which are past due ninety days or more. The increased percentage of the
allowance for loan losses to total loans at December 31, 2000 is consistent with
higher levels of nonperforming loans to total loans compared to the prior year
end. Nonperforming loans were $2,159,000 and $1,494,000, or .37% and .25% of
total loans, respectively, at December 31, 2000 and 1999.
Nonperforming assets, which include other real estate and other assets
(primarily automobiles) acquired in satisfaction of loans, at each of the past
five year ends are as follows:
NONPERFORMING ASSETS
----------------------------------------------------------------------------
2000 1999 1998 1997 1996
------------ ------------ ------------ ------------ ------------
Non-accrual loans $ 569 $ 870 $ 955 $ 1,153 $ 785
Other loans contractually past
due ninety days or more 1,590 624 2,209 952 1,072
Other real estate and repossessions 223 416 56 5 13
------------ ------------ ------------ ------------ ------------
$ 2,382 $ 1,910 $ 3,220 $ 2,110 $ 1,870
============ ============ ============ ============ ============
Nonperforming loans to
total loans .37% .25% .59% .40% .40%
Allowance for loan losses
to nonperforming loans 293.28 392.90 156.32 210.78 237.70
Total nonperforming assets
to total stockholders' equity 2.48 2.19 3.92 2.74 2.62
Total nonperforming assets
to total assets .22 .19 .36 .25 .23
4
Impaired loans totaled $1,730,000 and $1,076,000 at December 31, 2000 and 1999,
respectively. Impaired loans consist of commercial and commercial real estate
loans. Management has allocated $433,000 and $175,000 of the allowance for loan
losses specifically to impaired loans as of December 31, 2000 and 1999,
respectively. Interest income recognized on impaired loans during 2000 and 1999
was immaterial.
There have been no restructured loans or leases in the past five years. As of
December 31, 2000, management has identified other potential problem loans by
type of loan in the table below. Generally, these loans are considered
substandard by management. These amounts exclude the non-accrual and past due
loans listed above in the Nonperforming Assets table.
Commercial $ 3,050
Commercial real estate 361
Agriculture 65
Residential real estate 169
Consumer 364
-------
$ 4,009
=======
In determining the provision for loan losses, management was influenced by the
Company's consistent growth in average loans outstanding, the amount of net
charge-offs in each year, and the trend in nonperforming loans. Other factors
such as changes in the loan portfolio mix, delinquency trends, current economic
trends, review of large and known problem credits, and the results of internal
loan reviews and regulatory examinations are also considered by management in
assessing the adequacy of the allowance for loan losses and determining the
provision for loan losses.
The management process for evaluating the adequacy of the allowance for loan
losses also includes reviewing each month's loan committee reports, which list
all loans that do not meet certain internally developed criteria as to
collateral adequacy, payment performance, economic conditions, and overall
credit risk. These reports, in narrative form, also address the current status
and actions in process on each listed loan. The provision for loan losses
recorded in 2000 is less than the provision in each of the prior two years due
primarily to the reduction in the consumer loan portfolio. During 2000, the
consumer loan portfolio decreased by 12.8%, after increasing by 15.1% and 12.2%
in 1999 and 1998, respectively. The Company's ratio of the allowance for loan
losses to nonperforming loans has been over 1.5 : 1 for the past five years. The
ratio of nonperforming loans to total loans has been .59% or less for the past
five years, which management considers relatively low. The Company's ratio of
net loan charge-offs to average loans was .24%, .25%, and .29% in 2000, 1999,
and 1998, respectively. Net loan charge-offs are primarily attributable to the
consumer loan portfolio.
Based on the manageable levels of nonperforming loans and historical losses and
the decrease in the consumer loan portfolio as discussed above, management
believes that the allowance for loan losses is adequate.
NONINTEREST INCOME
Noninterest income consists primarily of service charges on customer deposit
accounts and fees earned on trust services. Total noninterest income increased
$590,000, or 8.2%, in 2000 compared with an increase of $79,000, or 1.1%, in
1999. The ratio of noninterest income to income before taxes was 47%, 46%, and
49% in 2000, 1999, and 1998, respectively.
Trust fee income increased $357,000, or 26.4%, in 2000 as compared with an
increase of $200,000, or 17.3%, in 1999. The market value of trust assets
increased approximately .9% and 49.8% during 2000 and 1999, respectively,
totaling $423.2 million at December 31, 2000, as compared to $419.6 million at
December 31, 1999. Much of the growth in the trust assets during 1999 occurred
in the fourth quarter, thus contributing to the increase in trust fees during
2000. The 1999 growth also included one significant account which contained
approximately $70 million in assets. Absent this one significant account, growth
in 1999 was approximately 24.9%.
Service charges on deposit accounts increased $176,000, or 4.4%, in 2000 after
increasing $66,000, or 1.7%, in 1999. Both years' increases are generally
reflective of greater overdraft and demand deposit service charges as a result
of increases in the number of demand deposit accounts.
5
Other income increased $68,000, or 3.6%, in 2000 after decreasing $81,000, or
4.2%, in 1999. The Company began recording mortgage servicing rights in 2000
which increased other income. The effects of not recording mortgage servicing
rights in years prior to 2000 was not material to the Company's financial
statements. The 1999 decrease is primarily attributable to the decrease in gains
on loans sold as a result of a reduction in the volume of loans sold.
NONINTEREST EXPENSE
Total noninterest expense increased $487,000, or 1.8%, in 2000 after increasing
$770,000, or 3.0%, in 1999. Details of noninterest expense for the three years
in the period ended December 31, 2000 are presented in the following schedule:
2000 1999 1998
-------- -------- --------
Salaries and employee benefits $ 13,860 $ 13,388 $ 13,099
Occupancy expense 2,021 1,878 1,857
Data processing 1,672 1,553 1,485
Equipment expense 1,929 1,776 1,681
FDIC insurance and bank examination assessments 360 271 256
Printing, stationery, and supplies 594 635 665
Postage 399 468 538
Advertising 388 596 501
Amortization of intangibles 1,022 1,005 1,004
All other expenses 4,644 4,832 4,546
-------- -------- --------
Total noninterest expense $ 26,889 $ 26,402 $ 25,632
======== ======== ========
Salaries and employee benefits, which represent the largest component of
noninterest expense, increased by $472,000, or 3.5%, in 2000 after increasing
$289,000, or 2.2%, in 1999. The 2000 increase is attributable to general pay
increases and an increase in retirement plan costs partially offset by
reductions in health insurance costs and a lesser number of full-time equivalent
employees. Health insurance premiums for employee co-pay amounts were increased
in 2000. The 1999 increase is attributable to general pay increases and a higher
number of employees partially offset by reductions in health insurance costs and
retirement plan costs. At December 31, 2000, 1999, and 1998, the Company's
number of full-time equivalent employees was 366, 384, and 356, respectively.The
decrease in the number of full-time equivalent employees is due to less
employees added for the holiday season in 2000 combined with some reductions
associated with centralizing certain operational functions.
Occupancy expense increased $143,000, or 7.6%, in 2000. The 2000 increase is due
to higher real estate taxes attributable to new branch locations. Higher repair
and maintenance expenses were also incurred during the year due to a full year's
operation of the two new branches established in 1999, the branch location
acquired in September 2000, and increased snow removal costs during December of
2000. During 1999, occupancy expenses were consistent with the prior year
increasing only $21,000, or 1.1%.
Data processing expense increased 7.7% and 4.6% in 2000 and 1999, respectively.
Growth in the volume of deposit accounts contributed to the continued trend of
higher data processing expenses. Additionally, the establishment of the Bank's
Internet banking product increased data processing expense during 2000.
Equipment expense increased 8.6% and 5.7% in 2000 and 1999, respectively. The
2000 increase is due to higher repair and maintenance expenditures and higher
depreciation charges. Equipment expense has increased in 2000 and 1999 due to
the growing number of branch offices. The total number of branches was 18, 17,
and 15 in 2000, 1999, and 1998, respectively.
FDIC insurance and bank examination assessments increased 32.8% and 5.9% in 2000
and 1999, respectively. The 2000 increase is primarily due to an increase in the
FDIC insurance assessment rate combined with an increase in deposits. The
increase for 1999 is attributable to an increase in deposits.
Printing, stationery, and supplies expense decreased 6.4% and 4.5% in 2000 and
1999, respectively. Since the merger of the subsidiary banks in 1998, the
Company has focused on reducing this category of expense by ordering items on a
centralized basis for all locations and purchasing items in larger quantities to
take advantage of discounts available from vendors.
6
Postage decreased 14.7% and 13.0% in 2000 and 1999, respectively. The 2000
decrease is primarily attributable to the implementation of a check imaging
system on a full time basis in 2000. Postage decreased during 1999 as a result
of certain one-time 1998 expenses associated with the merger of the subsidiary
banks. In 1998, postage expense increased 15.2% primarily as a result of certain
customer notifications mailed regarding the merger of the subsidiary banks.
Advertising decreased 34.9% in 2000 after increasing 19.0% in 1999. In 2000,
management consciously reduced advertising expenditures since significant
advertising efforts had been made during the past few years in connection with
the merger of the subsidiary banks and new corporate logo. During 1999, the
Company increased its marketing and advertising expenditures as a result of the
merger of the subsidiary banks and also focused advertising efforts on specific
products, such as home equity loans, and the opening of two new branch offices.
INCOME TAXES
The Company's income tax expense was $5.2 million in both 2000 and 1999 compared
to $4.8 million in 1998. Income tax expense as a percentage of income before
income taxes was 31.3%, 33.3%, and 33.1% in 2000, 1999, and 1998, respectively.
The decline in the effective income tax rate in 2000 is primarily attributable
to higher federally tax-exempt interest income and lower state income taxes.
Lower state income taxes in 2000 and 1999 result from increased interest income
on U.S. government agency securities exempt from Illinois taxation.
ASSET/LIABILITY MANAGEMENT
The primary objectives of the Company's asset/liability management program are
to achieve a stable net interest margin, to follow prudent investment
strategies, and to maintain adequate liquidity to meet the withdrawal
requirements of depositors and the financing needs of prospective borrowers.
Management continually monitors the liquidity requirements and rate sensitivity
of its short-term sources of funds. The accompanying schedule illustrates
repricing of the Company's rate-sensitive assets and liabilities position at
December 31, 2000.
Less Than 90 to 1 to 5 Over
90 Days 365 Days Years 5 Years
---------- ---------- ---------- ----------
Rate-sensitive assets
Taxable securities $ 6,000 $ 46,812 $ 223,940 $ 12,661
Tax-exempt securities 989 3,315 13,972 34,069
Federal funds sold 63,200 - - -
Loans 151,245 74,242 255,905 96,942
---------- ---------- ---------- ----------
Total interest-earning assets $ 221,434 $ 124,369 $ 493,817 $ 143,672
========== ========== ========== ==========
Cumulative interest-earning assets $ 221,434 $ 345,803 $ 839,620 $ 983,292
========== ========== ========== ==========
Rate-sensitive liabilities
Deposits
NOW and money market $ 156,935 $ - $ - $ -
Savings 177,195 - - -
Time 107,831 177,727 59,370 -
Short-term borrowings 68,752 52,520 - -
---------- ---------- ---------- ----------
Total interest-bearing liabilities $ 510,713 $ 230,247 $ 59,370 $ -
========== ========== ========== ==========
Cumulative interest-bearing liabilities $ 510,713 $ 740,960 $ 800,330 $ 800,330
========== ========== ========== ==========
Excess interest-earning assets (liabilities) $ (289,279) $ (105,878) $ 434,447 $ 143,672
Cumulative excess interest-earning
assets (liabilities) (289,279) (395,157) 39,290 182,962
Cumulative rate sensitivity ratio (interest-earning
assets divided by interest-bearing liabilities) 0.43 0.47 1.05 1.23
7
Included in "Less Than 90 Days" rate-sensitive liabilities are $177 million of
savings deposits and $157 million of NOW and money market deposits which
management considers more core deposit in nature than time deposits.
Approximately $181.6 million of securities are callable in 2001 and are included
in the above table based upon their contractual terms. Most of these callable
securities are issued by U.S. government agencies.
While the shorter term negative GAP position represents a potential adverse
impact on the Company's net interest income position in periods of rising
interest rates, the same position generally results in a favorable impact when
interest rates remain constant or decline.
The target GAP position, as defined by the Company's Asset & Liability Policy,
is to maintain a ratio (as adjusted) of cumulative rate-sensitive assets to
rate-sensitive liabilities of at least .75 and not more than 1.25 on a one-year
measurement basis. Deviations from these prescribed parameters for three
consecutive months require discussion of potential solutions and/or courses of
action at the subsequent month's Board of Directors meeting.
For purposes of the policy parameters, management does not consider savings,
NOW, and money market account deposits to be repriceable within 90 days. If
these core deposits are assumed to reprice after one year, then the Company's
cumulative excess interest-bearing liabilities would be $61.0 million at the
one-year time horizon and the cumulative rate sensitivity ratio would be .85.
MARKET RISK
The Company does not engage in foreign currency transactions, forward-position
or futures contracts, options, swaps, or other types of complex financial
instruments, nor does it engage in trading account activities. Thus, market risk
is primarily limited to the interest-rate risks associated with the investing,
lending, customer deposit-taking, and borrowing activities. The Company's
exposure to interest-rate risk primarily results from changes in either the
short-term U.S. prime interest rate or the rates offered for short- and
medium-term bonds and notes of the U.S. Treasury. The tables below and on page 9
present the interest rate sensitivity and expected maturities of securities,
fixed-rate loans, time deposits, short-term borrowings, and long-term debt as of
December 31, 2000 and 1999.
ANALYSIS AS OF DECEMBER 31, 2000
EXPECTED MATURITY AMOUNTS FOR YEARS ENDING DECEMBER 31,
2003 Fair
Through After Value
2001 2002 2005 2005 Total Total
---- ---- ---- ---- ----- -----
Assets
Securities, fixed rate
Available-for-sale $ 16,998 $ 7,011 $ 67,028 $ 12,319 $ 103,356 $ 102,685
Average interest rate 5.43% 6.21% 6.04% 6.82% 5.98%
Held-to-maturity 40,215 57,447 107,043 34,368 239,073 239,637
Average interest rate 5.87% 5.83% 5.98% 5.17% 5.81%
Loans, fixed rate (1) 105,709 57,721 198,631 96,942 459,003 449,187
Average interest rate 8.78% 8.72% 8.48% 8.13% 8.51%
Liabilities
NOW, money market, and
savings deposits (2) $ 334,130 $ - $ - $ - $ 334,130 $ 334,130
Average interest rate 2.92% - - - 2.92%
Time deposits, fixed rate 285,558 36,630 22,740 - 344,928 343,749
Average interest rate 5.70% 5.90% 5.42% - 5.70%
Short-term borrowings,
fixed rate 121,272 - - - 121,272 121,272
Average interest rate 5.90% - - - 5.90%
8
(1) Information on variable-rate loans by maturity period is not readily
available. Interest-rate risk on loan commitments, unused lines of credit,
and standby letters of credit is minimal since most are for terms of ninety
days or less and include variable-rate features.
(2) NOW and savings accounts are fixed-rate deposits, whereas money market
accounts are variable-rate deposits. These deposit accounts, while shown as
maturing in 2001, are considered by management as core deposits for
asset/liability management purposes with account lives extending beyond one
year.
ANALYSIS AS OF DECEMBER 31, 1999
EXPECTED MATURITY AMOUNTS FOR YEARS ENDING DECEMBER 31,
2002 Fair
Through After Value
2000 2001 2004 2004 TOTAL TOTAL
---- ---- ---- ---- ----- -----
Assets
Securities, fixed rate
Available-for-sale $ - $ 16,996 $ 49,008 $ 8,005 $ 74,009 $ 71,250
Average interest rate - 5.43% 5.63% 6.44% 5.67%
Held-to-maturity 12,591 33,243 146,160 6,172 198,166 193,667
Average interest rate 6.10% 5.72% 5.87% 4.65% 5.82%
Loans, fixed rate(1) 101,653 60,284 207,795 90,066 459,798 456,854
Average interest rate 8.52% 8.52% 8.28% 7.96% 8.30%
Liabilities
NOW, money market, and
savings deposits(2) $ 315,705 $ - $ - $ - $ 315,705 $ 315,705
Average interest rate 2.57% - - - 2.57%
Time deposits, fixed rate 302,898 23,761 18,352 - 345,011 345,736
Average interest rate 4.96% 5.44% 5.65% - 5.03%
Short-term borrowings,
fixed rate 112,191 - - - 112,191 112,191
Average interest rate 5.47% - - - 5.47%
(1) Information on variable-rate loans by maturity period is not readily
available. Interest-rate risk on loan commitments, unused lines of credit,
and standby letters of credit is minimal since most are for terms of ninety
days or less and include variable-rate features.
(2) NOW and savings accounts are fixed-rate deposits whereas money market
accounts are variable-rate deposits. These deposit accounts, while shown as
maturing in 2000, are considered by management as core deposits for
asset/liability management purposes with account lives extending beyond one
year.
LIQUIDITY
The Company's primary sources of funds are deposits, proceeds from principal and
interest payments on loans, maturities of securities, federal funds sold, and
short-term borrowings (consisting of securities sold under agreements to
repurchase and U.S. Treasury demand note accounts). While maturities and
scheduled amortization of loans and securities are predictable sources of funds,
deposit flows and mortgage prepayments are greatly influenced by general
interest rates, economic conditions, and competition. Calls of securities are
also influenced by market interest rates.
The Company's liquidity, represented by cash and due from banks, is a product of
its operating, investing, and financing activities. Cash flows from operating
activities were greater than accrual basis net income by $3.0 million, $8.4
million, and $645,000 in 2000, 1999, and 1998, respectively. Management expects
ongoing operating activities to continue to be a primary source of cash flows
for the Company.
The primary investing activities of the Company are the origination of loans and
investment in securities. Principal collections on loans outpaced loans made to
customers by $11.8 million in 2000. Loans made to customers, net of principal
collections, were $55.6 million and $12.3 million in 1999 and 1998,
respectively. The Company also
9
makes significant investments in securities and federal funds sold. Investing in
activities related to these investments resulted in net cash outflows of $68.5
million in 2000, $45.1 million in 1999, and $24.2 million in 1998. The Company
realized a cash inflow of $7.6 million in 2000 through its acquisition of a
commercial bank office in Manhattan, Illinois. The branch acquisition included
the assumption of $8.7 million of deposit liabilities and the acquisition of a
$606,000 core deposit intangible asset and $542,000 of premises and equipment.
Financing activities are centered primarily in deposits, short-term borrowings,
and dividends paid. The Company has experienced growing deposit levels over the
past several years, which have helped maintain an adequate level of cash for the
Company's activities. The Company has established new branch offices in the past
two years through acquisition and start-ups in an effort to increase the deposit
base of the Company. Net cash inflows from deposits were $25.7 million, $63.3
million, and $20.1 million in 2000, 1999, and 1998, respectively. As competition
for deposits is expected to remain strong, future deposit growth cannot be
predicted with any certainty.
Many of the repurchase agreements are with municipalities, including county
governmental offices. As such, the amount of the funds borrowed fluctuates from
period to period. Short-term borrowings increased by $9.1 million, $46.7
million, and $19.3 million in 2000, 1999, and 1998, respectively.
Dividends paid to stockholders as a percentage of net income were 37.9%, 39.4%,
and 38.6% in 2000, 1999, and 1998, respectively. Cash dividends per share were
$1.44 in 2000, $1.36 in 1999, and $1.24 in 1998. The cash dividends per share
for 1999 and 1998 have been restated to reflect the 5-for-4 stock split effected
in the form of a 25% stock dividend in 2000.
Financing activities have also included long-term debt. The Company's long-term
debt was incurred to acquire subsidiary banks. Cash flow activities related to
long-term debt obligations consist of debt service requirements. No additional
long-term debt has been issued in the last five years and all of the Company's
long-term debt was repaid in 1999.
To help ensure the ability to meet its funding needs, including any unexpected
strain on liquidity, the Company has $40 million of federal funds lines of
credit from three independent banks. None of these lines were drawn upon as of
December 31, 2000.
CAPITAL RESOURCES
In 2000, stockholders' equity increased by $8.8 million to $96.0 million. The
amounts comprising this net increase were net income of $11.5 million, offset by
dividends paid to stockholders of $4.4 million, net treasury stock transactions
aggregating $406,000, and a $1.3 million change in unrealized losses (net of
tax) on securities available-for-sale. At December 31, 2000, stockholders'
equity represented 9.0% of total assets compared to the year earlier position of
8.6%.
Under rules adopted by federal bank regulatory agencies, bank holding companies
and financial institutions are subject to certain capital requirements. These
regulations establish minimum levels for risk-based Tier 1 Capital and Total
Capital ratios and the leverage ratio. The parent company (on a consolidated
basis) and its subsidiary Bank currently are considered "well-capitalized" and
exceed the capital requirements established by federal bank regulatory agencies.
EFFECTS OF INFLATION
A financial institution's assets and liabilities are primarily monetary. The net
monetary assets of a financial institution are affected more by the general
level of interest rates than by the prices of other goods and services. High
rates of inflation are generally accompanied by higher than normal interest
rates. Conversely, with a low inflation rate or the anticipation of lower rates
of inflation, interest rates are usually lower. The Company generally is able to
offset the higher cost of funds predominant in periods of higher inflation with
increased yields on loans and securities. When inflation rates drop and interest
rates follow that pattern, the Company's cost of funds and interest earned on
assets are likely to decrease proportionately. An analysis of a financial
institution's asset and liability structure provides useful information on how a
financial institution is positioned to respond to changing interest rates and
maintain profitability.
Assets such as premises and equipment are considered non-monetary in nature and
are not directly affected by inflation in the normal flow of business. These
assets are directly affected by current rates of inflation only when purchased
or sold.
10
NEW ACCOUNTING PRONOUNCEMENTS
Beginning January 1, 2001, a new accounting standard will require all
derivatives to be recorded at fair value. Unless designated as hedges, changes
in these fair values will be recorded in the income statement. Fair value
changes involving hedges will generally be recorded by offsetting gains and
losses on the hedge and on the hedged item, even if the fair value of the hedged
item is not otherwise recorded. Adoption of this standard on January 1, 2001 did
not have any effect on the Company's financial statements. The Company has no
derivatives or hedging activities as defined in the new accounting standard.
11
ADDITIONAL STATISTICAL INFORMATION
----------------------------------
(TABLE DOLLAR AMOUNTS IN THOUSANDS)
INTEREST DIFFERENTIAL
The following table allocates changes in interest income and interest expense
between amounts attributable to changes in rate and changes in volume for the
various categories of interest-earning assets and interest-bearing liabilities.
The changes in interest income and interest expense due to both volume and rate
have been allocated proportionally. Interest earned is assumed to be on a tax
equivalent basis using an income tax rate of 35%.
2000 Compared to 1999 1999 Compared to 1998
--------------------- ---------------------
Changes Due To: Changes Due To:
Volume Rate Change Volume Rate Change
------ ---- ------ ------ ---- ------
Interest earned on:
Federal funds sold $ 382 $ 590 $ 972 $ (774) $ (242) $(1,016)
Taxable securities 2,183 188 2,371 2,962 (375) 2,587
Tax-exempt securities 812 (32) 780 (126) (123) (249)
Loans 1,640 1,692 3,332 2,601 (2,096) 505
------- ------- ------- ------- ------- -------
Total interest income 5,017 2,438 7,455 4,663 (2,836) 1,827
------- ------- ------- ------- ------- -------
Interest expense on:
Deposits:
NOW and money market 143 791 934 582 (3) 579
Savings (211) 232 21 343 (514) (171)
Time 1,666 1,533 3,199 436 (1,317) (881)
Short-term borrowings 1,877 712 2,589 583 (128) 455
Long-term debt (100) -- (100) (248) (18) (266)
------- ------- ------- ------- ------- -------
Total interest expense 3,375 3,268 6,643 1,696 (1,980) (284)
------- ------- ------- ------- ------- -------
Net interest income $ 1,642 $ (830) $ 812 $ 2,967 $ (856) $ 2,111
======= ======= ======= ======= ======= =======
SECURITIES
The following table presents the carrying value of securities of the Company by
category at year end for each of the past three years.
2000 1999 1998
---- ---- ----
Available-for-sale (at fair value)
U.S. Treasury $ - $ - $ 6,048
U.S. government agencies 82,228 69,257 58,845
Corporate 999 986 1,027
Mortgage-backed 18,451 - -
Federal Reserve Bank stock 1,007 1,007 1,007
-------- -------- --------
Total available-for-sale 102,685 71,250 66,927
-------- -------- --------
Held-to-maturity (at amortized cost)
U.S. Treasury 2,000 7,007 16,021
U.S. government agencies 184,242 163,192 147,673
Mortgage-backed 486 - -
States and political subdivisions 52,345 27,967 30,039
-------- -------- --------
Total held-to-maturity 239,073 198,166 193,733
-------- -------- --------
Total $341,758 $269,416 $260,660
======== ======== ========
At December 31, 2000, the Company held no securities of any single issuer, other
than the U.S. Treasury and U.S. government agencies, that exceeded 10% of
stockholders' equity.
12
SECURITIES MATURITIES
The following table shows the relative maturities of debt securities (at
carrying values) held by the Company at December 31, 2000 and the weighted
average interest rate for each maturity range. Yields on tax-exempt securities
are stated on a fully tax-equivalent basis, assuming a federal income tax rate
of 35%.
Available-for-Sale
------------------
Weighted
U.S. Average
Government Interest
Agencies Corporates Total Rate
-------- ---------- ----- ----
Due in one year or less $ 16,901 $ - $ 16,901 5.43%
Due after one year through five years 65,327 999 66,326 5.95
Mortgage-backed 18,451 - 18,451 6.95
-------- -------- --------
Total $100,679 $ 999 $101,678
======== ======== ========
Held-to-Maturity
----------------
Weighted
U.S. U.S. States and Average
Treasury Government Political Interest
Securities Agencies Subdivisions Total Rate
---------- -------- ------------ ----- ----
Due in one year or less $ 2,000 $ 33,912 $ 4,303 $ 40,215 6.18%
Due after one year through
five years - 150,330 13,972 164,302 6.14
Due after five years - - 12,753 12,753 7.73
Due after ten years - - 21,317 21,317 8.02
Mortgage-backed - 486 - 486 6.50
-------- -------- -------- --------
Total $ 2,000 $184,728 $ 52,345 $239,073
======== ======== ======== ========
TYPES OF LOANS
Loans represent the principal source of revenue for the Company. Risk is
controlled through loan portfolio diversification and the avoidance of credit
concentrations. Loans are made primarily within the Company's geographic market
area. The loan portfolio is distributed among commercial, residential real
estate, and consumer loans. The Company has no foreign loans, no highly
leveraged transactions, and no syndicated purchase participations.
COMMERCIAL, COMMERCIAL REAL ESTATE, CONSTRUCTION, AND AGRICULTURAL LOANS
This portfolio is comprised primarily of loans to small and mid-sized businesses
and agricultural operations within the Company's local market. Commercial real
estate loans consist of loans made for the purchase of commercial real estate,
real estate development projects, and loans for other commercial purposes
secured by real estate. Average loan size within this portfolio at year end was
$240,000 for commercial and commercial real estate loans, $312,000 for
construction loans, and $59,000 for agricultural loans. This category increased
in 2000 by 4.5% from 1999.
RESIDENTIAL REAL ESTATE
This portfolio is comprised primarily of mortgages on 1-4 family residences.
This category increased in 2000 by 4.0% from 1999.
Most residential loans are made on a basis to qualify them for sale to the
Federal National Mortgage Association (Fannie Mae). In addition to those
retained as part of the loan portfolio, the Company provides loan servicing for
approximately 1,500 loans totaling $120 million that have been sold to Fannie
Mae. Generally, the decision to retain or sell is based on rates and terms. Most
fixed-rate loans with 15- or 30-year terms are sold.
13
CONSUMER LOANS
The consumer loan portfolio consists of direct and indirect automobile loans,
revolving credit card lines, and other loans made for consumer purposes.
Automobile loans account for 65.9% of this portfolio. Revolving credit card
lines represent 2.4% of the portfolio. Net loan charge-offs for 2000 were .74%
of consumer loans outstanding as compared to .71% and .53% for 1999 and 1998,
respectively. The increases in 2000 and 1999 are generally reflective of a
national trend in which personal bankruptcies have been on the rise despite high
employment levels and a healthy economy. Lending activity is concentrated in the
geographic markets served by the Company. This category decreased 12.80% in 2000
primarily as a result of a reduction in automobile loans.
LOAN PORTFOLIO BY MAJOR CATEGORY
The Company's loan portfolio by major category as of December 31 for each of the
past five years is shown below.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Commercial $ 131,919 $ 124,965 $ 115,152 $ 90,009 $ 81,981
Commercial real estate 91,978 87,507 69,836 91,334 76,354
Construction 13,123 12,914 15,624 14,106 16,810
Agricultural 9,978 11,015 9,763 10,769 8,692
Residential real estate 137,001 131,671 136,894 147,625 141,440
Consumer 194,335 222,859 193,703 172,695 144,162
------------ ------------ ------------ ------------ ------------
Total loans 578,334 590,931 540,972 526,538 469,439
Less:
Unearned discount - (3) (26) (158) (653)
Allowance for loan losses (6,332) (5,870) (4,946) (4,437) (4,414)
------------ ------------ ------------ ------------ ------------
Net loans $ 572,002 $ 585,058 $ 536,000 $ 521,943 $ 464,372
============ ============ ============ ============ ============
Ratio of net loans to
total assets 53.57% 57.65% 59.38% 60.64% 56.32%
LOAN MATURITIES AND RATE SENSITIVITY
The following table sets forth the maturity distribution and interest rate
sensitivity of certain loan categories at December 31, 2000.
Fixed Rate Loans
--------------------------------------------------
After One Floating
One Year Through Over Rate Combined
or Less Five Years Five Years Total Loans Total
------- ---------- ---------- ----- ----- -----
Maturity:
Commercial $ 25,332 $ 39,297 $ 11,308 $ 75,937 $ 55,982 $131,919
Agricultural 5,324 2,405 874 8,603 1,375 9,978
Construction 234 1,374 80 1,688 11,435 13,123
Commercial real estate 7,810 52,959 27,200 87,969 4,009 91,978
-------- -------- -------- -------- -------- --------
$ 38,700 $ 96,035 $ 39,462 $174,197 $ 72,801 $246,998
======== ======== ======== ======== ======== ========
14
SUMMARY OF LOAN LOSS ACTIVITY
In determining the provision for loan losses, management considers the Company's
consistent loan growth in average loans outstanding, the amount of net
charge-offs each year, and trends in nonperforming loans. Other factors, such as
changes in the loan portfolio mix, delinquency trends, current economic
conditions and trends, reviews of larger loans and known problem credits, and
the results of internal and regulatory loan examinations, are also considered by
management in assessing the adequacy of the allowance for loan losses.
The following table details the component changes in the Company's allowance for
loan losses for each of the past five years.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Allowance, beginning of year $ 5,870 $ 4,946 $ 4,437 $ 4,414 $ 3,931
Loans charged off:
Commercial (24) (70) (411) (227) (39)
Commercial real estate - (7) (2) - -
Construction - (13) - - -
Agricultural - - - - -
Residential real estate - (10) (113) - -
Consumer (2,255) (2,115) (1,340) (1,073) (661)
-------- -------- -------- -------- --------
Total loans charged off (2,279) (2,215) (1,866) (1,300) (700)
-------- -------- -------- -------- --------
Loan recoveries:
Commercial 55 298 14 30 19
Commercial real estate - 1 - - -
Construction - - - - -
Agricultural - - 10 - -
Residential real estate - - - - -
Consumer 811 540 317 175 140
-------- -------- -------- -------- --------
Total loan recoveries 866 839 341 205 159
-------- -------- -------- -------- --------
Net loans charged off (1,413) (1,376) (1,525) (1,095) (541)
Provision for loan losses 1,875 2,300 2,034 1,118 1,024
-------- -------- -------- -------- --------
Allowance, end of year $ 6,332 $ 5,870 $ 4,946 $ 4,437 $ 4,414
======== ======== ======== ======== ========
Net loans charged off to
average loans outstanding 0.24% 0.25% 0.29% 0.22% 0.12%
Allowance for loan losses to
ending loans outstanding 1.09 0.99 0.91 0.84 0.94
15
ALLOCATION OF THE ALLOWANCE FOR LOAN LOSSES
The following table presents the allocation of the Company's allowance for loan
losses and the percent of each loan category to total loans net of unearned
discount at December 31 for the past five years. The total allowance for loan
losses is available to absorb losses in any category of loans, notwithstanding
management's allocation of the allowance.
LOAN TYPE 2000 % 1999 % 1998 % 1997 % 1996 %
- --------- ---- - ---- - ---- - ---- - ---- -
Commercial $ 498 23 $ 968 21 $ 989 21 $ 799 18 $ 795 18
Commercial
real estate 1,050 16 687 15 495 13 665 15 706 16
Construction 358 2 106 2 148 3 177 4 178 4
Agriculture 215 2 117 2 99 2 90 2 88 2
Residential
real estate 1,268 24 1,174 22 742 25 1,109 25 1,280 29
Consumer 2,943 33 2,818 38 2,473 36 1,597 36 1,367 31
Unallocated - - - - - - - - - -
------ ------ ------ ------ ------ ------ ------ ------ ------ ------
Total $6,332 100% $5,870 100% $4,946 100% $4,437 100% $4,414 100%
====== === ====== === ====== === ====== === ====== ===
DEPOSITS
The following table shows the maturity schedule and amounts for the Company's
time deposits of $100,000 or more at December 31, 2000.
Under 3 months $30,936
3 to 6 months 18,339
Over 6 to 12 months 20,848
Over 12 months 24,239
------
$94,362
=======
16
[CROWE CHIZEK LOGO]
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
First National Bancorp, Inc.
Joliet, Illinois
We have audited the accompanying consolidated balance sheets of First National
Bancorp, Inc. as of December 31, 2000 and 1999 and the related consolidated
statements of income, stockholders' equity, and cash flows for each of the three
years in the period ended December 31, 2000. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of First National
Bancorp, Inc. as of December 31, 2000 and 1999 and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2000 in conformity with generally accepted accounting principles.
/s/ Crowe, Chizek and Company LLP
---------------------------------
Crowe, Chizek and Company LLP
Oak Brook, Illinois
January 19, 2001
17
CONSOLIDATED BALANCE SHEETS
- ---------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
DECEMBER 31, 2000 AND 1999
2000 1999
------------ ------------
ASSETS
Cash and due from banks $ 51,856 $ 57,449
Federal funds sold 63,200 64,700
Securities available-for-sale 102,685 71,250
Securities held-to-maturity (fair value of $239,637 in 2000
and $193,667 in 1999) 239,073 198,166
Loans 578,334 590,928
Allowance for loan losses (6,332) (5,870)
------------ ------------
Loans, net 572,002 585,058
Premises and equipment, net 19,992 20,034
Accrued interest receivable and other assets 11,909 10,703
Intangibles, net 7,064 7,480
------------ ------------
Total assets $ 1,067,781 $ 1,014,840
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities
Deposits
Demand, non-interest-bearing $ 165,009 $ 148,893
NOW accounts 103,382 90,321
Money market accounts 53,553 49,308
Savings 177,195 176,076
Time deposits, $100,000 and over 94,362 86,681
Other time deposits 250,566 258,330
------------ ------------
Total deposits 844,067 809,609
Short-term borrowings 121,272 112,191
Accrued interest and other liabilities 6,408 5,775
------------ ------------
Total liabilities 971,747 927,575
Stockholders' equity
Preferred stock, no par value, 1,000,000 shares authorized; none issued - -
Common stock, $10 par value; shares authorized: 10,000,000
in 2000 and 5,500,000 in 1999; shares issued: 3,039,315 in 2000
and 2,431,804 in 1999 30,393 24,318
Additional paid-in capital 208 106
Retained earnings 65,927 64,899
Accumulated other comprehensive income (loss) (404) (1,664)
Treasury stock, at cost (1,360 shares in 2000 and 5,968 shares in 1999) (90) (394)
------------ ------------
Total stockholders' equity 96,034 87,265
------------ ------------
Total liabilities and stockholders' equity $ 1,067,781 $ 1,014,840
============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
18
CONSOLIDATED STATEMENTS OF INCOME
- ---------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
------------ ------------ ------------
INTEREST INCOME
Loans $ 50,210 $ 46,847 $ 46,483
Securities
Taxable 15,983 13,612 11,025
Tax-exempt 2,054 1,547 1,709
Federal funds sold 2,937 1,965 2,981
------------ ------------ ------------
Total interest income 71,184 63,971 62,198
INTEREST EXPENSE
Deposits 27,734 23,580 24,053
Short-term borrowings 5,755 3,166 2,711
Long-term debt - 100 366
------------ ------------ ------------
Total interest expense 33,489 26,846 27,130
------------ ------------ ------------
Net interest income 37,695 37,125 35,068
Provision for loan losses 1,875 2,300 2,034
------------ ------------ ------------
Net interest income after provision for loan losses 35,820 34,825 33,034
NONINTEREST INCOME
Trust fees 1,710 1,353 1,153
Service charges on deposit accounts 4,157 3,981 3,915
Securities gains, net 4 15 121
Other income 1,937 1,869 1,950
------------ ------------ ------------
Total noninterest income 7,808 7,218 7,139
NONINTEREST EXPENSE
Salaries and employee benefits 13,860 13,388 13,099
Occupancy expense 2,021 1,878 1,857
Equipment expense 1,929 1,776 1,681
Data processing 1,672 1,553 1,485
Amortization of intangibles 1,022 1,005 1,004
Other expenses 6,385 6,802 6,506
------------ ------------ ------------
Total noninterest expense 26,889 26,402 25,632
------------ ------------ ------------
Income before income taxes 16,739 15,641 14,541
INCOME TAX EXPENSE 5,233 5,206 4,814
------------ ------------ ------------
NET INCOME $ 11,506 $ 10,435 $ 9,727
============ ============ ============
Earnings per share $ 3.79 $ 3.45 $ 3.21
Weighted average shares outstanding 3,031,934 3,025,564 3,029,368
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
19
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- -----------------------------------------------
(IN THOUSANDS, EXCEPT SHARE DATA)
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Accumulated
Other
Common Stock Compre-
------------ Additional hensive
Par Paid-In Retained Income Treasury
Shares Value Capital Earnings (Loss) Stock Total
--------- --------- ------- --------- ------- --------- ---------
Balance, January 1, 1998 2,431,804 $ 24,318 $ - $ 52,607 $ 20 $ - $ 76,945
Comprehensive income
Net income - - - 9,727 - - 9,727
Other comprehensive income,
net of tax
Unrealized losses on securities,
net of reclassification adjustment - - - - (72) - (72)
---------
Total comprehensive income 9,655
Cash dividends declared - $1.24 per share - - - (3,756) - - (3,756)
17,268 common shares purchased from
terminated pension plan - - - - - (1,140) (1,140)
5,900 common shares contributed
to profit sharing plan - - 14 - - 390 404
--------- --------- ------- --------- ------- --------- ---------
Balance, December 31, 1998 2,431,804 24,318 14 58,578 (52) (750) 82,108
Comprehensive income
Net income - - - 10,435 - - 10,435
Other comprehensive income,
net of tax
Unrealized losses on securities,
net of reclassification adjustment - - - - (1,612) - (1,612)
---------
Total comprehensive income 8,823
Cash dividends declared - $1.36 per share - - - (4,114) - - (4,114)
5,400 common shares contributed
to profit sharing plan - - 92 - - 356 448
--------- --------- ------- --------- ------- --------- ---------
Balance, December 31, 1999 2,431,804 24,318 106 64,899 (1,664) (394) 87,265
Comprehensive income
Net income - - - 11,506 - - 11,506
Other comprehensive income,
net of tax
Unrealized gains on securities,
net of reclassification adjustment - - - - 1,260 - 1,260
---------
Total comprehensive income 12,766
Cash dividends declared - $1.44 per share - - - (4,366) - - (4,366)
5-for-4 stock split effected in the form
of a 25% stock dividend and payment
of cash for fractional shares 607,511 6,075 - (6,112) - - (37)
Purchase of 1,200 common shares - - - - - (81) (81)
7,300 common shares contributed
to profit sharing plan - - 102 - - 385 487
--------- --------- ------- --------- ------- --------- ---------
Balance, December 31, 2000 3,039,315 $ 30,393 $ 208 $ 65,927 $ (404) $ (90) $ 96,034
========= ========= ======= ========= ======= ========= =========
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
20
CONSOLIDATED STATEMENTS OF CASH FLOWS
- -------------------------------------
(IN THOUSANDS)
YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
------------ ------------ ------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,506 $ 10,435 $ 9,727
Adjustments to reconcile net income to net cash
from operating activities
Depreciation 2,007 1,967 1,805
Provision for loan losses 1,875 2,300 2,034
Deferred income tax expense (benefit) (702) (754) 40
Net amortization of securities (205) (13) 56
Amortization of intangibles 1,022 1,005 1,004
Common stock contributed to profit sharing plan 487 448 404
Securities gains, net (4) (15) (121)
Proceeds from sales of loans 17,685 34,709 76,174
Loans originated for sale (18,063) (30,444) (79,772)
Net gains on sales of loans (231) (217) (396)
Net gains on sales of other real estate owned (18) - (14)
(Increase) decrease in accrued interest and other assets (1,485) (668) 377
Increase (decrease) in accrued interest and other liabilities 633 123 (946)
------------ ------------ ------------
Net cash from operating activities 14,507 18,876 10,372
CASH FLOWS FROM INVESTING ACTIVITIES
Change in federal funds sold 1,500 (33,700) 19,800
Proceeds from maturities of securities held-to-maturity 32,822 76,831 192,130
Proceeds from sale of securities available-for-sale - 6,982 -
Proceeds from maturities of securities available-for-sale 144 6,000 3,500
Purchase of securities available-for-sale (29,489) (19,994) (58,715)
Purchase of securities held-to-maturity (73,522) (81,220) (180,928)
Loans made to customers, net of payments 11,790 (55,559) (12,254)
Branch office acquisition, net 7,568 - -
Purchase of premises and equipment (1,423) (3,248) (1,718)
Proceeds from sales of other real estate owned 171 - 119
------------ ------------ ------------
Net cash from investing activities (50,439) (103,908) (38,066)
CASH FLOWS FROM FINANCING ACTIVITIES
Net increase in deposit accounts 25,742 63,293 20,134
Net increase in short-term borrowings 9,081 46,651 19,333
Principal paid on long-term debt - (3,059) (1,758)
Dividends paid (4,366) (4,114) (3,756)
Payment for fractional shares in connection with
5-for-4 stock split (37) - -
Common stock purchased for treasury (81) - (1,140)
------------ ------------ ------------
Net cash from financing activities 30,339 102,771 32,813
------------ ------------ ------------
Net change in cash and due from banks (5,593) 17,739 5,119
CASH AND DUE FROM BANKS
Beginning of year 57,449 39,710 34,591
------------ ------------ ------------
End of year $ 51,856 $ 57,449 $ 39,710
============ ============ ============
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
(TABLE DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE DATA)
NOTE 1 - NATURE OF BUSINESS AND SIGNIFICANT ACCOUNTING POLICIES
First National Bancorp, Inc. (the Company), through the branch network of its
wholly-owned subsidiary, First National Bank of Joliet (the Bank), provides
financial and other banking services to customers located primarily in the Will,
Grundy, and Kendall Counties, Illinois areas. Customers in these areas are the
primary users of the Company's loan, deposit, and trust services. A major
portion of loans are secured by various forms of collateral including real
estate, business assets, consumer property, and other items, although borrower
cash flow is expected to be the primary source of repayment.
While the Company's chief decisionmakers monitor the revenue streams of the
various products and services, operations are managed and financial performance
is evaluated on a company-wide basis. Accordingly, all of the Company's banking
operations are considered by management to be aggregated in one reportable
operating segment.
The following summarizes the significant accounting policies used in the
preparation of the accompanying consolidated financial statements.
PRINCIPLES OF CONSOLIDATION: The consolidated financial statements include the
accounts of the Company and the Bank. In 1998, the Company merged all of its
banking subsidiaries together under the charter of First National Bank of
Joliet. Previously, these subsidiaries operated as four separate banks known as
First National Bank of Joliet, Southwest Suburban Bank, Bank of Lockport, and
Community Bank of Plano. Also in 1998, Plano Bancshares, Inc. (Plano) was merged
into the Company. Prior to the merger, Plano was a wholly-owned subsidiary of
the Company and Plano owned 100% of the stock of Community Bank of Plano.
All material intercompany items and transactions have been eliminated in
consolidation.
USE OF ESTIMATES: In preparing the financial statements in accordance with
generally accepted accounting principles, management makes estimates and
assumptions based on available information. These estimates and assumptions
affect the reported amounts in the financial statements and the disclosures
provided, and future results could differ. The allowance for loan losses, fair
values of financial instruments, and status of contingencies are particularly
subject to change. Actual results could differ from those estimates.
SECURITIES: Securities are classified as either held-to-maturity or
available-for-sale. Securities classified as held-to-maturity are those debt
securities that the Company has both the intent and ability to hold to maturity.
These securities are carried at cost adjusted for amortization of premium and
accretion of discount, computed by the interest method over their contractual
lives.
Securities classified as available-for-sale are those securities that might be
sold prior to maturity. Securities available-for-sale are carried at fair value
with unrealized gains or losses reported in other comprehensive income.
Gains and losses on sales are determined using the amortized cost of the
specific security sold. Interest income includes amortization of purchase
premiums and discounts.
LOANS AND ALLOWANCE FOR LOAN LOSSES: Loans are reported at their unpaid
principal outstanding, net of deferred loan fees and the allowance for loan
losses. Interest on loans is calculated primarily by using the simple interest
method on daily balances of the principal amount outstanding. Nonrefundable loan
fees, net of related origination costs, are initially deferred with the
resulting income recognized over the term of the related loan as an adjustment
to the yield.
Real estate loans held for sale are carried at the lower of cost or fair value
in the aggregate. Declines in fair value are charged to a valuation allowance.
The allowance for loan losses is a valuation allowance for probable credit
losses. The allowance is increased by the provision for loan losses charged to
expense and is decreased by loan charge-offs less recoveries. Loans are charged
against the allowance for loan losses when management believes that the
collectibility of the principal is unlikely. The allowance balance is estimated
by management based on evaluations of the collectibility of loans and prior loan
loss experience. This evaluation also takes into consideration such factors as
changes in the nature and volume of the loan portfolio, overall portfolio
quality, review of specific problem loans, and current economic conditions that
may affect the borrower's ability to pay. Allocations of the allowance may be
made for specific
22
loans, but the entire allowance is available for any loan that, in management's
judgment, should be charged off. This evaluation is inherently subjective as it
requires estimates that are susceptible to significant revision as more
information becomes available or as future events change.
A loan is impaired when full payment under the loan terms is not expected.
Impairment is evaluated in total for smaller-balance loans of similar nature,
such as residential mortgage and consumer loans, and on an individual loan basis
for other loans. If a loan is impaired, a portion of the allowance is allocated
so that the loan is reported, net, at the present value of estimated future cash
flows using the loan's existing rate or at the fair value of collateral if
repayment is expected solely from the collateral. Principal payments on such
loans are generally reported as principal reductions.
Interest income is discontinued at the time the loan is 90 days delinquent
unless the loan is well secured and in the process of collection. Loans are
placed on nonaccrual or charged off at an earlier date if collection of
principal and interest is doubtful. Interest accrued but not collected is
reversed against interest income.
PREMISES AND EQUIPMENT: Premises and equipment are stated at cost, net of
accumulated depreciation. Depreciation expense is calculated primarily on the
straight-line method over the following estimated useful lives of the assets.
Years
-----
Land improvements 5-15
Buildings 15-40
Equipment 3-10
INTANGIBLES: The portion of the purchase price of acquired banks or branch
offices that represents the value assigned to the existing deposit base for
which the annual interest and servicing costs are below market rates (core
deposit intangibles) is being amortized on the straight-line method over five to
ten years. The excess of cost over fair value of net assets acquired (goodwill)
in the purchase of acquired banks is being amortized on the straight-line method
over fifteen to twenty years.
SERVICING ASSETS: Servicing assets represent the allocated value of retained
servicing rights on residential mortgage loans sold. Servicing assets are
expensed in proportion to, and over the period of, estimated net servicing
revenues. The Company began recording mortgage servicing rights in 2000. The
effects of not recording mortgage servicing rights in years prior to 2000 is not
material to the Company's financial statements.
LONG-TERM ASSETS: Premises and equipment and other long-term assets are reviewed
for impairment when events indicate their carrying amount may not be recoverable
from future undiscounted cash flows. If impaired, the assets are recorded at
discounted amounts.
REPURCHASE AGREEMENTS: Substantially all repurchase agreement liabilities
represent amounts advanced by various customers. Securities are pledged to cover
these liabilities, which are not covered by federal deposit insurance.
EMPLOYEE BENEFITS PLANS: In 1998, the Company curtailed and terminated its
defined benefit pension plan. The pension plan covered all full-time employees
of subsidiary banks who completed one year of service and met specific age
requirements. The Company's funding policy was to make the minimum annual
contribution required by applicable regulations, plus any such amounts as the
Company determined to be appropriate.
In 1998, the Company established a new profit sharing plan covering
substantially all the Company's employees. The plan only allows for
contributions at the discretion of the Company's Board of Directors. The plan
does not provide for employee contributions. The Company's contributions may be
made in cash or Company stock.
The Company also has a defined contribution 401(k) plan. Substantially all the
Company's employees are covered under the 401(k) plan. Participants make tax
deferred contributions. The Company makes matching contributions equal to 50% of
each participant's contribution up to the first 6% of compensation that is
deferred.
INCOME TAXES: Income tax expense is the sum of the current year income tax due
or refundable and the change in deferred tax assets and liabilities. Deferred
tax assets and liabilities are the expected future tax consequences of temporary
differences between the carrying amounts and tax bases of assets and
liabilities, computed using enacted tax rates. A valuation allowance, if needed,
reduces deferred tax assets to the amount expected to be realized.
23
COMMON STOCK AND EARNINGS PER SHARE: On January 13, 2000, the Company's Board of
Directors approved a resolution to increase the number of authorized common
stock shares from 5,500,000 shares to 10,000,000 shares. Such resolution was
approved by the Company's stockholders at the March 9, 2000 annual meeting. The
Company's Board of Directors also approved a 5-for-4 stock split to be effected
in the form of a 25% stock dividend to common stockholders of record as of March
23, 2000 with a payable date of April 6, 2000. The 5-for-4 stock split was also
approved by the Company's stockholders at the March 9, 2000 annual meeting.
Earnings per share is calculated on the basis of the weighted average number of
shares outstanding. Earnings and dividends per share in 1999 and 1998 have been
restated to reflect the 5-for-4 stock split effected in the form of a 25% stock
dividend in 2000.
COMPREHENSIVE INCOME: Comprehensive income includes both net income and other
comprehensive income. Other comprehensive income consists of the change in
unrealized gains and losses on securities available-for-sale, net of
reclassification adjustments and tax effects.
LOSS CONTINGENCIES: Loss contingencies, including claims and legal actions
arising in the ordinary course of business, are recorded when and if the
likelihood of loss is probable and an amount or range of loss can be estimated.
Management does not believe that any such contingencies now exist that could
have a material effect on the Company's financial statements.
PRESENTATION OF CASH FLOWS: Cash flows from loans, federal funds sold, deposits,
and short-term borrowings are shown net.
RECLASSIFICATIONS: Certain reclassifications have been made in the prior years'
financial statements to conform with the current year's presentation.
FINANCIAL INSTRUMENTS: Financial instruments include off-balance-sheet credit
instruments such as unused lines of credit and commitments to make loans and
standby letters of credit, which are issued to meet customers' financing needs.
The face amount for these items represents the exposure to loss before
considering customers' collateral or ability to repay. Such financial
instruments are recorded when they are funded.
NOTE 2 - SECURITIES
The amortized cost and fair value of securities available-for-sale at year end
are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
2000
U.S. Government agencies $ 82,990 $ 62 $ (824) $ 82,228
Mortgage-backed securities 18,347 104 - 18,451
Corporate 1,012 - (13) 999
--------- --------- --------- ---------
Total debt securities 102,349 166 (837) 101,678
Federal Reserve Bank stock 1,007 - - 1,007
--------- --------- --------- ---------
$ 103,356 $ 166 $ (837) $ 102,685
--------- --------- --------- ---------
--------- --------- --------- ---------
1999
U.S. Government agencies $ 71,984 $ - $ (2,727) $ 69,257
Corporate 1,018 - (32) 986
--------- --------- --------- ---------
Total debt securities 73,002 - (2,759) 70,243
Federal Reserve Bank stock 1,007 - - 1,007
--------- --------- --------- ---------
$ 74,009 $ - $ (2,759) $ 71,250
========= ========= ========= =========
24
The amortized cost and fair value of securities held-to-maturity at year end
are as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
--------- --------- --------- ---------
2000
U.S. Treasury $ 2,000 $ 2 $ - $ 2,002
U.S. Government agencies 184,242 136 (1,049) 183,329
Mortgage-backed securities 486 2 (9) 479
States and political subdivisions 52,345 1,534 (52) 53,827
--------- --------- --------- ---------
$ 239,073 $ 1,674 $ (1,110) $ 239,637
========= ========= ========= =========
1999
U.S. Treasury $ 7,007 $ 17 $ - $ 7,024
U.S. Government agencies 163,192 6 (4,559) 158,639
States and political subdivisions 27,967 255 (218) 28,004
--------- --------- --------- ---------
$ 198,166 $ 278 $ (4,777) $ 193,667
========= ========= ========= =========
The amortized cost and fair value of debt securities as of December 31, 2000, by
earliest contractual maturity date, are shown below. Actual maturities may
differ from the maturities presented because borrowers may exercise rights to
call or prepay their obligations.
Available-for-Sale Held-to-Maturity
----------------------- -----------------------
Amortized Fair Amortized Fair
Cost Value Cost Value
--------- --------- --------- ---------
Due in 1 year or less $ 16,998 $ 16,901 $ 40,215 $ 40,159
Due after 1 through 5 years 67,004 66,326 164,302 163,654
Due after 5 through 10 years - - 12,753 13,314
Due after 10 years - - 21,317 22,031
Mortgage-backed securities 18,347 18,451 486 479
--------- --------- --------- ---------
$ 102,349 $ 101,678 $ 239,073 $ 239,637
========= ========= ========= =========
Securities with a carrying value of approximately $255,000,000 and $215,000,000
at December 31, 2000 and 1999 were pledged to secure public deposits, securities
sold under agreements to repurchase, and for other purposes required or
permitted by law.
No securities were sold in 2000 and 1998. Proceeds from the sale of securities
available-for-sale in 1999 were $6,982,000, resulting in gross losses of
$16,000. Securities called before their contractual maturity date resulted in
gains of $4,000, $31,000 and $121,000 in 2000, 1999, and 1998, respectively.
NOTE 3 - LOANS
Loans at year end are as follows:
2000 1999
--------- ---------
Commercial $ 131,919 $ 124,965
Commercial real estate 91,978 87,507
Construction 13,123 12,914
Agricultural 9,978 11,015
Residential real estate 137,001 131,671
Consumer 194,335 222,856
--------- ---------
Total loans 578,334 590,928
Allowance for loan losses (6,332) (5,870)
--------- ---------
Loans, net $ 572,002 $ 585,058
========= =========
25
Included in residential real estate loans are loans held for sale totaling
$1,157,000 and $548,000 at December 31, 2000 and 1999. The carrying value of
loans held for sale approximated fair value at December 31, 2000 and 1999.
Impaired loans are as follows:
2000 1999 1998
-------- -------- --------
Average balance of impaired loans during
the year $ 1,880 $ 835 $ 920
Impaired loans at year end 1,730 1,076 786
Allowance for loan losses allocated to impaired
loans at year end 433 175 118
A portion of the allowance for loan losses has been allocated to each impaired
loan. Interest income recognized on impaired loans was immaterial in 2000, 1999,
and 1998.
Activity in the allowance for loan losses follows:
2000 1999 1998
-------- -------- --------
Balance, beginning of year $ 5,870 $ 4,946 $ 4,437
Provision charged to operations 1,875 2,300 2,034
Loans charged-off (2,279) (2,215) (1,866)
Recoveries 866 839 341
-------- -------- --------
Balance, end of year $ 6,332 $ 5,870 $ 4,946
======== ======== ========
Certain executive officers and directors and companies in which they have
management or beneficial ownership are loan customers of the Company. These
loans have similar terms to other customer loans. An analysis of the changes in
these loans follows:
2000
--------
Total loans at beginning of year $ 4,974
New loans 2,303
Repayments (2,152)
--------
Total loans at end of year $ 5,125
========
Loans serviced for others that are not reported as assets in the financial
statements approximated $120,000,000 at both December 31, 2000 and 1999. In
2000, the Company began recording servicing rights on residential mortgage loans
sold with servicing retained. At December 31, 2000, mortgage servicing rights,
net of $10,000 of accumulated amortization, are $128,000.
NOTE 4 - PREMISES AND EQUIPMENT
Major classifications of premises and equipment are summarized as follows at
year end.
2000 1999
-------- --------
Land and land improvements $ 6,487 $ 6,038
Buildings 16,671 16,103
Equipment 12,374 11,507
-------- --------
Total cost 35,532 33,648
Accumulated depreciation (15,540) (13,614)
-------- --------
Carrying value $ 19,992 $ 20,034
======== ========
26
NOTE 5 - INTANGIBLES
Goodwill of $11,059,000 is reported net of accumulated amortization of
$6,047,000 and $5,424,000 as of December 31, 2000 and 1999, respectively. Core
deposit intangibles of $4,753,000 and $4,147,000 as of December 31, 2000 and
1999, respectively, are reported net of accumulated amortization of $2,701,000
and $2,302,000 as of December 31, 2000 and 1999, respectively.
NOTE 6 - DEPOSITS
At December 31, 2000, the scheduled maturities of time deposits are as follows:
2001 $ 285,558
2002 36,630
2003 18,258
2004 3,222
2005 1,260
---------
$ 344,928
=========
NOTE 7 - SHORT-TERM BORROWINGS
Short-term borrowings consist of securities sold under agreements to repurchase,
federal funds purchased, and U.S. Treasury demand note accounts. These
short-term borrowings are financing arrangements. Physical control is maintained
for securities sold under repurchase agreements.
Information concerning short-term borrowings follows:
2000 1999 1998
-------- -------- --------
End of year
Outstanding balance $121,272 $112,191 $ 65,540
Weighted average interest rate 5.90% 5.47% 4.92%
During the year
Average outstanding balance $ 95,987 $ 63,198 $ 51,656
Maximum outstanding balance 126,317 112,191 65,540
Weighted average interest rate 6.00% 5.01% 5.25%
The carrying value and fair value of the securities underlying the above
agreements at December 31, 2000 follow:
Carrying value $134,306
Fair value 133,828
At December 31, 2000, securities sold under agreements to repurchase are
summarized below:
Collateral
----------
U.S. Treasury
and Government
Weighted Agency Securities
Average ---------------------
Original Repurchase Interest Amortized Fair
Term Liability Rate Cost Value
-------- --------- ---- -------- --------
Up to 30 days $ 2,097 5.69% $ 2,201 $ 2,191
30 to 90 days 25,729 6.09 27,257 27,136
Over 90 days 90,843 5.85 96,702 96,099
-------- ---- -------- --------
$118,669 5.90% $126,160 $125,426
======== ==== ======== ========
At December 31, 2000, the Company had unused lines of credit to purchase federal
funds from other banks totaling $40,000,000.
27
NOTE 8 - INCOME TAXES
Income tax expense consists of the following:
2000 1999 1998
-------- -------- --------
Currently payable tax
Federal $ 5,778 $ 5,680 $ 4,464
State 157 280 310
Deferred tax expense (benefit) (702) (754) 40
-------- -------- --------
Income tax expense $ 5,233 $ 5,206 $ 4,814
======== ======== ========
A reconciliation of income tax expense and the amount computed by applying the
statutory federal income tax rate of 35% to income before income taxes follows:
2 0 0 0 1 9 9 9 1 9 9 8
---------------- ---------------- ----------------
Amount % Amount % Amount %
-------- ---- -------- ---- -------- ----
Income tax at statutory rate $ 5,859 35.0% $ 5,474 35.0% $ 5,089 35.0%
Increase (decrease)
resulting from
State income taxes,
net of federal benefit 51 .3 117 .7 190 1.3
Tax-exempt income (857) (5.1) (659) (4.2) (675) (4.6)
Nondeductible
interest expense 110 .6 73 .5 79 .5
Goodwill amortization 218 1.3 218 1.4 218 1.5
Other items, net (148) (.8) (17) (.1) (87) (.6)
-------- ---- -------- ---- -------- ----
Income tax expense $ 5,233 31.3% $ 5,206 33.3% $ 4,814 33.1%
======== ==== ======== ==== ======== ====
Net deferred tax assets and liabilities included in the balance sheet consist of
the following components at year end.
2000 1999
-------- --------
Deferred tax assets
Securities available-for-sale $ 267 $ 1,095
Allowance for loan losses 2,512 2,328
Other items, net 111 170
-------- --------
2,890 3,593
Deferred tax liabilities
Premises and equipment (803) (1,057)
Intangibles (524) (732)
Purchase accounting adjustments and other items, net (268) (383)
-------- --------
(1,595) (2,172)
-------- --------
Net deferred tax assets $ 1,295 $ 1,421
======== ========
No valuation allowance was considered necessary for deferred tax assets.
28
NOTE 9 - EMPLOYEE BENEFIT PLANS
In January 1998, the Board of Directors approved the process of terminating the
pension plan. No credit was given for participant service after January 31,
1998. Final distributions aggregating $6.5 million were made to participants in
September 1998.
The amount charged to expense for the Company's pension plan during 1998
consisted of the following:
Service cost $ 119
Interest cost on projected benefit obligation 444
Expected return on plan assets (448)
Net amortization 19
Settlement loss, net of curtailment gain 287
-----
Pension expense $ 421
=====
Assumptions used
Discount rate 7.00%
Expected return on plan assets 8.00%
Rate of compensation increase 4.50%
Contributions to the 401(k) plan for the years ended December 31, 2000, 1999,
and 1998 were $190,000, $188,000, and $177,000 respectively.
The Company's contribution to the profit sharing plan was 7,300, 5,400, and
5,900 shares of the Company's common stock valued at $487,000, $448,000, and
$404,000 in 2000, 1999, and 1998, respectively. All shares contributed were
allocated to participants as of each respective year end.
NOTE 10 - COMMITMENTS AND FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
At December 31, 2000, reserves of approximately $26 million were required as
deposits with the Federal Reserve Bank or as cash on hand. These reserves do not
earn interest.
The Company is a party to financial instruments with off-balance-sheet risk in
the normal course of business to meet the financing needs of customers. These
financial instruments include commitments to extend credit and standby letters
of credit, which, to varying degrees, involve elements of credit risk and
interest rate risk in excess of the amount recognized in the balance sheet.
The Company's exposure to credit loss on commitments to extend credit and
standby letters of credit in the event of nonperformance by the customer is
represented by the contractual amount of those instruments. The Company uses the
same credit policies in making commitments and conditional obligations as for
on-balance-sheet instruments.
A summary of the contract amounts of the Company's exposure to off-balance-sheet
risk at year end follows:
2000 1999
-------- --------
Financial instruments whose contract amounts
represent credit risk
Loan commitments, including unused lines of credit $ 72,547 $ 63,133
Standby letters of credit 16,326 12,509
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 commitment amounts do not necessarily represent
future cash requirements. The Company evaluates each customer's credit
worthiness on a case-by-case basis. The amount of collateral obtained is based
on management's credit evaluation of the customer.
Standby letters of credit are conditional commitments issued by the Company to
guarantee the performance of a customer to a third party. The credit risk
involved in issuing letters of credit is essentially the same as that involved
in extending loan commitments to customers. Most of the Company's standby
letters of credit are expected to expire without being drawn upon.
29
NOTE 11 - PREFERRED STOCK PURCHASE RIGHTS
Pursuant to a Rights Agreement dated November 14, 1996, there is attached to
each share of common stock of the Company one preferred stock purchase right
(Right). Each Right entitles the holder to buy from the Company one
one-thousandth of a share of preferred stock at an exercise price of $120 (as
restated to reflect the 5-for-4 stock split effected in the form of a 25% stock
dividend in 2000). The exercise price is subject to adjustment.
The Rights will expire on November 14, 2006 unless redeemed earlier and will not
be exercisable or transferable separately from the shares of common stock to
which they are attached until the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
Acquiring Person) has acquired beneficial ownership of 10% or more of the then
outstanding shares of common stock of the Company (the Stock Acquisition Date)
or (ii) ten business days following a public announcement or the commencement of
a tender offer or exchange offer that would result in the offeror beneficially
owning 10% or more of the outstanding shares of common stock of the Company.
In the event that any party becomes an Acquiring Person (a Flip-In Event), each
holder of a Right, other than Rights beneficially owned by an Acquiring Person
(which Rights will be void), will thereafter have the right to acquire shares of
common stock at 50% of their current per share market price.
In the event that, at any time following a Flip-In Event, (i) the Company is
acquired in a merger or other business combination transaction or (ii) 50% or
more of the Company's assets or earning power is sold or transferred, each
holder of a Right (except Rights that have become void as set forth previously)
will thereafter have the right to acquire, upon exercise, shares of common stock
of the acquiring company at 50% of their current per share market price.
The Board of Directors of the Company may authorize the redemption of the
Rights, at $ .01 per Right, at any time prior to a Flip-In Event. After a
Flip-In Event, the Company may exchange outstanding Rights for common stock at a
ratio of one share of common stock (or the equivalent value of preferred stock)
per Right. The Company cannot, however, exchange Rights for common stock after
an Acquiring Person becomes the beneficial owner of 50% or more of the Company's
common stock.
The Rights Agreement provides for adjustments in the event of such items as
stock splits, dividends, options, reclassifications, etc.
Until a Right is properly exercised, the holder thereof will have no rights as a
holder of the underlying preferred stock.
NOTE 12 - CAPITAL REQUIREMENTS
The Bank is limited in the amount of dividends that can be paid without prior
approval of the banking regulatory agencies. As of December 31, 2000, the Bank
could pay dividends to the Company of $10.7 million without obtaining prior
approval of the bank regulatory agencies.
The Company and the Bank are subject to regulatory capital requirements
administered by federal banking agencies. Capital adequacy guidelines and prompt
corrective action regulations involve quantitative measures of assets,
liabilities, and certain off-balance-sheet items calculated under regulatory
accounting practices. Capital amounts and classifications are also subject to
qualitative judgments by regulators about components, risk weightings, and other
factors, and the regulators can lower classifications in certain cases. Failure
to meet various capital requirements can initiate regulatory action that could
have a direct material effect on the financial statements.
The prompt corrective action regulations provide five classifications, including
well capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized, and critically undercapitalized, although these terms are not
used to represent overall financial condition. If adequately capitalized,
regulatory approval is required to accept brokered deposits. If
undercapitalized, capital distributions are limited, as are asset growth and
expansion, and plans for capital restoration are required. The minimum
requirements under the prompt corrective action regulations are:
Capital to Risk-
Weighted Assets
---------------- Tier 1 Capital
Total Tier 1 to Average Assets
----- ------ -----------------
Well capitalized 10% 6% 5%
Adequately capitalized 8% 4% 4%
Undercapitalized 6% 3% 3%
30
For the Company and the Bank, Tier I capital consists of stockholders' equity
(excluding unrealized gains and losses on securities available-for-sale), less
intangible assets, and related deferred taxes. Total capital consists of Tier I
capital plus the allowance for loan losses. At December 31, 2000, consolidated
actual capital levels and minimum required levels for the consolidated Company
and the Bank were:
Minimum Amount Required
Under Prompt Corrective
Action Regulations
-----------------------
For
Actual Capital
--------------------- Adequacy To Be Well
Ratio Amount Purposes Capitalized
----- ------ -------- -----------
Total capital (to risk-weighted
assets)
Consolidated 14.62% $ 96,391 $ 52,733 $ 65,916
Bank 14.52% $ 95,683 $ 52,722 $ 65,902
Tier I capital (to risk-weighted
assets)
Consolidated 13.66% $ 90,059 $ 26,366 $ 39,550
Bank 13.56% $ 89,351 $ 26,361 $ 39,541
Tier I capital (to average assets)
Consolidated 8.68% $ 90,059 $ 41,491 $ 51,864
Bank 8.62% $ 89,351 $ 41,485 $ 51,856
At December 31, 2000 and 1999, the Company and the Bank were categorized as well
capitalized according to the banking regulations described above. There are no
conditions or events since that notification that management believes have
changed the Company and the Bank's categorization.
Actual capital ratios at year end are summarized below:
Consolidated
Company Bank
-------------------- --------------------
2000 1999 2000 1999
-------- -------- -------- --------
Total capital to risk-weighted assets 14.62% 13.41% 14.52% 13.28%
Tier I capital to risk-weighted assets 13.66 12.52 13.56 12.38
Tier I capital to average assets 8.68 8.33 8.62 8.34
NOTE 13 - FAIR VALUE OF FINANCIAL INSTRUMENTS AND INTEREST RATE RISKS
The carrying amount and estimated fair value of financial instruments at
year-end follow:
2000 1999
-------------------- --------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
-------- -------- -------- --------
Financial assets
Cash and due from banks $ 51,856 $ 51,856 $ 57,449 $ 57,449
Federal funds sold 63,200 63,200 64,700 64,700
Securities available-for-sale 102,685 102,685 71,250 71,250
Securities held-to-maturity 239,073 239,637 198,166 193,667
Loans, net 572,002 562,186 585,058 582,114
Accrued interest receivable 8,337 8,337 7,006 7,006
Financial liabilities
Deposits 844,067 842,888 809,609 810,334
Short-term borrowings 121,272 121,272 112,191 112,191
Accrued interest payable 3,201 3,201 3,523 3,523
31
The methods and assumptions used to estimate fair value are described as
follows.
Carrying amount is the estimated fair value for cash and cash equivalents,
short-term borrowings, accrued interest receivable and payable, deposits due on
demand, and variable rate loans that reprice frequently and fully. Security fair
values are based on market prices or dealer quotes and, if no such information
is available, on the rate and term of the security and information about the
issuer. For fixed rate loans or deposits and for variable rate loans with
infrequent repricing or repricing limits, fair value is based on discounted cash
flows using current market rates applied to the estimated life and credit risk.
Fair values for impaired loans are estimated using discounted cash flow analysis
or underlying collateral values. Fair value of loans held for sale is based on
market quotes. The fair value of loan commitments, unused lines of credit, and
letters of credit are not material.
NOTE 14 - CASH FLOW INFORMATION
Supplemental disclosures of cash flow information are as follows:
2000 1999 1998
---- ---- ----
Cash payments for
Interest $ 33,811 $ 26,873 $ 27,786
Income taxes 5,035 6,509 4,634
Noncash investing and financing activities
Other real estate acquired in settlement of loans - 153 157
In September 2000, the Company acquired a commercial bank branch office in
Manhattan, Illinois. In conjunction with the acquisition, liabilities assumed
were as follows:
Net cash received $ 7,568
Intangible assets acquired 606
Premises and equipment acquired 542
--------
Deposit liabilities assumed $ 8,716
========
32
NOTE 15 - CONDENSED PARENT COMPANY FINANCIAL INFORMATION
The condensed financial statements of First National Bancorp, Inc. (parent
company only) are presented below:
BALANCE SHEETS
2000 1999
-------- --------
ASSETS
Cash $ 640 $ 614
Investment in subsidiary 95,326 86,999
Land 106 106
Other assets 34 26
-------- --------
Total assets $ 96,106 $ 87,745
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Income taxes payable and other liabilities $ 72 $ 480
Stockholders' equity 96,034 87,265
-------- --------
Total liabilities and stockholders' equity $ 96,106 $ 87,745
======== ========
STATEMENTS OF INCOME
Years Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Dividends from subsidiary $ 4,716 $ 7,241 $ 7,227
Interest and other income 92 15 14
Interest expense - (100) (366)
Noninterest expense (697) (656) (718)
-------- -------- --------
Income before income taxes and equity
in undistributed net income of subsidiary 4,111 6,500 6,157
Income tax benefit 328 286 443
-------- -------- --------
Income before equity in undistributed net
income of subsidiary 4,439 6,786 6,600
Equity in undistributed net income of subsidiary 7,067 3,649 3,127
-------- -------- --------
Net income $ 11,506 $ 10,435 $ 9,727
======== ======== ========
33
STATEMENTS OF CASH FLOWS
Years Ended December 31,
------------------------------------
2000 1999 1998
-------- -------- --------
Cash flows from operating activities
Net income $ 11,506 $ 10,435 $ 9,727
Adjustments to reconcile net income to net
cash provided by operating activities
Undistributed net income of subsidiary (7,067) (3,649) (3,127)
Change in other assets and other liabilities (416) 538 21
-------- -------- --------
Net cash from operating activities 4,023 7,324 6,621
Cash flows from financing activities
Principal payments on long-term debt - (3,059) (1,758)
Common stock purchased for treasury (81) - (1,140)
Payment for fractional shares in connection
with 5-for-4 stock split (37) - -
Common stock contributed to profit sharing plan
in exchange for cash received from subsidiary 487 448 -
Cash dividends paid (4,366) (4,114) (3,756)
-------- -------- --------
Net cash from financing activities (3,997) (6,725) (6,654)
-------- -------- --------
Net change in cash 26 599 (33)
Cash
Beginning of year 614 15 48
-------- -------- --------
End of year $ 640 $ 614 $ 15
======== ======== ========
Noncash financing activity
Common stock contributed to profit sharing plan
in exchange for receivable due from subsidiary $ - $ - $ 404
NOTE 16 - OTHER COMPREHENSIVE INCOME
Other comprehensive income components and related taxes were as follows:
2000 1999 1998
-------- -------- --------
Unrealized holding gains and losses on
available-for-sale securities $ 2,092 $ (2,658) $ 2
Less reclassification adjustments for gains
later recognized in income (4) (15) (121)
-------- -------- --------
Net unrealized gains and losses 2,088 (2,673) (119)
Tax effect (828) 1,061 47
-------- -------- --------
Other comprehensive income (loss) $ 1,260 $ (1,612) $ (72)
======== ======== ========
34
NOTE 17 - QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The following table sets forth certain unaudited income and expense and per
share data on a quarterly basis for the three-month periods indicated:
Year Ended December 31, 2000 Year Ended December 31, 1999
---------------------------- ----------------------------
Three Months Ended Three Months Ended
---------------------- ----------------------
Dec. 31 Sep. 30 June 30 March 31 Dec. 31 Sep. 30 June 30 March 31
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income $ 9,508 $ 9,348 $ 9,413 $ 9,426 $ 9,468 $ 9,487 $ 9,261 $ 8,909
Provision for loan losses 300 525 525 525 1,025 525 375 375
Noninterest income 2,139 1,924 1,923 1,822 1,836 1,803 1,808 1,771
Noninterest expense 7,818 6,485 6,383 6,203 7,797 6,452 6,334 5,819
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before income
taxes 3,529 4,262 4,428 4,520 2,482 4,313 4,360 4,486
Income tax expense 923 1,352 1,443 1,515 761 1,440 1,478 1,527
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income $ 2,606 $ 2,910 $ 2,985 $ 3,005 $ 1,721 $ 2,873 $ 2,882 $ 2,959
========== ========== ========== ========== ========== ========== ========== ==========
Earnings per share $ .86 $ .96 $ .98 $ .99 $ .57 $ .95 $ .95 $ .98
Average common
shares outstanding 3,031,767 3,031,855 3,031,855 3,032,257 3,025,619 3,025,545 3,025,545 3,025,545
Net income for the three months ended December 31, 2000 is lower than the
previous calendar quarters of 2000 due to increased noninterest expenses
including depreciation and other related occupancy and equipment expenses and
Board of Director approved charitable contributions. Net income for the three
months ended December 31, 1999 is lower than the previous calendar quarters of
1999 as a result of increased noninterest expenses similar to those occurring in
the three months ended December 31, 2000 and an increase in the loan loss
provision. The increased loan loss provision in the fourth quarter of 1999 was
due to greater than anticipated consumer loan charge-offs.
35
[FIRST NATIONAL BANK OF JOLIET LOGO]
JOLIET
78 North Chicago Street
Scott & Jefferson
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1590 N. Larkin (Inside Cub Foods)
191 S. Larkin (Inside Cub Foods)
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24745 W. Eames
Route 6 & I-55 (Inside Franks)
MINOOKA BANKING CENTER
207 W. Mondamin
PLAINFIELD BANKING CENTER
Route 59 & Renwick Road
ROMEOVILLE BANKING CENTERS
626 Townhall Drive
80 S. Weber Road
LOCKPORT BANKING CENTER
826 East Ninth Street
HOMER TOWNSHIP BANKING CENTER
159th Street & Cedar Road
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225 Lily Cache Lane
PLANO BANKING CENTER
2005 West Route 34
MANHATTAN BANKING CENTER
505 State Street
Member FDIC78
North Chicago Street
Joliet, Illinois 60432