Filed by Bowne Pure Compliance
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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þ |
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2008
OR
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o |
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 0-32535
FIRST BANCTRUST CORPORATION
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
37-1406661
(IRS Employer Identification No.)
101 South Central Avenue
Paris, Illinois
(Address of principal executive offices)
61944
(Zip Code)
217-465-6381
(Registrants telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See the definitions of large accelerated
filer, accelerated filer, and smaller reporting company in Rule 12b-2 of the Exchange Act.
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o Large Accelerated Filer
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o Accelerated Filer
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o Non-Accelerated Filer
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þ Smaller Reporting Company |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2
of the Exchange Act)
Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of
the latest practicable date.
As of August 7, 2008, the Registrant had outstanding 2,185,839 shares of common stock.
First BancTrust Corporation
Form 10-Q Quarterly Report
Index
First BancTrust Corporation
Condensed Consolidated Balance Sheets
(in thousands of dollars except share data)
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June 30, |
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December 31, |
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2008 |
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2007 |
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(unaudited) |
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Assets |
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Cash and due from banks |
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$ |
6,235 |
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$ |
7,630 |
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Interest-bearing demand deposits |
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8,364 |
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2,709 |
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Cash and cash equivalents |
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14,599 |
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10,339 |
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Available-for-sale securities |
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44,436 |
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48,629 |
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Held-to-maturity securities (fair value of $4,972 and $5,284) |
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5,101 |
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5,331 |
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Loans held for sale, net of unrealized loss of $0 |
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235 |
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394 |
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Loans, net of allowance for loan losses of $2,459 and $2,091 |
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250,745 |
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234,855 |
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Premises and equipment |
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11,864 |
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10,510 |
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Federal Home Loan Bank stock |
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3,749 |
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3,749 |
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Foreclosed assets held for sale, net |
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527 |
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554 |
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Interest receivable |
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2,399 |
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3,511 |
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Deferred income taxes |
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1,355 |
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1,201 |
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Loan servicing rights, net of valuation allowance of $0 |
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314 |
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293 |
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Cash surrender value of life insurance |
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5,580 |
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5,476 |
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Goodwill |
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|
541 |
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|
541 |
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Core deposit intangibles |
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620 |
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667 |
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Other assets |
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514 |
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825 |
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Total assets |
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$ |
342,579 |
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$ |
326,875 |
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Liabilities and Stockholders Equity |
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Deposits |
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Demand |
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$ |
20,265 |
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$ |
19,274 |
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Savings, NOW and money market |
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76,090 |
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66,571 |
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Time |
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133,420 |
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129,760 |
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Brokered time |
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15,907 |
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16,534 |
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Total deposits |
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245,682 |
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232,139 |
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Short term borrowings |
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1,000 |
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3,715 |
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Federal Home Loan Bank advances |
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59,300 |
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55,800 |
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Junior subordinated debentures |
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6,186 |
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6,186 |
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Pass through payments received on loans sold |
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|
60 |
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|
85 |
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Advances from borrowers for taxes and insurance |
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|
524 |
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132 |
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Interest payable |
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1,010 |
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|
916 |
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Other |
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1,633 |
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1,401 |
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Total liabilities |
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315,395 |
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300,374 |
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Commitments and Contingent Liabilities |
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Stockholders Equity |
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Preferred stock, $.01 par value; 1,000,000 shares authorized
and unissued |
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Common stock, $.01 par value, 5,000,000 shares authorized;
3,041,750 shares issued; 2,185,839 and 2,195,839
shares outstanding |
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30 |
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30 |
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Additional paid-in capital |
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15,233 |
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15,135 |
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Retained earnings |
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20,731 |
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20,219 |
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Unearned employee stock ownership plan shares
22,882 and 38,086 shares |
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(132 |
) |
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(220 |
) |
Accumulated other comprehensive loss |
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(333 |
) |
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(425 |
) |
Treasury stock, at cost 855,911 and 845,911 shares |
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(8,345 |
) |
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(8,238 |
) |
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Total stockholders equity |
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27,184 |
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26,501 |
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Total liabilities and stockholders equity |
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$ |
342,579 |
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$ |
326,875 |
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See Notes to Unaudited Condensed Consolidated Financial Statements.
- 2 -
First BancTrust Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars except share data)
(unaudited)
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Six Months Ended June 30 |
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2008 |
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2007 |
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Interest and Dividend Income |
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Loans |
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Taxable |
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$ |
8,558 |
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$ |
7,183 |
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Tax exempt |
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28 |
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29 |
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Securities |
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Taxable |
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1,104 |
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|
1,247 |
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Tax exempt |
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|
76 |
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|
205 |
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Dividends on Federal Home Loan Bank stock |
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61 |
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Deposits with financial institutions and other |
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107 |
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114 |
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Total interest and dividend income |
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9,873 |
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8,839 |
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Interest Expense |
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Deposits |
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3,996 |
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3,931 |
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Federal Home Loan Bank advances and other debt |
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|
1,268 |
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|
1,009 |
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Total interest expense |
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5,264 |
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4,940 |
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Net Interest Income |
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4,609 |
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|
3,899 |
|
Provision for loan losses |
|
|
402 |
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|
264 |
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Net Interest Income After Provision for Loan Losses |
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4,207 |
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|
3,635 |
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|
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Noninterest Income |
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|
|
|
|
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Customer service fees |
|
|
586 |
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|
575 |
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Other service charges and fees |
|
|
499 |
|
|
|
469 |
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Net gains on loan sales |
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|
175 |
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|
|
109 |
|
Net realized gains on sales of available-for-sale securities |
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|
53 |
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|
70 |
|
Loan servicing fees |
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|
204 |
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|
|
217 |
|
Brokerage fees |
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|
42 |
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|
36 |
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Abstract and title fees |
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|
174 |
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|
172 |
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Increase in cash surrender value of life insurance |
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|
122 |
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|
110 |
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Other |
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|
105 |
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|
103 |
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Total noninterest income |
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1,960 |
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|
1,861 |
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|
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|
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Noninterest Expense |
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|
|
|
|
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Salaries and employee benefits |
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|
2,619 |
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|
2,509 |
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Net occupancy expense |
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|
413 |
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|
|
417 |
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Equipment expense |
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|
529 |
|
|
|
532 |
|
Data processing fees |
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|
339 |
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|
|
346 |
|
Professional fees |
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|
236 |
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|
|
232 |
|
Foreclosed assets expense, net |
|
|
51 |
|
|
|
82 |
|
Marketing expense |
|
|
122 |
|
|
|
118 |
|
Printing and office supplies |
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|
74 |
|
|
|
81 |
|
Amortization of loan servicing rights |
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|
86 |
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|
|
87 |
|
Other expenses |
|
|
576 |
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|
|
568 |
|
|
|
|
|
|
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Total noninterest expense |
|
|
5,045 |
|
|
|
4,972 |
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|
|
|
|
|
|
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|
|
|
|
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Income Before Income Tax |
|
|
1,122 |
|
|
|
524 |
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|
|
|
|
|
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|
Provision for Income Taxes |
|
|
353 |
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|
|
89 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Net Income |
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$ |
769 |
|
|
$ |
435 |
|
|
|
|
|
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|
|
|
|
|
|
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|
Basic Earnings Per Share |
|
$ |
0.37 |
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|
$ |
0.20 |
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|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Diluted Earnings Per Share |
|
$ |
0.36 |
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|
$ |
0.19 |
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|
|
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|
|
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|
|
|
|
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Dividends Per Share |
|
$ |
0.12 |
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|
$ |
0.12 |
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|
|
|
|
|
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See Notes to Unaudited Condensed Consolidated Financial Statements.
- 3 -
First BancTrust Corporation
Condensed Consolidated Statements of Income
(in thousands of dollars except share data)
(unaudited)
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Three Months Ended June 30 |
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2008 |
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2007 |
|
|
|
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|
|
|
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Interest and Dividend Income |
|
|
|
|
|
|
|
|
Loans |
|
|
|
|
|
|
|
|
Taxable |
|
$ |
4,354 |
|
|
$ |
3,743 |
|
Tax exempt |
|
|
14 |
|
|
|
15 |
|
Securities |
|
|
|
|
|
|
|
|
Taxable |
|
|
520 |
|
|
|
620 |
|
Tax exempt |
|
|
38 |
|
|
|
86 |
|
Dividends on Federal Home Loan Bank stock |
|
|
|
|
|
|
26 |
|
Deposits with financial institutions and other |
|
|
43 |
|
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|
26 |
|
|
|
|
|
|
|
|
Total interest and dividend income |
|
|
4,969 |
|
|
|
4,516 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Interest Expense |
|
|
|
|
|
|
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|
Deposits |
|
|
1,896 |
|
|
|
1,976 |
|
Federal Home Loan Bank advances and other debt |
|
|
641 |
|
|
|
565 |
|
|
|
|
|
|
|
|
Total interest expense |
|
|
2,537 |
|
|
|
2,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income |
|
|
2,432 |
|
|
|
1,975 |
|
Provision for loan losses |
|
|
193 |
|
|
|
132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Interest Income After Provision for Loan Losses |
|
|
2,239 |
|
|
|
1,843 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Income |
|
|
|
|
|
|
|
|
Customer service fees |
|
|
309 |
|
|
|
310 |
|
Other service charges and fees |
|
|
254 |
|
|
|
248 |
|
Net gains on loan sales |
|
|
77 |
|
|
|
49 |
|
Net realized gains on sales of available-for-sale securities |
|
|
|
|
|
|
70 |
|
Loan servicing fees |
|
|
97 |
|
|
|
114 |
|
Brokerage fees |
|
|
18 |
|
|
|
21 |
|
Abstract and title fees |
|
|
86 |
|
|
|
91 |
|
Increase in cash surrender value of life insurance |
|
|
61 |
|
|
|
55 |
|
Other |
|
|
54 |
|
|
|
53 |
|
|
|
|
|
|
|
|
Total noninterest income |
|
|
956 |
|
|
|
1,011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Noninterest Expense |
|
|
|
|
|
|
|
|
Salaries and employee benefits |
|
|
1,319 |
|
|
|
1,218 |
|
Net occupancy expense |
|
|
205 |
|
|
|
208 |
|
Equipment expense |
|
|
255 |
|
|
|
265 |
|
Data processing fees |
|
|
165 |
|
|
|
178 |
|
Professional fees |
|
|
150 |
|
|
|
129 |
|
Foreclosed assets expense, net |
|
|
25 |
|
|
|
78 |
|
Marketing expense |
|
|
71 |
|
|
|
59 |
|
Printing and office supplies |
|
|
32 |
|
|
|
42 |
|
Amortization of loan servicing rights |
|
|
43 |
|
|
|
42 |
|
Recovery of loan servicing rights |
|
|
(10 |
) |
|
|
|
|
Other expenses |
|
|
300 |
|
|
|
289 |
|
|
|
|
|
|
|
|
Total noninterest expense |
|
|
2,555 |
|
|
|
2,508 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income Before Income Tax |
|
|
640 |
|
|
|
346 |
|
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
|
207 |
|
|
|
78 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
433 |
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share |
|
$ |
0.21 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings Per Share |
|
$ |
0.20 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends Per Share |
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
- 4 -
First BancTrust Corporation
Condensed Consolidated Statements of Cash Flows
(in thousands of dollars)
(unaudited)
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
769 |
|
|
$ |
435 |
|
Items not requiring (providing) cash |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
450 |
|
|
|
416 |
|
Provision for loan losses |
|
|
402 |
|
|
|
264 |
|
Loss on foreclosed assets, net |
|
|
1 |
|
|
|
54 |
|
Amortization (accretion) of premiums and discounts on securities, net |
|
|
(8 |
) |
|
|
31 |
|
Amortization of loan servicing rights |
|
|
86 |
|
|
|
87 |
|
Deferred income taxes |
|
|
(212 |
) |
|
|
(124 |
) |
Amortization of intangible assets |
|
|
47 |
|
|
|
49 |
|
Net realized gains on available-for-sale securities |
|
|
(53 |
) |
|
|
(70 |
) |
Net gains on loan sales |
|
|
(175 |
) |
|
|
(109 |
) |
Compensation expense related to ESOP and incentive plan |
|
|
186 |
|
|
|
252 |
|
Loans originated for sale |
|
|
(10,869 |
) |
|
|
(7,391 |
) |
Proceeds from sales of loans originated for sale |
|
|
11,096 |
|
|
|
7,385 |
|
|
|
|
|
|
|
|
|
|
Changes in |
|
|
|
|
|
|
|
|
Interest receivable |
|
|
1,112 |
|
|
|
322 |
|
Cash surrender value of life insurance |
|
|
(104 |
) |
|
|
(93 |
) |
Other assets |
|
|
311 |
|
|
|
6 |
|
Interest payable |
|
|
94 |
|
|
|
(527 |
) |
Other liabilities |
|
|
232 |
|
|
|
(266 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
3,365 |
|
|
|
721 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Purchases of available-for-sale securities |
|
|
(5,177 |
) |
|
|
(7,466 |
) |
Proceeds from maturities of available-for-sale securities |
|
|
6,911 |
|
|
|
13,185 |
|
Proceeds from sales of available-for-sale securities |
|
|
2,669 |
|
|
|
7,172 |
|
Purchases of held-to-maturity securities |
|
|
|
|
|
|
(987 |
) |
Proceeds from maturities of held-to-maturity securities |
|
|
232 |
|
|
|
227 |
|
Net change in loans |
|
|
(16,316 |
) |
|
|
(21,112 |
) |
Proceeds from sales of foreclosed assets |
|
|
46 |
|
|
|
170 |
|
Purchases of premises and equipment |
|
|
(1,800 |
) |
|
|
(151 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(13,435 |
) |
|
|
(8,962 |
) |
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Net increase in demand deposits, money market,
NOW and savings accounts |
|
$ |
10,510 |
|
|
$ |
3,147 |
|
Net increase (decrease) in time and brokered time deposits |
|
|
3,033 |
|
|
|
(25,732 |
) |
Net increase (decrease) in short-term borrowings |
|
|
(2,715 |
) |
|
|
965 |
|
Proceeds from Federal Home Bank advances |
|
|
15,000 |
|
|
|
13,000 |
|
Repayment of Federal Home Loan Bank advances |
|
|
(11,500 |
) |
|
|
|
|
Net change in pass through payments received on loans sold |
|
|
(25 |
) |
|
|
(92 |
) |
Net change in advances from borrowers for taxes and insurance |
|
|
392 |
|
|
|
321 |
|
Purchase of treasury stock |
|
|
(107 |
) |
|
|
(1,082 |
) |
Dividends paid |
|
|
(258 |
) |
|
|
(274 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities |
|
|
14,330 |
|
|
|
(9,747 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase (Decrease) in Cash and Cash Equivalents |
|
|
4,260 |
|
|
|
(17,988 |
) |
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, Beginning of Year |
|
|
10,339 |
|
|
|
28,791 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and Cash Equivalents, End of Year |
|
$ |
14,599 |
|
|
$ |
10,803 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flows Information |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid (net of capitalized interest) |
|
$ |
5,170 |
|
|
$ |
5,467 |
|
|
|
|
|
|
|
|
|
|
Income taxes paid (net of refunds) |
|
$ |
365 |
|
|
$ |
245 |
|
|
|
|
|
|
|
|
|
|
Real estate and other property acquired in settlement of loans |
|
$ |
26 |
|
|
$ |
388 |
|
See Notes to Unaudited Condensed Consolidated Financial Statements.
- 5 -
First BancTrust Corporation
Notes to Condensed Consolidated Financial Statements
(unaudited)
Note 1 Basis of Presentation
The accompanying unaudited interim condensed consolidated financial statements have been prepared
pursuant to the rules and regulations for reporting on Form 10-Q. Accordingly, certain disclosures
required by accounting principles generally accepted in the United States of America are not
included herein. These interim statements should be read in conjunction with the audited
consolidated financial statements and notes thereto, included in the Companys Form 10-K filed with
the Securities and Exchange Commission.
Interim statements are subject to possible adjustments in connection with the annual audit of the
Company for the year ended December 31, 2008. In the opinion of management of the Company, the
accompanying unaudited interim condensed consolidated financial statements reflect all adjustments
(consisting of normal recurring adjustments) necessary for a fair presentation of the consolidated
financial position and consolidated results of operations for the periods presented. The results
of operations for the six and three months ended June 30, 2008 are not necessarily indicative of
the results to be expected for the full year. The condensed consolidated balance sheet of the
Company as of December 31, 2007 has been derived from the audited consolidated balance sheet of the
Company as of that date.
Note 2 Newly Adopted Accounting Pronouncements
Effective January 1, 2008, the Company adopted Statement of Financial Standards No. 157, Fair Value
Measurements (FAS 157). FAS 157 defines fair value, establishes a framework for measuring fair
value and expands disclosures about fair value measurements. FAS 157 has been applied
prospectively as of the beginning of the year.
FAS 157 defines fair value as the price that would be received to sell an asset or paid to transfer
a liability in an orderly transaction between market participants at the measurement date. FAS 157
also establishes a fair value hierarchy which requires an entity to maximize the use of observable
inputs and minimize the use of unobservable inputs when measuring fair value. The standard
describes three levels of inputs that may be used to measure fair value:
|
|
|
|
|
|
|
Level 1
|
|
Quoted prices in active markets for identical assets or liabilities |
|
|
|
|
|
|
|
Level 2
|
|
Observable inputs other than Level 1 prices, such as quoted
prices for similar assets or liabilities; quoted prices in markets that
are not active; or other inputs that are observable or can be
corroborated by observable market data for substantially the full term of
the assets or liabilities |
|
|
|
|
|
|
|
Level 3
|
|
Unobservable inputs that are supported by little or no market activity and
that are significant to the fair value of the assets or liabilities |
- 6 -
Following is a description of the valuation methodologies used for instruments measured at fair
value on a recurring basis and recognized in the accompanying balance sheet.
Available-for-Sale Securities
The fair value of available-for-sale securities are determined by various valuation methodologies.
Where quoted market prices are available in an active market, securities are classified within
Level 1. Level 1 securities include exchange traded equities. If quoted market prices are not
available, then fair values are estimated using pricing models or quoted prices of securities with
similar characteristics. Level 2 securities include Obligations of U.S. government corporations
and agencies, Obligations of states and political subdivisions, mortgage-backed securities, and
collateralized mortgage obligations. In certain cases where Level 1 or Level 2 inputs are not
available, securities are classified within Level 3 of the hierarchy and include certain municipal
securities and other less liquid securities.
The following table presents the Companys assets that are measured at fair value on a recurring
basis and the level within the FAS 157 hierarchy in which the fair value measurements fall as of
June 30, 2008 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements Using |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Available-for-sale
securities |
|
$ |
44,436 |
|
|
$ |
7 |
|
|
$ |
43,501 |
|
|
$ |
928 |
|
The change in fair value of assets measured using significant unobservable (Level 3) inputs on a
recurring basis for the three and six-month periods ended June 30, 2008, is summarized as follows
(in thousands):
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
Securities |
|
|
|
|
|
|
Balance, December 31, 2007 |
|
$ |
916 |
|
|
|
|
|
|
Total realized and unrealized gains and losses
|
|
|
|
|
Included in net income |
|
|
3 |
|
Included in other comprehensive income |
|
|
9 |
|
Purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2008 |
|
$ |
928 |
|
|
|
|
|
|
|
|
|
|
Total gains or losses for the period included
in net income attributable to the change in
unrealized gains or losses related to assets
and liabilities still held at reporting date |
|
$ |
|
|
|
|
|
|
- 7 -
|
|
|
|
|
|
|
Available-for-sale |
|
|
|
Securities |
|
|
|
|
|
|
Balance March 31, 2008 |
|
$ |
918 |
|
|
|
|
|
|
Total realized and unrealized gains and losses: |
|
|
|
|
Included in net income |
|
|
1 |
|
Included in other comprehensive income (loss) |
|
|
9 |
|
Purchases, issuances and settlements |
|
|
|
|
Transfers in and/or out of Level 3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance June 30, 2008 |
|
$ |
928 |
|
|
|
|
|
|
|
|
|
|
Total gains or losses for the period included
in net income attributable to the change in
unrealized gains or losses related to assets
and liabilities still held at reporting date |
|
$ |
|
|
|
|
|
|
Gains and losses (realized and unrealized) included in net income for the periods above are
reported in interest income as follows:
|
|
|
|
|
|
|
|
|
|
|
Three-Months |
|
|
Six-Months |
|
|
|
Ended |
|
|
Ended |
|
|
|
June 30, 2008 |
|
|
June 30, 2008 |
|
|
|
|
|
|
|
|
|
|
Total gains included in net income for the
period above |
|
$ |
1 |
|
|
$ |
3 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in unrealized gains or losses relating
to assets still held at reporting date |
|
$ |
9 |
|
|
$ |
9 |
|
|
|
|
|
|
|
|
- 8 -
The Company may be required, from time to time, to measure certain other financial assets and
liabilities on a nonrecurring basis. These adjustments to fair value usually result from
application of lower-of-cost-or-market accounting or write-downs of individual assets. For assets
measured at fair value on a nonrecurring basis in the first six months of 2008 that were still held
on the balance sheet at June 30, 2008, the following table provides the level of valuation
assumptions used to determine each adjustment and the fair value of the assets at June 30, 2008 (in
thousands).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying value at June 30, 2008 |
|
|
|
|
|
|
|
Quoted Prices in |
|
|
Significant |
|
|
|
|
|
|
|
|
|
|
Active Markets |
|
|
Other |
|
|
Significant |
|
|
|
|
|
|
|
for Identical |
|
|
Observable |
|
|
Unobservable |
|
|
|
|
|
|
|
Assets |
|
|
Inputs |
|
|
Inputs |
|
|
|
Fair Value |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Impaired loans |
|
$ |
3,772 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
3,772 |
|
Impaired Loans
Loans for which it is probable that the Company will not collect all principal and interest due
according to contractual terms are measured for impairment in accordance with the provisions of
Financial Accounting Standard No. 114 (FAS 114) Accounting by Creditors for Impairment of a
Loan. Allowable methods for estimating fair value include using the fair value of the collateral
or collateral dependent loans or, where a loan is determined not to be collateral dependent, using
the discounted cash flow method.
If the impaired loan is identified as collateral dependent, then the fair value method of measuring
the amount of the impairment is utilized. This method requires reviewing an independent appraisal
of the collateral and applying a discount factor to the value based on managements estimation
process.
- 9 -
Loan Servicing Rights
Loan servicing rights do not trade in an active, open market with readily observable prices.
Accordingly, fair value is determined using an independent valuation. Due to the nature of the
valuation inputs, loan servicing rights are classified within Level 3 of the hierarchy.
Note 3 Debt Covenants
The Company has a line of credit with LaSalle Bank NA. The line of credit has various debt
covenants. One of the debt covenants requires the Bank subsidiary to have the ratio of
nonperforming loans to Bank capital of not more than ten percent. The Bank violated this covenant
as of June 30, 2008 as the ratio was 12.5%. The Company has received a waiver of this covenant.
Note 4 Junior Subordinated Debentures
Capital securities of $6.0 million were issued June 15, 2005 by a statutory business trust, FBTC
Statutory Trust I (Trust). The Company owns 100% of the common equity of the trust, which is a
wholly-owned subsidiary of the Company. The $6.0 million in proceeds from the trust preferred
issuance and an additional $186,000 for the Companys investment in the common equity of the Trust,
a total of $6,186,000, was invested in the junior subordinated debentures of the Company. As
required by FIN 46R, the Company has not consolidated the investment in the Trust. The Trust was
formed with the purpose of issuing trust preferred securities and investing the proceeds from the
sale of such trust preferred securities in the debentures. The debentures held by the Trust are
the sole assets of the trust. Distributions of the trust preferred securities are payable at a
variable rate of interest, which is equal to the interest rate being earned by the trust on the
debentures, and are recorded as interest expense by the Company. The trust preferred securities
are subject to mandatory redemption, in whole or in part, upon repayment of the debentures.
The debentures are included as Tier I capital for regulatory capital purposes. On March 1, 2005,
the Federal Reserve Board adopted a final rule that allows the continued limited inclusion of trust
preferred securities in the calculation of Tier 1 capital for regulatory purposes. The final rule
provides a five-year transition period, ending March 31, 2009, for application of the quantitative
limits to have an impact on its calculation of Tier 1 capital for regulatory purposes or its
classification as well-capitalized. The debentures issued are first redeemable, in whole or part,
by the Company, on June 15, 2010, and mature on June 15, 2035. The funds were used for the
acquisition of the common stock of Rantoul First Bank and for the repurchase of First BancTrust
Corporation common stock. Interest is fixed at a rate of 5.80% for a period of five years, and
then converts to a floating rate after June 15, 2010. Interest payments are made quarterly.
Interest expense generated by the debentures for the six months ended June 30, 2008 and 2007
totaled $179,000 for both periods, and totaled $89,000 for both of the three month periods ended
June 30, 2008 and 2007.
- 10 -
Note 5 Employee Stock Ownership Plan
The Company has an Employee Stock Ownership Plan (ESOP) for the benefit of its employees. The
ESOP purchased required shares in the open market with funds borrowed from the Company. The ESOP
expense was $142,000 and $179,000 for the six month periods ended June 30, 2008 and 2007,
respectively, and $71,000 and $90,000 for the three month periods ended June 30, 2008 and 2007,
respectively. Shares purchased by the ESOP are held in a suspense account and are allocated to
ESOP participants based on a pro rata basis as debt service payments are made to the Company. The
loan is secured by the shares purchased with the proceeds and will be repaid by the ESOP with funds
from the Companys discretionary contributions to the ESOP and earnings on ESOP assets. Principal
payments are scheduled to occur over an eight-year period.
Note 6 Earnings per Share
Basic earnings per share have been computed based upon the weighted average common shares
outstanding for the three month and six month periods ended June 30, 2008 and 2007. Diluted
earnings per share reflect the potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock or resulted in the issuance of
common stock that then shared in the earnings of the Company.
- 11 -
Earnings per share were computed as follows (dollar amounts in thousands except share data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Per Share |
|
|
|
Income |
|
|
Shares |
|
|
Amount |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
769 |
|
|
|
2,103,247 |
|
|
$ |
0.37 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unearned recognition and retention plan shares |
|
|
|
|
|
|
55,948 |
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders and
assumed conversions |
|
$ |
769 |
|
|
|
2,159,195 |
|
|
$ |
0.36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the six months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
435 |
|
|
|
2,177,334 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unearned recognition and retention plan shares |
|
|
|
|
|
|
51,243 |
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
36,965 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders and
assumed conversions |
|
$ |
435 |
|
|
|
2,265,542 |
|
|
$ |
0.19 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2008: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
433 |
|
|
|
2,107,048 |
|
|
$ |
0.21 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unearned recognition and retention plan shares |
|
|
|
|
|
|
55,847 |
|
|
|
|
|
Stock Options |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders and
assumed conversions |
|
$ |
433 |
|
|
|
2,162,895 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the three months ended June 30, 2007: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic Earnings Per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders |
|
$ |
268 |
|
|
|
2,157,963 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of Dilutive Securities: |
|
|
|
|
|
|
|
|
|
|
|
|
Unearned recognition and retention plan shares |
|
|
|
|
|
|
49,114 |
|
|
|
|
|
Stock options |
|
|
|
|
|
|
37,128 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted Earnings per Share: |
|
|
|
|
|
|
|
|
|
|
|
|
Income available to common stockholders and
assumed conversions |
|
$ |
268 |
|
|
|
2,244,205 |
|
|
$ |
0.12 |
|
|
|
|
|
|
|
|
|
|
|
- 12 -
Options to purchase 273,474 shares of common stock at $9.87 per share were outstanding at June 30,
2008 but were not included in the computation of diluted EPS because the options exercise price
was greater than the average market price of the common shares.
Note 7 Comprehensive Income
Comprehensive income for the three and six month periods ended June 30, 2008 and 2007 is listed as
follows
|
|
|
|
|
|
|
|
|
|
|
Six Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
769 |
|
|
$ |
435 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income |
|
|
|
|
|
|
|
|
Unrealized appreciation (depreciation) on available-for-sale securities |
|
|
203 |
|
|
|
(367 |
) |
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for realized gains included
in net income |
|
|
53 |
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
150 |
|
|
|
(437 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Income (Loss), before tax effect |
|
|
919 |
|
|
|
(2 |
) |
|
|
|
|
|
|
|
|
|
Tax expense |
|
|
58 |
|
|
|
(170 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income, net of taxes |
|
$ |
861 |
|
|
$ |
168 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended June 30 |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
Net Income |
|
$ |
433 |
|
|
$ |
268 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss |
|
|
|
|
|
|
|
|
Unrealized depreciation on available-for-sale securities |
|
|
(586 |
) |
|
|
(410 |
) |
|
|
|
|
|
|
|
|
|
Less: Reclassification adjustment for realized gains included
in net income |
|
|
|
|
|
|
70 |
|
|
|
|
|
|
|
|
|
|
|
(586 |
) |
|
|
(480 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Comprehensive Loss, before tax effect |
|
|
(153 |
) |
|
|
(212 |
) |
|
|
|
|
|
|
|
|
|
Tax expense |
|
|
(228 |
) |
|
|
(186 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss), net of taxes |
|
$ |
75 |
|
|
$ |
(26 |
) |
|
|
|
|
|
|
|
- 13 -
Note 8 Recent Accounting Pronouncements
In March 2008, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards No. 161 (FAS 161), Disclosures about Derivative Instruments and Hedging
Activities an amendment of FASB Statement No. 133. FAS 161 requires qualitative disclosures
about objectives and strategies for using derivatives, quantitative disclosures about fair value
amounts of gain and losses on derivative instruments, and disclosures about credit-risk-related
contingent features in derivative agreements. FAS 161 is effective for fiscal years beginning
after November 15, 2008. The Company does not expect the implementation of FAS 161 to have a
material impact on its consolidated financial statements.
In December, 2007, the FASB issued Statement of Financial Standards No. 160 (FAS 160),
Noncontrolling Interests in Consolidated Financial Statements an amendment of ARB No. 51. FAS
160 requires that a noncontrolling interest in a subsidiary be reported separately within equity
and the amount of consolidated net income specifically attributable to the noncontrolling interest
be identified in the consolidated financial statements. It also calls for consistency in the
manner of reporting changes in the parents ownership interest and requires fair value measurement
of any noncontrolling equity investment retained in deconsolidation. FAS 160 is effective for
fiscal years beginning after December 15, 2008. The Company does not expect the implementation of
FAS 160 to have a material impact on its consolidated financial statements.
In December 2007, the FASB issued Statement of Financial Accounting Standards No. 141(R) (FAS
141(R)), Business Combinations. FAS 141(R) will significantly change the financial accounting
and reporting of business combination transactions. FAS 141(R) establishes principles for how an
acquirer recognizes and measures the identifiable assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree; recognizes and measures goodwill acquired in the business
combination or a gain from a bargain purchase; and determines what information to disclose to
enable users of the financial statements to evaluate the nature and financial effects of the
business combination. FAS 141(R) is effective for acquisition dates in fiscal years beginning
after December15, 2008. The Company does not expect the implementation of FAS 141(R) to have a
material impact on its consolidated financial statements.
Note 9 Deregistration
On April 21, 2008, the Company announced the Board of Directors preliminary approval of a going
private merger transaction and its intent to deregister as a public reporting company with the
Securities and Exchange Commission. This transaction, commonly referred to as a Cash Out Merger,
would compensate holders of less than 250 shares of the Companys common stock $11.00 per share in
cash for each share of the Companys stock that they held prior to the effective time of the
merger. Shareholders owning 250 shares or more will continue to hold their shares. The proposed
transaction, which is subject to shareholder and regulatory approvals, is intended to reduce the
number of Company shareholders of record to under 300, the level at which the Company is required
to file periodic reports with the Securities and Exchange Commission. As a result, if completed,
the Company intends to terminate the registration of stock with the SEC. Based on the original
analysis, it is anticipated that the Company will repurchase 27,779 or 1.3% of the outstanding
shares for a total purchase price of approximately $306,000. The number of shares to be
repurchased will continue to change based on market activity until the effective time of the
merger.
- 14 -
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SAFE HARBOR STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains certain forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. The Company intends such forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in the Private Securities Litigation Reform Act
of 1995 as amended, and is including this statement for purposes of these safe harbor provisions.
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
Companys 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 wholly-owned subsidiaries include, but are not limited to,
changes in: interest rates; general economic conditions; legislative/regulatory provisions;
monetary and fiscal policies of the U.S. Government, including policies of the U.S. Treasury and
the Federal Reserve Board; the quality of composition of the loan or investment portfolios; demand
for loan products; deposit flows; competition; demand for financial services in the Companys
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 Companys financial results, is included in the
Companys filings with the Securities and Exchange Commission.
The following discussion compares the financial condition of First BancTrust Corporation (Company),
First Bank & Trust, s.b. (Bank), First Charter Service Corporation, and ECS Service Corporation at
June 30, 2008 to its financial condition at December 31, 2007 and the results of operations for the
three-month and six-month periods ending June 30, 2008 to the same periods in 2007. In prior
years, First Charter Service Corporation provided retail sales of uninsured investment products to
customers of First Bank & Trust. In late 2004, First Bank & Trust entered into an agreement with
First Advisors Financial Group LLC (First Advisors) whereby First Advisors provides investment
advisory and asset management services to Bank customers beginning in 2005. First Advisors rents
office space from the Bank, and pays a percentage of fees generated from transactions with Bank
customers to the Bank. As a result, First Charter Service Corporation became inactive in 2005, and
has remained inactive since that time. This discussion should be read in conjunction with the
interim financial statements and notes included herein.
- 15 -
Financial Condition
Total assets of the Company increased by $15.7 million or 4.8%, to $342.6 million at June 30, 2008
from $326.9 million at December 31, 2007. The increase in assets was primarily due to increases in
cash and cash equivalents, loans, net of allowance for loan losses, and premises and equipment,
partially offset by decreases in available-for-sale securities and interest receivable. The
increase in assets was primarily funded by increases in deposits and Federal Home Loan Bank
advances.
The Companys cash and cash equivalents increased by $4.3 million from $10.3 million at December
31, 2007 to $14.6 million at June 30, 2008, a 41.2% increase. Cash and due from banks decreased by
$1.4 million or 18.3% to $6.2 million at June 30, 2008 from $7.6 million at December 31, 2007.
Interest-bearing demand deposits increased by $5.7 million to $8.4 million at June 30, 2008
compared to $2.7 million at December 31, 2007. The increase in cash and cash equivalents was
primarily generated by increases in deposits and Federal Home Loan Bank advances.
Available-for-sale investment securities amounted to $44.4 million at June 30, 2008 compared to
$48.6 million at December 31, 2007, a $4.2 million decrease. The 8.6% decrease primarily resulted
from $6.9 million in investment calls and maturities, payments on mortgage-backed securities, and
sales of $2.7 million in U.S. Treasury inflation indexed bonds, partially offset by investment
purchases of $5.2 million and an increase in the market valuation of the available-for-sale
portfolio of $151,000. Held-to-maturity securities decreased by $230,000 from $5.3 million at
December 31, 2007 to $5.1 million at June 30, 2008, primarily due to principal payments on
mortgage-backed securities of $232,000.
Loans held for sale, net of unrealized loss, decreased by $159,000 from $394,000 at December 31,
2007 to $235,000 at June 30, 2008. Loans held for sale are carried at the lower of cost or fair
value. Single family residential loans for qualified borrowers are originated and sold to Federal
Home Mortgage Corporation (FHLMC) and to the Illinois Housing Development Authority (IHDA).
Loans held for sale at June 30, 2008 consisted of three single-family residential loans to be sold
to FHLMC and IHDA .
The Companys net loan portfolio increased by $15.8 million to $250.7 million at June 30, 2008 from
$234.9 million at December 31, 2007. Gross loans increased by $16.1 million while the allowance
for loan losses increased by $368,000. Commercial loans increased by $6.6 million with the
majority of the loan originations generated by the Savoy branch. Loans secured by 1-4 family
residences increased by $4.2 million, primarily due to an increase in first mortgages on 1-4 family
homes in all markets, and multi-family residential real estate loans also increased by $5.6
million, primarily due to new originations in the Champaign County market. Agricultural production
loans decreased by $4.3 million and farmland loans decreased by $500,000 primarily due to an
increase in repayments. Construction loans increased by $955,000 and consumer loans increased by
$791,000 from December 31, 2007 to June 30, 2008.
- 16 -
At June 30, 2008, the allowance for loan losses was $2.5 million or 0.97% of the total loan
portfolio compared to the allowance for loan losses at December 31, 2007 of $2.1 million or 0.88%
of the total loan portfolio. During the first six months of 2008, the Company charged off $91,000
of loan losses, which consisted of two commercial loans and several consumer loans. The chargeoffs
of $91,000 were offset by $57,000 in recoveries from consumer loans, primarily vehicle loans. The
Company had overall net chargeoffs of $34,000 in the first six months of 2008 compared to net
chargeoffs of $368,000 for the first six months of 2007. The Companys nonperforming loans and
troubled debt restructurings increased to $4.5 million or 1.79% of total loans at June 30, 2008
compared to $884,000 or 0.37% as a percentage of total loans at December 31, 2007. The Companys
loans delinquent 90 days and over at June 30, 2008 totaled $688,000 and include $390,000 in
agricultural production loans, $187,000 in 1-4 family residential loans, $81,000 in commercial real
estate loans, and $30,000 in consumer loans. Delinquent agricultural production loans of $390,000
carry guarantees of $351,000 by the Farmers Home Administration. Nonaccrual loans totaled $3.8
million at June 30, 2008, and include $2.9 million in commercial real estate property loans, which
are comprised of three borrower relationships. Nonaccrual nonresidential real estate loans of
$867,000 have guarantees of $650,000 from the Small Business Administration. The Companys troubled
debt restructurings of $15,000 at June 30, 2008 consist of one restructured agricultural loan.
Management reviews the adequacy of the allowance for loan losses quarterly, and believes that its
allowance is adequate; however, the Company cannot assure that future chargeoffs and/or provisions
will not be necessary.
Premises and equipment increased by $1.4 million from $10.5 million at December 31, 2007 to $11.9
million at June 30, 2008, primarily due to purchases of premises and equipment of $1.8 million,
partially offset by depreciation expense of $450,000. In February, the Company completed the $1.7
million purchase of a commercial building in downtown Champaign, Illinois for future expansion.
The building will be renovated, with expectations that a portion of the building will be leased to
offset occupancy costs. The building is immediately adjacent to a successful re-vitalization
project in the downtown area.
The Company owns approximately $3.7 million of Federal Home Loan Bank stock. During the third
quarter of 2007, the Federal Home Loan Bank of Chicago received a Cease and Desist Order from their
regulator, the Federal Housing Finance Board. The Federal Home Loan Bank will continue to provide
liquidity and funding through advances; however, the draft order prohibits capital stock
repurchases and redemptions until a time to be determined by the Federal Housing Finance Board.
The Board of Directors and management of Federal Home Loan Bank of Chicago have recently announced
it will no longer fund mortgage loan purchases through its Mortgage Partnership Finance program
after July 31, 2008. There were no dividends paid by Federal Home Loan Bank of Chicago during the
first half of 2008. The Federal Home Bank of Chicago will continue to assess their dividend
capacity each quarter, and will obtain the necessary approval if a dividend is to be made.
Net foreclosed assets held for sale, totaling $527,000 at June 30, 2008 decreased $27,000, compared
to $554,000 at December 31, 2007. As of June 30, 2008, the Company had real estate properties
totaling $490,000 consisting of two residential properties, two commercial properties, and two
vacant lots. Foreclosed assets are carried at lower of cost or net realizable value.
- 17 -
Interest receivable declined by $1.1 million from $3.5 million at December 31, 2007 to $2.4 million
at June 30, 2008, a 31.7% decrease. This reduction is seasonal, as many agricultural
loans are annual payment loans, with payments due at the beginning of the year. Deferred income
taxes increased by $154,000 from $1.2 million at December 31, 2007 to $1.4 million at June 30,
2008, primarily as a result of deferred income taxes related to temporary timing differences.
Other assets decreased by $311,000 from $825,000 at December 31, 2007 compared to $514,000 at June
30, 2008 primarily as a result of a reduction in prepaid expenses.
The Companys total deposits totaled $245.7 million at June 30, 2008 compared to $232.1 million at
December 31, 2007, an increase of $13.6 million. The 5.8% increase in total deposits was due to a
$9.5 million increase in savings, NOW and money market accounts, $3.7 million increase in
certificates of deposit, and a $991,000 increase in non-interest bearing demand deposits, partially
offset by a $627,000 decrease in brokered deposits. Savings accounts increased by $4.3 million
primarily due to a promotion highlighting the Pay Yourself Savings account to attract lower cost
core deposits. Classic checking, an interest-bearing product targeted to seniors, increased by
$5.7 million from $15.1 million at December 31, 2007 to $20.8 million at June 30, 2008. Money
market accounts increased by $974,000, from $19.3 million at December 21, 2007 to $20.3 million at
June 30, 2008. Time deposits increased by $3.7 million from $129.8 million at December 31, 2007 to
$133.4 million at June 30, 2008, primarily in maturities of less than or equal to one year.
Brokered time deposits decreased by $627,000 primarily due to the issuance of $9.0 million in DTC
(Depository Trust Company) certificates of deposit. In addition, an existing DTC certificate of
deposit of $5.0 million with a final maturity of June, 2010 was called in March, 2008, and another
$5.0 million certificate matured in April, 2008. Other brokered certificates of deposit increased
by approximately $380,000. The funds generated from the increase in deposits were primarily used
to fund loans and to finance the purchase of the future expansion site in Champaign.
Short term borrowings decreased by $2.7 million, primarily as a result of the repayment of an
existing line of credit at the Bank level. The remaining $1.0 million of the short term borrowings
is a $2.0 million revolving line of credit at the Corporate level which is secured by the First
Bank & Trust, s.b. stock owned by the Company. This line of credit with LaSalle Bank NA has
various debt covenants. One of the debt covenants requires the Bank subsidiary to have the ratio
of nonperforming loans to Bank capital of not more than ten percent. The Bank violated this
covenant as of June 30, 2008 as the ratio was 12.5%. The Company has received a waiver of this
covenant. Federal Home Loan Bank advances increased by $3.5 million from $55.8 million at December
31, 2007 to $59.3 million at June 30, 2008. The open line of credit, which at December 31, 2007
totaled $8.0 million, was repaid during the first six months of 2008, and two advances totaling
$3.5 million matured in the first quarter 2008. Three new convertible advances of $5.0 million
each were obtained in 2008, one in March with a lock out rate of 2.46% for two years, one in April
with a lock out rate of 2.66% for two years, and the other one in June with a lock out rate of
3.24% for two years. After the lock out term of two years has passed, the Federal Home Loan Bank
has the option to convert these advances to a quarterly adjustable advance, with the option of
prepayment available if that should occur. Existing advances include advances of $39.0 million
which have passed the initial lock-out period and are subject to possible conversion quarterly.
Fixed rate, fixed term advances at June 30, 2008 totaled $5.3 million, and the line of credit has a
zero balance. The total average rate of all advances was 3.89% as of June 30, 2008. The increase
in borrowings was used primarily to fund loans.
- 18 -
Junior subordinated debentures remained constant at $6.2 million at June 30, 2008 compared to
December 31, 2007. Capital securities of $6.0 million were issued June 15, 2005 by a statutory
business trust, FBTC Statutory Trust I. The Company owns 100% of the common equity of the
trust, which is a wholly-owned subsidiary of the Company. The $6.0 million in proceeds from the
trust preferred issuance and an additional $186,000 for the Companys investment in the common
equity of the Trust, a total of $6,186,000, was invested in the junior subordinated debentures of
the Company. As required by FIN 46R, the Company has not consolidated the investment in the Trust.
The trust was formed with the purpose of issuing trust preferred securities and investing the
proceeds from the sale of such trust preferred securities in the debentures. The debentures held
by the trust are the sole assets of the trust. Distributions of the trust preferred securities are
payable at a variable rate of interest, which is equal to the interest rate being earned by the
trust on the debentures, and are recorded as interest expense by the Company. The trust preferred
securities are subject to mandatory redemption, in whole or in part, upon repayment of the
debentures.
The debentures are included as Tier I capital for regulatory capital purposes. The debentures
issued are first redeemable, in whole or part, by the Company, on June 15, 2010, and mature on June
15, 2035. Interest payments are made quarterly. Interest expense related to the debentures was
$179,000 for the six month periods, and $90,000 for both three month periods ended June 30, 2008
and 2007.
Advances from borrowers for taxes and insurance increased by $392,000 from $132,000 at December 31,
2007 to $524,000 at June 30, 2008. The $392,000 increase is a normal trend, as escrows typically
accumulate funds in the first half of the year for the payment of real estate taxes later in the
year. Interest payable increased $94,000, or 10.3% from $916,000 at December 31, 2007 to $1.0
million at June 30, 2008 primarily a result of the increase in balances of certificates of
deposits, savings, and checking accounts.
Stockholders equity at June 30, 2008 was $27.2 million compared to $26.5 million at December 31,
2007, an increase of $683,000. Retained earnings increased by the amount of net income or $769,000,
partially offset by $258,000 in dividends declared and paid. As shares from the employee stock
ownership plan vested to participants from December 31, 2007 to June 30, 2008, stockholders equity
increased by $142,000, and as shares from the incentive plan were earned by participants for the
same period, stockholders equity increased by $44,000. Accumulated comprehensive loss decreased
by $92,000 due to an increase in the fair value of securities available for sale, net of related
tax effect. The increase of $107,000 in treasury stock resulted from the repurchase of 10,000
shares of stock.
- 19 -
Results of Operations
Comparison of Six Month Periods Ended June 30, 2008 and 2007
Net income for the six months ended June 30, 2008 increased by $334,000 or 76.8% from $435,000 for
the six months ended June 30, 2007 to $769,000 for the six months ended June 30, 2008. The
increase in net income is primarily due to increases net interest income and noninterest income,
partially offset by increases in the provision for loan losses, noninterest expense, and income tax
expense.
Net interest income increased $710,000 or 18.2% from $3.9 million for the six months ended June 30,
2007 to $4.6 million for the six months ended June 30, 2008. The primary reasons for the increase
in net interest income was an increase in total interest and dividend income of $1.0 million
partially offset by an increase in total interest expense of $324,000. The Companys net interest
margin was 3.05% and 2.92% during the six months ended June 30, 2008 and 2007, respectively. The
net interest margin increased as a result of an increase in interest spread. Interest spread
increased by 19 basis points from 2.62% for the six months ended June 30, 2007 to 2.81% for the six
months ended June 30, 2008. The average rate paid on interest bearing liabilities decreased by 27
basis points, while the average rate earned on interest bearing assets decreased by 10 basis
points. The average balances of interest bearing assets for the six month period ending June 30,
2008 increased by $35.5 million to $302.7 million compared to $267.2 million in average earning
assets for the six month period ending June 30, 2007. Interest bearing liabilities increased by
$35.9 million from $247.5 million for the six month period ended June 30, 2007 to $283.4 million
for the six month period ended June 30, 2008. The increase in interest bearing assets was
primarily due to loan growth, while the increase in interest bearing liabilities was due to deposit
growth and an increase in borrowings.
Total interest and dividend income increased by $1.1 million or 11.7% from $8.8 million for the six
months ended June 30, 2007 to $9.9 million for the six months ended June 30, 2008. The increase of
$1.1 million was primarily due to increases in loan interest income and interest income from
deposits with financial institutions, partially offset by reductions in interest and dividend
income from securities and dividends on Federal Home Loan Bank stock. The increase of $1.4 million
in loan interest income was primarily due to a $45.7 million increase in the average loan balance,
which was partially offset by a decrease in the average loan rate of 25 basis points. Interest and
dividend income from securities decreased by $272,000 primarily due to a decrease of $14.6 million
in the average balance of investments, partially offset by an increase of 30 basis points in the
average rate. Interest income from deposits with financial institutions decreased by $7,000
primarily due to a decrease of in average rate of 260 basis points partially offset by a $4.5
million increase in the average balance. Dividends on Federal Home Loan Bank stock decreased by
$61,000 from the six months ended June 30, 2007 to the six months ended June 30, 2008 due to no
dividends received in 2008.
- 20 -
Interest expense increased by $324,000 or 6.6% from $4.9 million for the six months ended June 30,
2007 to $5.3 million for the six months ended June 30, 2008. This increase was primarily due to an
increase of $65,000 in interest on deposits and a $259,000 increase in interest on Federal Home
Loan Bank advances and other debt. The $65,000 increase in interest expense on deposits was
primarily due to an increase in the average balance of interest bearing deposits of $22.6 million,
partially offset by a decrease in the average rate paid of 33 basis points. The $259,000 increase
in interest on Federal Home Loan Bank advances and other debt was due to an increase in the average
balance of $13.3 million, which was partially offset by a decrease in average interest rate of 28
basis points.
For the six months ended June 30, 2008 and 2007, the provision for losses on loans was $402,000 and
$264,000, respectively. The provision for the six months ended June 30, 2008 was based on the
Companys analysis of the allowance for loan losses. Management meets on a quarterly basis to
review the adequacy of the allowance for loan losses by classifying loans in compliance with
regulatory classifications. Classified loans are individually reviewed to arrive at specific
reserve levels for those loans. Once the specific portion for each loan is calculated, management
calculates a historical portion for each category based on a combination of loss history, current
economic conditions, and trends in the portfolio. While the Company cannot assure that future
chargeoffs and/or provisions will not be necessary, the Companys management believes that, as of
June 30, 2008, its allowance for loan losses was adequate.
Noninterest income increased $99,000 or 5.3% from $1.9 million for the six months ended June 30,
2007 to $2.0 million for the six months ended June 30, 2008. The increase was primarily a result
of increases in customer service fees, other service charges and fees, net gains on loan sales, and
an increase in cash surrender value of life insurance, partially offset by decreases in loan
servicing fees and net realized gains on sales of available-for-sale securities. Customer service
fees increased by $11,000 from $575,000 for the six months ended June 30, 2007 to $586,000 for the
six months ended June 30, 2008, primarily due to increased NSF and overdraft fees. Other service
charges and fees increased by $30,000 from $469,000 for the six months ended June 30, 2007 compared
to $499,000 for the six months ended June 30, 2008 primarily due to an increase in debit card fees.
Net gains on loan sales increased by $66,000 from $109,000 for the six months ended June 30, 2007
to $175,000 for the six months ended June 30, 2008 as a result of a $3.7 million increase in volume
of loans sold into the secondary market. The increase in cash surrender value of life insurance
increased by $12,000 from $110,000 for the six months ended June 30, 2007 to $122,000 for the six
months ended June 30, 2008. Loan servicing fees decreased by $13,000 from $217,000 for the six
months ended June 30, 2007 to $204,000 for the six months ended June 30, 2008, primarily due to a
$1.3 million decrease in the average balance of agricultural loans serviced for others.
Total noninterest expenses were $5.05 million for the six months ended June 30, 2008 compared to
$4.97 million for the six months ended June 30, 2007. The primary reason for the $73,000 increase
was an increase in salaries and employee benefits, partially offset by a reduction in net
foreclosed assets expense. Salaries and employee benefits increased by $110,000 from $2.5 million
for the six months ended June 30, 2007 to $2.6 million for the six months ended June 30, 2008, as a
result of an increase in salaries expense partially offset by reductions in incentive plan expense
and Employee Stock Ownership Plan (ESOP) expense.
- 21 -
Foreclosed assets expense, net decreased by $31,000 from $82,000 for the six months ended June 30,
2007 to $51,000 for the six months ended June 30, 2008. Foreclosed assets in 2007 included an
apartment complex, and the expenses incurred in holding the property caused an increase in
foreclosed assets expense.
Income tax expense was $353,000 for the six months ended June 30, 2008 as compared to $89,000 for
the six months ended June 30, 2007. The increase of $264,000 in income tax expense was primarily
due to an increase in income before income taxes of $598,000 from $524,000 for the six months ended
June 30, 2007 compared to $1.1 million for the six months ended June 30, 2008. The effective tax
rate for the six months ended June 30, 2008 was 31.5% compared to 17.0% for the six months ended
June 30, 2007.
The Company adopted the provisions of FASB Interpretation No. 48 (FIN 48), for Uncertainty in
Income Taxes, on January 1, 2007. The Company has recognized no increase in its liability for
unrecognized tax benefits as a result of the implementation of FIN 48. The Company files income
tax returns in the U.S. federal jurisdiction and the state of Illinois jurisdiction. The Company
is no longer subject to U.S. federal, state and local taxes on non-U.S. income tax examinations by tax
authorities for years before 2004.
Comparison of Three Month Periods Ended June 30, 2008 and 2007
Net income for the three months ended June 30, 2008 increased by $165,000 or 61.6% from $268,000
for the three months ended June 30, 2007 to $433,000 for the three months ended June 30, 2008. The
increase in net income is due to an increase in net interest income, partially offset by a
reduction in noninterest income and increases in the provision for loan losses, noninterest
expense, and income tax expense.
Net interest income increased $457,000 or 23.1% from $2.0 million for the three months ended June
30, 2007 to $2.4 million for the three months ended June 30, 2008. The primary reasons for the
increase in net interest income was an increase in total interest and dividend income of $453,000,
partially offset by a slight decrease in interest expense of $4,000. The Companys net interest
margin was 3.17% and 2.95% during the three months ended June 30, 2008 and 2007, respectively. The
net interest margin increased as a result of an increase in interest spread. Interest spread
increased by 25 basis points from 2.68% for the three months ended June 30, 2007 to 2.93% for the
three months ended June 30, 2008. The average rate earned on interest bearing assets decreased by
27 basis points, while the average rate paid on interest bearing liabilities decreased by 52 basis
points. The average balances of interest bearing assets for the three month period ending June 30,
2008 increased by $39.2 million to $307.3 million compared to $268.1 million in average earning
assets for the three month period ending June 30, 2007. Interest bearing liabilities increased by
$36.1 million from $250.4 million for the three month period ended June 30, 2007 to $286.5 million
for the three month period ended June 30, 2008. The increase in interest bearing assets was
primarily due to loan growth, while the increase in interest bearing liabilities was primarily due
to deposit growth and an increase in borrowings.
- 22 -
Total interest and dividend income increased by $453,000 or 10.0% from $4.5 million for the three
months ended June 30, 2007 to $5.0 million for the three months ended June 30, 2008. The increase
of $453,000 was primarily due to an increase in loan interest income partially offset by a
reduction of interest and dividend income from securities, and dividends from Federal Home Loan
Bank stock. The increase of $610,000 in loan interest income was primarily due to a $45.5 million
increase in the average loan balance, partially offset by a decrease in the average loan rate of 38
basis points. Interest and dividend income from securities decreased by $148,000 primarily due to
a decrease of $12.9 million in the average balance of investments, partially offset by an increase
of 3 basis points in the average rate. Interest income from deposits with financial institutions
increased by $17,000 primarily due to an increase of $6.6 million in the average balance of
deposits with financial institutions, partially offset by a decrease in the average rate of 262
basis points. Dividends on Federal Home Loan Bank stock decreased by $26,000 from the three months
ended June 30, 2007 to the three months ended June 30, 2008 due to the suspension of Federal Home
Loan Bank dividends.
Interest expense decreased by only $4,000 or 0.2% for the three months ended June 30, 2008 compared
to the three months ended June 30, 2007. This decrease was primarily due to a decrease of $80,000
in interest on deposits, partially offset by a $76,000 increase in interest on Federal Home Loan
Bank advances and other debt. The $80,000 increase in interest expense on deposits was primarily
due to a $25.2 million increase in the average balance of interest bearing deposits, partially
offset by a decrease in the average rate paid on deposits of 58 basis points. The $76,000 increase
in interest on Federal Home Loan Bank advances and other debt was due to an increase in the average
balance of $10.9 million, partially offset by a decrease in average interest rate of 31 basis
points.
For the three months ended June 30, 2008 and 2007, the provision for losses on loans was $193,000
and $132,000, respectively. The provision for the three months ended June 30, 2008 was based on
the Companys analysis of the allowance for loan losses. Management meets on a quarterly basis to
review the adequacy of the allowance for loan losses by classifying loans in compliance with
regulatory classifications. Classified loans are individually reviewed to arrive at specific
reserve levels for those loans. Once the specific portion for each loan is calculated, management
calculates a historical portion for each category based on a combination of loss history, current
economic conditions, and trends in the portfolio. While the Company cannot assure that future
chargeoffs and/or provisions will not be necessary, the Companys management believes that, as of
June 30, 2008, its allowance for loan losses was adequate.
- 23 -
Noninterest income decreased $55,000 or 5.4% from $1.0 million for the three months ended June 30,
2007 to $956,000 for the three months ended June 30, 2008. The decrease was primarily a result of
decreases in net realized gains on sales of available-for-sale securities and loan servicing fees,
partially offset by an increase in net gains on loan sales. Other service charges and fees
increased by $6,000 from $248,000 for the three months ended June 30, 2007 compared to $254,000 for
the three months ended June 30, 2008 primarily due to an increase in debit card fees. Net gains on
loan sales increased by $28,000 from $49,000 for the three months ended June 30, 2007 to $77,000
for the three months ended June 30, 2008. There were no net realized gains on sales of
available-for-sale securities for the three months ended June 30, 2008 compared to $70,000 for the
three months ended June 30, 2007. The $70,000 gain on sale of available-for-sale securities in
2007 resulted from the sale of $7.1 million in municipal bonds. Loan servicing fees declined by
$17,000 from $114,000 for the three months ended June 30, 2008 compared to $97,000 for the three
months ended June 30, 2008 due to a reduction in the agricultural portfolio serviced for others.
Total noninterest expenses increased by $47,000 from $2.5 million for the three months ended June
30, 2007 compared to $2.6 million for the three months ended June 30, 2008. The primary reasons
for the $47,000 increase were increases in salaries and employee benefits expense, professional
fees, and marketing expense, partially offset by decreases in net foreclosed assets expense, data
processing expense, and printing and office supplies expense. Salaries and employee benefits
increased by $101,000 from $1.2 million for the three months ended June 30, 2007 to $1.3 million
for the three months ended June 30, 2008, as a result of an increase in salaries expense, director
fees, and officer expense, partially offset by a reduction in ESOP expense.
Data processing fees decreased by $13,000 primarily due to the completion of a data processing
contract in 2007 with a former service provider. Professional fees increased by $21,000 from
$129,000 for the three months ended June 30, 2007 compared to $150,000 for the three months ended
June 30, 2008 primarily due to additional legal and consulting fees associated with the proposed
de-listing transaction.
Foreclosed assets expense decreased by $53,000 from $78,000 for the three months ended June 30,
2007 to $25,000 for the three months ended June 30, 2008, primarily due to expenses incurred in
2007 associated with commercial and multi-family foreclosed properties. Marketing expense
increased by $12,000 from $59,000 for the three months ended June 30, 2007 to $71,000 for the three
months ended June 30, 2008 primarily due to marketing efforts in 2008 to announce to the public the
recruitment of a well-established commercial lender in the Savoy market area. Other expenses
increased by $11,000 primarily due to an increase in Freddie Mac delivery fees.
Income tax expense was $207,000 for the three months ended June 30, 2008 as compared to $78,000 for
the three months ended June 30, 2007. The increase of $129,000 in income tax expense was primarily
due to an increase in income before income taxes of $294,000 from $346,000 for the three months
ended June 30, 2007 compared to $640,000 for the three months ended June 30, 2008. The effective
tax rate for the three months ended June 30, 2008 was 32.3% compared to 22.5% for the three months
ended June 30, 2007.
- 24 -
Critical Accounting Policies
The preparation of financial statements in conformity with accounting standards generally accepted
in the United States of America requires management to make estimates and assumptions that affect
the reported amounts of assets, liabilities, revenues and expenses and the related disclosure of
contingent assets and liabilities. Actual results could differ from those estimates under
different assumptions and conditions. Management believes that its critical accounting policies
and significant estimates include determining the allowance for loan losses, the valuation of loan
servicing rights, and the valuation of foreclosed real estate.
Allowance for loan losses
The allowance for loan losses is a significant estimate that can and does change based on
managements assumptions about specific borrowers and current general economic and business
conditions, among other factors. Management reviews the adequacy of the allowance for loan losses
on at least a quarterly basis. The evaluation by management includes consideration of past loss
experience, changes in the composition of the loan portfolio, the current condition and amount of
loans outstanding, identified problem loans and the probability of collecting all amounts due.
The determination of the adequacy of the allowance for loan losses is based on estimates that are
particularly susceptible to significant changes in the economic environment and market conditions.
A worsening or protracted economic decline would increase the likelihood of additional losses due
to credit and market risk and could create the need for additional loss reserves.
Loan Servicing Rights
The Company recognizes the rights to service loans as separate assets on the consolidated balance
sheet when the related loans are sold based on their fair value. The total cost of loans when sold
is allocated between loans and loan servicing rights based on the relative fair values of each.
Loan servicing rights are subsequently carried at the lower of the initial carrying value, adjusted
for amortization, or fair value. Loan servicing rights are evaluated for impairment based on the
fair value of those rights. Factors included in the calculation of fair value of the loan
servicing rights include estimating the present value of future net cash flows, market loan
prepayment speeds for similar loans, discount rates, servicing costs, and other economic factors.
Servicing rights are amortized over the estimated period of net servicing revenue. It is likely
that these economic factors will change over the life of the loan servicing rights, resulting in
different valuations of the loan servicing rights. The differing valuations will affect the
carrying value of the loan servicing rights on the consolidated balance sheet, as well as the
income recorded from loan servicing in the income statement. As of June 30, 2008 and December 31,
2007, loan servicing rights had carrying values of $314,000 and $293,000, respectively.
Foreclosed Assets Held for Sale
Foreclosed assets held for sale are carried at the lower of cost or fair value less estimated
selling costs. Management estimates the fair value of the properties based on current appraisal
information. Fair value estimates are particularly susceptible to significant changes in the
economic environment, market conditions, and the real estate market. A worsening or protracted
economic decline would increase the likelihood of a decline in property values and could create the
need to write down the properties through current operations.
- 25 -
Liquidity
At June 30, 2008, the Company had outstanding commitments to originate $32.1 million in loans, and
$22.8 million available to be drawn upon for open-end lines of credit. For more information on the
outstanding commitments, see the discussion below the caption Off-Balance Sheet Arrangements and
Contractual Commitments. As of June 30, 2008, the total amount of certificates scheduled to
mature in the following 12 months was $109.7 million. The Company believes that it has adequate
resources to fund all of its commitments. The Companys most liquid assets are cash and cash
equivalents. The level of cash and cash equivalents is dependent on the Companys operating,
financing, lending and investing activities during any given period. The level of cash and cash
equivalents at June 30, 2008 was $14.6 million. The Companys future short-term requirements for
cash are not expected to significantly change. In the event that the Company should require funds
beyond its capability to generate them internally, additional sources of funds are available such
as Federal Home Loan Bank advances.
Off-Balance Sheet Arrangements and Contractual Commitments
At June 30, 2008, the Company had outstanding commitments to originate loans of $32.1 million. The
commitments extended over varying periods of time with the majority being disbursed within a
one-year period. Loan commitments at fixed rates of interest amounted to $7.0 million, with the
remainder at floating rates. In addition, the Company had outstanding unused lines of credit to
borrowers aggregating $16.2 million for commercial lines of credit, and $6.6 million for consumer
lines of credit. Outstanding commitments for letters of credit at June 30, 2008 totaled $573,000.
Since these commitments have fixed expiration dates, and some will expire without being drawn upon,
the total commitment level may not necessarily represent future cash requirements.
The following table presents additional information about our unfunded commitments as of June 30,
2008, which by their terms have contractual maturity dates subsequent to June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Next 12 |
|
|
13-36 |
|
|
37-60 |
|
|
More than |
|
|
|
|
|
|
Months |
|
|
Months |
|
|
Months |
|
|
60 Months |
|
|
Totals |
|
|
|
(Dollars in thousands) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unfunded commitments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Letters of credit |
|
$ |
573 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
573 |
|
Lines of credit |
|
|
15,661 |
|
|
|
1,858 |
|
|
|
523 |
|
|
|
4,805 |
|
|
|
22,847 |
|
Overdraft protection |
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,382 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Totals |
|
$ |
17,616 |
|
|
$ |
1,858 |
|
|
$ |
523 |
|
|
$ |
4,805 |
|
|
$ |
24,802 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
- 26 -
Capital Resources
The Bank is subject to capital-to-asset requirements in accordance with Federal bank regulations.
The following table summarizes the Banks regulatory capital requirements, versus actual capital as
of June 30, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Required for |
|
|
To be Well |
|
|
|
Actual |
|
|
Adequate Capital |
|
|
Capitalized |
|
June 30, 2008 |
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
Amount |
|
|
% |
|
|
|
(Dollars in thousands) |
|
Total capital (to
risk-weighted
assets) |
|
$ |
34,629 |
|
|
|
14.12 |
|
|
$ |
19,624 |
|
|
|
8.0 |
|
|
$ |
24,530 |
|
|
|
10.0 |
|
Tier 1 capital (to
risk-weighted
assets) |
|
|
32,170 |
|
|
|
13.11 |
|
|
|
9,812 |
|
|
|
4.0 |
|
|
|
14,718 |
|
|
|
6.0 |
|
Tier 1 capital (to
average assets) |
|
|
32,170 |
|
|
|
9.59 |
|
|
|
13,415 |
|
|
|
4.0 |
|
|
|
16,769 |
|
|
|
5.0 |
|
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Sources of market risk include interest rate risk, foreign currency exchange risk, commodity price
risk and equity price risk. The Company is only subject to interest rate risk. The Company
purchased no financial instruments for trading purposes during the six months ended June 30, 2008
and 2007.
The principal objectives of the Companys interest rate risk management function are: (i) to
evaluate the interest rate risk included in certain balance sheet accounts; (ii) to determine the
level of risk appropriate given the Companys business focus, operating environment, capital and
liquidity requirements, and performance objectives; (iii) to establish asset concentration
guidelines; and (iv) to manage the risk consistent with Board-approved guidelines. Through such
management, the Company seeks to reduce the vulnerability of its operations to changes in interest
rates and to manage the ratio of interest rate sensitive assets to interest rate sensitive
liabilities within specified maturity terms or repricing dates. The Companys Board of Directors
has established an Asset/Liability Committee consisting of directors and senior management
officers, which is responsible for reviewing the Companys asset/liability policies and monitoring
interest rate risk as such risk relates to its operating strategies. The committee usually meets
on a quarterly basis, and at other times as dictated by market conditions, and reports to the Board
of Directors. The committee is responsible for reviewing Company activities and strategies, and the
effect of those strategies on the Companys net interest margin, the market value of the portfolio
and the effect that changes in the interest will have on the Companys portfolio and exposure
limits.
- 27 -
The Companys key interest rate risk management tactics consist primarily of: (i) emphasizing the
attraction and retention of core deposits, which tend to be a more stable source of funding; (ii)
emphasizing the origination of adjustable rate mortgage loan products and short-term commercial and
consumer loans for the in-house portfolio, although this is dependent largely on the market for
such loans; (iii) selling longer-term fixed-rate one-to-four family mortgage loans in the secondary
market; and (iv) investing primarily in U.S. government agency instruments and mortgage-backed
securities.
The Companys interest rate and market risk profile has not materially changed from the year ended
December 31, 2007. Please refer to the Companys Form 10-K for the year ended December 31, 2007
for further discussion of the Companys market and interest risk.
ITEM 4T. CONTROLS AND PROCEDURES
The Company carried out an evaluation as of June 30, 2008, under the supervision and with the
participation of the Companys management, including the Companys Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the design and operation of the Companys
disclosure controls and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Companys disclosure controls and procedures are
effective. There were no significant changes in the Companys internal controls or in other
factors that could significantly affect these controls during the quarter ended June 30, 2008.
Disclosure controls and procedures are the controls and other procedures of the Company that are
designed to ensure that the information required to be disclosed by the Company in its reports
filed or submitted under the Securities Exchange Act of 1934, as amended (Exchange Act) is
recorded, processed, summarized and reported, within the time periods specified in the Securities
and Exchange Commissions rules and forms. Disclosure controls and procedures include, without
limitation, controls and procedures designed to ensure that information required to be disclosed by
the Company in its reports filed under the Exchange Act is accumulated and communicated to the
Companys management, including the principal executive officer and principal financial officer, as
appropriate to allow timely decisions regarding required disclosure.
PART II OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The Company and subsidiary are subject to claims and lawsuits which arise primarily in the ordinary
course of business, such as claims to enforce liens and claims involving the making and servicing
of real property loans and other issues. It is the opinion of management that the disposition or
ultimate determination of such possible claims or lawsuits will not have a material adverse effect
on the consolidated financial position of the Company.
- 28 -
ITEM 1A. RISK FACTORS
There have been no material changes from the risk factors set forth in Part I, Item 1A Risk
Factors of the Companys Form 10-K for the year ended December 31, 2007. Please refer to that
section of the Companys Form 10-K for disclosures regarding risks and uncertainties related to the
Companys business.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(c) There have been no purchases of the Companys common stock by the Company during the quarter
ended June 30, 2008, and there are no open programs to repurchase shares on the open market.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
|
a. |
|
The Companys Annual Meeting of Shareholders was held on April 21, 2008. |
|
|
b. |
|
Not applicable. |
|
|
c. |
|
At such meeting, there were 2,185,839 shares of Common Stock entitled to be
voted. |
|
|
|
|
The shareholders approved the following matters: |
|
1. |
|
The election of the following individuals as Directors: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Votes For |
|
|
Votes Withheld |
|
|
Term |
|
Terry J. Howard |
|
|
1,877,752 |
|
|
|
113,151 |
|
|
3 years |
|
David W. Dick |
|
|
1,768,619 |
|
|
|
222,284 |
|
|
3 years |
|
John P. Graham |
|
|
1,873,534 |
|
|
|
117,367 |
|
|
3 years |
|
The directors whose terms continued after the meeting were Vick N. Bowyer, Terry T.
Hutchison, James D. Motley, Joseph R. Schroeder, and John W. Welborn.
|
2. |
|
The ratification of BKD, LLP as independent auditor of the Company for
the fiscal year ending December 31, 2008, as reflected by 1,969,730 votes for,
19,230 votes against and 1,943 abstentions. |
ITEM 5. OTHER INFORMATION
None
- 29 -
ITEM 6. EXHIBITS
(a) Exhibits
|
|
|
|
|
|
31.1 |
|
|
Certification of Terry J. Howard required by Rule 13a-14(a). |
|
|
|
|
|
|
31.2 |
|
|
Certification of Ellen M. Litteral required by Rule 13a-14(a). |
|
|
|
|
|
|
32.1 |
|
|
Certification of Terry J. Howard, Chief Executive Officer pursuant to
Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). |
|
|
|
|
|
|
32.2 |
|
|
Certification of Ellen M. Litteral, Chief Financial Officer pursuant to
Rule 13a-14(b) and Section 906 of the Sarbanes-Oxley Act of 2002
(18 U.S.C. 1350). |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
FIRST BANCTRUST CORPORATION
|
|
Date: August 8, 2008 |
/s/ Terry J. Howard
|
|
|
Terry J. Howard |
|
|
President and Chief Executive Officer |
|
|
|
|
Date: August 8, 2008 |
/s/ Ellen M. Litteral
|
|
|
Ellen M. Litteral |
|
|
Treasurer and Chief Financial Officer |
|
- 30 -