UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD
ENDED SEPTEMBER 30, 2003
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT
FOR THE TRANSITION PERIOD FROM __________ TO __________
COMMISSION FILE NUMBER 0-32535
FIRST BANCTRUST CORPORATION
(EXACT NAME OF SMALL BUSINESS ISSUER AS SPECIFIED IN ITS CHARTER)
DELAWARE
(STATE OR OTHER JURISDICTION OF INCORPORATION OR ORGANIZATION)
37-1406661
(IRS EMPLOYER IDENTIFICATION NO.)
206 SOUTH CENTRAL AVENUE
PARIS, ILLINOIS
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)
61944
(ZIP CODE)
217-465-6381
(ISSUER'S TELEPHONE NUMBER, INCLUDING AREA CODE)
CHECK WHETHER THE ISSUER: (1) FILED ALL REPORTS REQUIRED TO BE FILED BY
SECTION 13 OR 15(d) OF THE EXCHANGE ACT DURING THE PAST 12 MONTHS (OR FOR
SUCH SHORTER PERIOD THAT THE REGISTRANT WAS REQUIRED TO FILE SUCH REPORTS),
AND (2) HAS BEEN SUBJECT TO SUCH FILING REQUIREMENTS FOR THE PAST 90 DAYS.
YES [X] NO [ ]
STATE THE NUMBER OF SHARES OUTSTANDING OF EACH OF THE ISSUER'S CLASSES
OF COMMON EQUITY AS OF THE LATEST PRACTICABLE DATE.
AS OF NOVEMBER 12, 2003 THE REGISTRANT HAD OUTSTANDING 1,260,510 SHARES
OF COMMON STOCK.
TRANSITIONAL SMALL BUSINESS DISCLOSURE FORMAT (CHECK ONE): YES [ ] NO [X]
First BancTrust Corporation
Form 10-QSB Quarterly Report
Index Page
PART I - Financial Information
Item 1 Financial Statements
Condensed Consolidated Balance Sheets 1
(As of September 30, 2003 and December 31, 2002)
Condensed Consolidated Statements of Income 2
(For the nine months ended September 30, 2003 and 2002)
Condensed Consolidated Statements of Income 3
(For the three months ended September 30, 2003 and 2002)
Condensed Consolidated Statements of Cash Flows 4
(For the nine months ended September 30, 2003 and 2002)
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations 10
Item 3 Controls and Procedures 20
PART II - Other Information
Item 1 Legal Proceedings 20
Item 2 Changes in Securities 20
Item 3 Defaults Upon Senior Securities 20
Item 4 Submission of Matters to a Vote of Security
Holders 20
Item 5 Other Information 21
Item 6 Exhibits and Reports on Form 8-K 21
SIGNATURES 21
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF SEPTEMBER 30, 2003 AND DECEMBER 31, 2002
(in thousands of dollars except share data)
SEPTEMBER 30, DECEMBER 31,
2003 2002
(unaudited)
-----------------------------------------------------------------------------------------------------
ASSETS
Cash and due from banks $ 6,407 $ 6,996
Interest-bearing deposits with financial institutions 9,450 3,457
--------- ---------
Cash and cash equivalents 15,857 10,453
Available-for-sale securities 86,446 72,747
Loans held for sale 710 597
Loans, net of allowance for loans losses of $1,955 and $1,963 106,943 105,182
Premises and equipment 2,773 2,772
Foreclosed assets held for sale, net 91 185
Interest receivable 2,152 2,357
Loan servicing rights, net of valuation allowance of $367 and $683 999 949
Cash surrender value of life insurance 3,796 3,667
Federal Home Loan Bank stock 3,937 3,712
Deferred income taxes 503 --
Other assets 296 104
--------- ---------
Total assets $ 224,503 $ 202,725
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Noninterest bearing deposits $ 17,207 $ 17,296
Interest bearing deposits 145,107 130,039
--------- ---------
Total deposits 162,314 147,335
Federal Home Loan Bank advances and other debt 35,500 26,501
Pass through payments received on loans sold 60 261
Advances from borrowers for taxes and insurance 14 133
Deferred income taxes -- 268
Interest payable 153 106
Other 721 815
--------- ---------
Total liabilities 198,762 175,419
--------- ---------
COMMITMENTS AND CONTINGENT LIABILITIES
STOCKHOLDERS' EQUITY
Preferred stock, $.01 par value; 1,000,000 shares authorized
and unissued
Common stock, $.01 par value, 5,000,000 shares
authorized; 1,520,875 shares issued and outstanding 15 15
Additional paid-in capital 14,533 14,445
Retained earnings 17,428 16,243
Accumulated other comprehensive income (loss)
Unrealized appreciation (depreciation) on available-for-sale
securities, net of income taxes (credit) of ($74) and $695 (107) 993
--------- ---------
31,869 31,696
Unallocated employee stock ownership plan shares -
83,660 and 95,063 shares (967) (1,099)
Unearned incentive plan shares - 51,128 and 56,267 shares (844) (928)
Treasury stock, at cost - 260,365 and 155,165 shares (4,317) (2,363)
--------- ---------
Total stockholders' equity 25,741 27,306
--------- ---------
Total liabilities and stockholders' equity $ 224,503 $ 202,725
========= =========
See notes to condensed consolidated financial statements.
1
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands of dollars)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30 2003 2002
-----------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 6,398 $ 6,762
Tax exempt 27 34
Available-for-sale securities
Taxable 1,996 2,694
Tax exempt 249 219
Deposits with financial institutions 51 81
Dividends on Federal Home Loan Bank stock and other 159 107
------- -------
Total interest and dividend income 8,880 9,897
------- -------
INTEREST EXPENSE
Deposits 2,422 3,373
Federal Home Loan Bank advances and other debt 1,046 884
------- -------
Total interest expense 3,468 4,257
------- -------
NET INTEREST INCOME 5,412 5,640
Provision for loan losses 484 663
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 4,928 4,977
------- -------
NONINTEREST INCOME
Customer service fees 575 370
Other service charges and fees 677 596
Net gains on loan sales 660 760
Loan servicing income 392 379
Recovery (Impairment) of loan servicing rights 316 (802)
Net realized gains on sales of available-for-sale securities 133 120
Brokerage fees 60 141
Abstract and title fees 337 282
Other 211 203
------- -------
Total noninterest income 3,361 2,049
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 3,170 2,949
Net occupancy expense 161 142
Equipment expense 494 452
Data processing fees 319 349
Advertising and promotion expense 193 144
Professional fees 204 245
Foreclosed assets expense, net 85 164
Amortization of loan servicing rights 668 782
Other expenses 687 560
------- -------
Total noninterest expense 5,981 5,787
------- -------
INCOME BEFORE INCOME TAX 2,308 1,239
Income tax expense 801 462
------- -------
NET INCOME 1,507 777
------- -------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on available-for-sale securities (1,022) 812
Less: Reclassification adjustment for realized gains included
in net income 78 70
------- -------
(1,100) 742
------- -------
COMPREHENSIVE INCOME $ 407 $ 1,519
======= =======
BASIC EARNINGS PER SHARE $ 1.30 $ 0.59
======= =======
DILUTED EARNINGS PER SHARE $ 1.24 $ 0.59
======= =======
See notes to condensed consolidated financial statements.
2
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands of dollars)
(unaudited)
THREE MONTHS ENDED SEPTEMBER 30 2003 2002
-----------------------------------------------------------------------------------------------------
INTEREST AND DIVIDEND INCOME
Loans
Taxable $ 2,058 $ 2,277
Tax exempt 9 12
Available-for-sale securities
Taxable 632 939
Tax exempt 94 74
Deposits with financial institutions 16 12
Dividends on Federal Home Loan Bank stock and other 52 46
------- -------
Total interest and dividend income 2,861 3,360
------- -------
INTEREST EXPENSE
Deposits 768 1,094
Federal Home Loan Bank advances and other debt 366 302
------- -------
Total interest expense 1,134 1,396
------- -------
NET INTEREST INCOME 1,727 1,964
Provision for loan losses 151 167
------- -------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 1,576 1,797
------- -------
NONINTEREST INCOME
Customer service fees 209 148
Other service charges and fees 231 225
Net gains on loan sales 239 164
Loan servicing income 129 128
Recovery (Impairment) of loan servicing rights 179 (802)
Net realized gains on sales of available-for-sale securities 133 120
Brokerage fees 3 51
Abstract and title fees 110 98
Other 72 58
------- -------
Total noninterest income 1,305 190
------- -------
NONINTEREST EXPENSE
Salaries and employee benefits 1,119 988
Net occupancy expense 59 51
Equipment expense 157 160
Data processing fees 113 121
Advertising and promotion expense 81 61
Professional fees 56 65
Foreclosed assets expense, net 24 81
Amortization of loan servicing rights 201 167
Other expenses 236 179
------- -------
Total noninterest expense 2,046 1,873
------- -------
INCOME BEFORE INCOME TAX 835 114
Income tax expense 299 55
------- -------
NET INCOME 536 59
------- -------
OTHER COMPREHENSIVE INCOME (LOSS)
Unrealized appreciation (depreciation) on available-for-sale securities (1,012) 295
Less: Reclassification adjustment for realized gains included
in net income 78 70
------- -------
(1,090) 225
------- -------
COMPREHENSIVE INCOME (LOSS) $ (554) $ 284
======= =======
BASIC EARNINGS PER SHARE $ 0.47 $ 0.05
======= =======
DILUTED EARNINGS PER SHARE $ 0.45 $ 0.05
======= =======
See notes to condensed consolidated financial statements.
3
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands of dollars)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30 2003 2002
------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income $ 1,507 $ 777
Items not requiring (providing) cash
Depreciation and amortization 205 203
Provision for loan losses 484 663
Investment securities amortization, net 389 103
Amortization of loan servicing rights 668 782
Recovery (impairment) of loan servicing rights (316) 802
Deferred income taxes (6) 6
Net realized gains on available-for-sale securities (133) (120)
Net loss on sales of foreclosed assets 28 46
Net gain on sales of premises and equipment (5) --
Net gain on loan sales (660) (760)
Loans originated for sale (41,034) (25,919)
Proceeds from sales of loans originated for resale 41,179 25,251
Federal Home Loan Bank stock dividends (159) (84)
Compensation expense related to employee stock ownership plan 224 179
Compensation expense related to incentive plan 82 46
Changes in
Interest receivable 205 (257)
Cash surrender value (129) (128)
Other assets (181) (225)
Interest payable 28 25
Other liabilities (96) (569)
-------- --------
Net cash provided by operating activities 2,280 821
-------- --------
INVESTING ACTIVITIES
Purchases of available-for-sale securities (83,833) (32,062)
Proceeds from maturities of available-for-sale securities 67,597 20,651
Proceeds from sales of available-for-sale securities 417 590
Purchase of Federal Home Loan Bank stock -- (2,000)
Net originations in loans (2,636) (8,337)
Proceeds from sales of foreclosed assets 457 817
Purchases of premises and equipment (199) (422)
Proceeds from sales of premises and equipment 5 --
Net cash received from purchase of deposits (plus cash acquired) 3,192 --
-------- --------
Net cash used by investing activities (15,000) (20,763)
-------- --------
See notes to condensed consolidated financial statements.
4
FIRST BANCTRUST CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTH PERIOD ENDED SEPTEMBER 30, 2003 AND 2002
(in thousands of dollars)
(unaudited)
NINE MONTHS ENDED SEPTEMBER 30 2003 2002
----------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in demand deposits, money market,
NOW and savings deposits $ 12,427 $ (1,512)
Net increase (decrease) in certificates of deposit (704) 11,297
Proceeds from the issuance of Federal Home Loan Bank advances 18,000 8,000
Repayment of Federal Home Loan Bank advances and other debt (9,001) (4,011)
Pass through payments received on loans sold (201) (116)
Net decreases in advances by borrowers for taxes and insurance (119) (115)
Dividends paid (324) (213)
Purchase of treasury stock (1,954) (973)
Purchase of stock for recognition and retention plan -- (1,004)
-------- --------
Net cash provided by financing activities 18,124 11,353
-------- --------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,404 (8,589)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 10,453 16,746
-------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 15,857 $ 8,157
======== ========
SUPPLEMENTAL CASH FLOWS INFORMATION
Real estate acquired in settlement of loans $ 391 $ 466
Interest paid $ 3,421 $ 4,232
Income tax paid $ 975 $ 897
See notes to condensed consolidated financial statements.
5
FIRST BANCTRUST CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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-QSB. 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, dated January 17, 2003,
included in the Company's Form 10-KSB 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, 2003. 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 three and nine months ended
September 30, 2003 are not necessarily indicative of the results to be expected
for the full year.
The Company has a stock-based employee compensation plan, which is described
more fully in Notes to Financial Statements included in the December 31, 2002
Annual Report to shareholders. The Company accounts for this plan under the
recognition and measurement principles of APB Opinion No. 25, Accounting for
Stock Issued to Employees, and related interpretations. No stock-based employee
compensation cost is reflected in net income, as all options granted under the
plan had an exercise price equal to the market value of the underlying common
stock on the grant date. The following table illustrates the effect on net
income and earnings per share if the Company had applied the fair value
provisions of Statement of Financial Accounting Standards (SFAS) No. 123,
Accounting for Stock-Based Compensation, to stock-based employee compensation.
6
Three Months Three Months Nine Months Nine Months
Ended Ended Ended Ended
September 30, 2003 September 30, 2002 September 30, 2003 September 30, 2002
Net income, as reported $ 536 $ 59 $ 1,507 $ 777
Less: Total stock-based employee
compensation cost determined under
the fair value based method, net of
income taxes (33) --- (49) ---
--------- --------- --------- ---------
Pro forma net income $ 503 $ 59 $ 1,458 $ 777
========= ========= ========= =========
EARNINGS PER SHARE:
Basic - as reported $ 0.47 $ 0.05 $ 1.30 $ 0.59
Basic - pro forma $ 0.45 $ 0.05 $ 1.27 $ 0.59
Diluted - as reported $ 0.45 $ 0.05 $ 1.24 $ 0.59
Diluted - pro forma $ 0.42 $ 0.05 $ 1.21 $ 0.59
Note 2 - Conversion to Stock Form of Ownership
On October 16, 2000, the Board of Directors of First Bank & Trust, sb (the
"Bank") adopted a Plan of Conversion to convert from an Illinois mutual savings
bank to an Illinois stock savings bank with the concurrent formation of a
holding company. First BancTrust Corporation (the "Company") was incorporated in
November 2000. A subscription offering of the shares of common stock, $0.01 par
value per share ("Common Stock"), of the Company was offered initially to
eligible deposit account holders of First Bank & Trust, sb. The Bank's
conversion from an Illinois mutual savings bank to an Illinois stock savings
bank was completed on April 18, 2001 (the "Conversion").
In connection with the conversion, the Company issued 1,520,875 shares of common
stock to the public for gross proceeds of $15.2 million, $14.4 million net of
conversion costs. The Bank issued all of its outstanding capital stock to the
Company in exchange for one-half of the net proceeds of the offering, which
amounted to $7.2 million. The Company accounted for the purchase in a manner
similar to a pooling of interests, whereby assets and liabilities of the Bank
maintain their historical cost basis in the consolidated company.
Note 3 - Employee Stock Ownership Plan
In connection with the conversion, the Bank established an Employee Stock
Ownership Plan ("ESOP") for the benefit of its employees. In the initial stock
offering, deposit account owners purchased all available shares. The ESOP
purchased required shares in the open market subsequent to the conversion date
for $1.4 million with funds borrowed from the Company. The ESOP expense was
$83,000 and $61,000 for the three-month periods ended September 30, 2003
7
and 2002, and $224,000 and $179,000 for the nine-month periods ended September
30, 2003 and 2002.
Shares purchased by the ESOP with the loan proceeds 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
Company's discretionary contributions to the ESOP and earnings on ESOP assets.
Principal payments are scheduled to occur over an eight-year period.
Note 4 - Earnings per Share
Basic earnings per share have been computed based upon the weighted average
common shares outstanding for the three-month and nine-month periods ended
September 30, 2003 and 2002. 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.
Earnings per share were computed as follows (dollar amounts in thousands except
share data):
8
Weighted
Average Per Share
Income Shares Amount
---------------------------------------
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003:
Basic Earnings Per Share:
Income available to common stockholders $ 1,507 1,151,559 $ 1.31
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 55,901
Stock Options 7,230
---------------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 1,507 1,214,690 $ 1.24
=======================================
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2002:
Basic Earnings Per Share:
Income available to common stockholders $ 777 1,298,028 $ 0.59
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 21,371
---------------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 777 1,319,399 $ 0.59
=======================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2003:
Basic Earnings Per Share:
Income available to common stockholders $ 536 1,130,217 $ 0.47
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 54,809
Stock Options 15,624
---------------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 536 1,200,650 $ 0.45
=======================================
FOR THE THREE MONTHS ENDED SEPTEMBER 30, 2002:
Basic Earnings Per Share:
Income available to common stockholders $ 59 1,243,028 $ 0.05
Effect of Dilutive Securities:
Unearned recognition and retention plan shares 58,662
---------------------------------------
Diluted Earnings per Share:
Income available to common stockholders and
assumed conversions $ 59 1,301,690 $ 0.05
=======================================
9
ITEM 2. MANAGEMENT'S 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
Company's ability to predict results or the actual effect of future plans or
strategies is inherently uncertain. Factors which could have a material adverse
affect 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 Company's market area; and accounting
principles, policies, and guidelines. These risks and uncertainties should be
considered in evaluating forward-looking statements and undue reliance should
not be placed on such statement. Further information concerning the Company and
its business, including additional factors that could materially affect the
Company's financial results, is included in the Company's filings with the
Securities and Exchange Commission.
The following discussion compares the financial condition of First BancTrust
Corporation (Company), First Bank & Trust, s.b. (Bank), First Charter Service
Corporation, ECS Service Corporation, and the Bank's wholly owned subsidiary,
Community Finance Center, Inc. at September 30, 2003 to its financial condition
at December 31, 2002 and the results of operations for the three-month and
nine-month periods ending September 30, 2003 to the same periods in 2002. In
February 2002, the Company filed a declaration to become a financial holding
company which became effective March 16, 2002. Ownership of First Charter
Service Corporation and ECS Service Corporation was transferred from the Bank to
the Company in 2002. Application was made and approved by regulators to
establish a new banking facility in Savoy, Illinois in Champaign County.
Operations began in late September, 2003 with the purchase of $3.2 million in
deposits from another area institution. This discussion should be read in
conjunction with the interim financial statements and notes included herein.
FINANCIAL CONDITION
Total assets of the Company increased by $21.8 million or 10.7%, to $224.5
million at September 30, 2003 from $202.7 million at December 31, 2002. The
increase in assets was primarily due to an increase in cash and cash equivalents
of $5.4 million, increases in available-for-sale securities of $13.7 million,
loans, net of allowance for loan losses of $1.8 million, deferred income taxes
of
10
$503,000, Federal Home Loan Bank stock of $225,000 and other assets of $192,000
offset by a decrease in interest receivable of $205,000. The increase in assets
was funded by increases in deposits and Federal Home Loan Bank borrowings.
The Company's cash and due from banks decreased by $589,000 or 8.4% to $6.4
million at September 30, 2003 from $7.0 million at December 31, 2002. This
decrease was more than offset by an increase in interest-bearing demand deposits
of $6.0 million to $9.5 million at September 30, 2003 compared to $3.5 million
at December 31, 2002. Available-for-sale investment securities amounted to $86.4
million at September 30, 2003 compared to $72.7 million at December 31, 2002, a
$13.7 million or 18.8% increase. The increase resulted from $83.8 million in
investment purchases, primarily in mortgage-backed securities, U.S. Treasury
bonds, and Federal Home Loan Bank ("FHLB") agency bonds, offset by calls,
maturities, and pre-payments of $67.6 million, securities sales of $284,000 and
amortization of premiums of $389,000. The increase in available-for-sale
investments was primarily funded by Federal Home Loan Bank advances and
deposits.
Loans held for sale increased by $113,000 from $597,000 at December 31, 2002 to
$710,000 at September 30, 2003, an increase of 18.9%. Loans held for sale at
September 30, 2003 consisted entirely of single-family residential loans, which
were in the process of being sold into the secondary market to Federal Home Loan
Mortgage Corporation and Illinois Housing Development Authority.
The Company's net loan portfolio increased by $1.8 million to $106.9 million at
September 30, 2003 from $105.2 million at December 31, 2002. Gross loans
increased by $1.8 million while the allowance for loan losses decreased by
$8,000. Loans secured by 1-4 family residences decreased by $2.9 million as
borrowers continued to refinance existing loans to fixed-rate loans to take
advantage of the lower interest rates. These loans were then sold into the
secondary market. During the first nine months of 2003, residential loans
originated for resale into the secondary market totaled $36.2 million compared
to $18.7 million in the first nine months of 2002. Agricultural loans originated
for resale into the secondary market were $4.8 million for the nine months ended
September 30, 2003 compared to $7.2 million for the nine months ended September
30, 2002. Agricultural production loans increased by $3.0 million and farmland
loans increased by $1.1 million while commercial loans increased by $80,000.
Construction loans increased by $907,000 and nonresidential real estate loans
increased by $132,000 while consumer loans decreased by $484,000.
At September 30, 2003, the allowance for loan losses was $2.0 million or 1.80%
of the total loan portfolio compared to $2.0 million, or 1.83% at December 31,
2002. During 2003, the Company charged off $577,000 of loans, of which $233,000
pertained to one agricultural credit secured by farm equipment. The chargeoffs
of $577,000 were partially offset by $86,000 in recoveries. The Company's
nonperforming loans and troubled debt restructurings as a percentage of total
loans decreased from 2.25% or $2.4 million at December 31, 2002 to 1.95% or $2.1
million at September 30, 2003. This decrease was primarily a result of a
reduction in troubled debt restructurings from $888,000 at December 31, 2002 to
$626,000 at September 30, 2003. Delinquencies 90 days and over remained at $1.5
million at September 30, 2003 from $1.5 million at December 31, 2002. The
Company's delinquencies 90 days and over at September 30,
11
2003 consisted primarily of $688,000 in residential loans, $448,000 in
nonresidential real estate loans, $114,000 in construction loans, and $128,000
in consumer loans. The Company's troubled debt restructurings of $626,000 at
September 30, 2003 consists primarily of restructured commercial and
agricultural loans. 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.
Net foreclosed assets held for sale, totaling $91,000 at September 30, 2003
decreased $94,000, compared to $185,000 at December 31, 2002. As of September
30, 2003, the Company had two real estate properties totaling $38,000 which
consisted of single-family dwellings, and other repossessed assets of $53,000.
Interest receivable declined by $205,000 or 8.7% from $2.4 million to $2.2
million primarily due to annual payments received on agricultural loans. Federal
Home Loan Bank stock increased by $225,000 due to the receipt of dividends in
the form of stock.
Loan servicing rights increased by $50,000 from $949,000 at December 31, 2002 to
$999,000 at September 30, 2003. Gross loan servicing rights decreased by
$266,000 from $1.6 million at December 31, 2002 to $1.4 million at September 30,
2003 due to amortization of loan servicing rights of $668,000 offset by newly
capitalized assets of $402,000. The valuation allowance decreased from $683,000
at December 31, 2002 to $367,000 at September 30, 2003, a $316,000 recovery of a
previous impairment as a result of current valuations.
The Company's total deposits amounted to $162.3 million at September 30, 2003
compared to $147.3 million at December 31, 2002, an increase of $15.0 million.
The increase in total deposits was due to a $15.0 million increase in interest
bearing deposits, partially offset by an $89,000 decrease in non-interest
bearing deposits. The increase in interest bearing deposits was a result of an
increase of $11.3 million in interest-bearing checking accounts, a $1.5 million
increase in savings accounts, and by a $2.2 million increase in certificates of
deposit. The increase of $11.3 million in interest-bearing checking accounts was
primarily a result of $8.9 million in public funds invested in short-term
interest-bearing checking accounts during construction projects. In late
September, 2003, operations commenced in a temporary facility at Savoy, Illinois
with the purchase of $3.2 million in deposits from another financial
institution. Construction is scheduled to begin in the fourth quarter of 2003 on
a permanent facility.
Federal Home Loan Bank advances and other debt increased by $9.0 million from
$26.5 million at December 31, 2002 to $35.5 million at September 30, 2003,
primarily to fund investment purchases and loans. The $9.0 million net increase
was primarily a result of proceeds from two fixed rate Federal Home Loan Bank
advances totaling $10.0 million with an average rate of 2.77%, offset by the
repayment of the open end line of credit of $1.0 million. The average rate of
all outstanding advances was 4.04% as of September 30, 2003.
Pass through payments received on loans sold decreased by $201,000 from $261,000
at December 31, 2002 to $60,000 at September 30, 2003 due to increased payments
received at year-end on agricultural loans which are sold in the secondary
market. Advances by borrowers for taxes and insurance decreased by $119,000 from
$133,000 at December 31, 2002 to $14,000
12
at September 30, 2003, due to payment of real estate taxes in the second and
third quarters. Interest payable increased $47,000 from $106,000 at December 31,
2002 to $153,000 at September 30, 2003. Other liabilities decreased by $94,000
from $815,000 at December 31, 2002 to $721,000 at September 30, 2003, primarily
due to payment of accrued income taxes.
Stockholders' equity at September 30, 2003 was $25.7 million compared to $27.3
million at December 31, 2002, a decrease of $1.6 million. Retained earnings
increased by the amount of net income or $1.5 million, partially offset by
$324,000 in dividends declared and paid. Accumulated other comprehensive income
decreased due to a reduction in the market value, net of income taxes, of $1.1
million on available-for-sale securities. Treasury stock increased from $2.4
million at December 31, 2002 to $4.3 million at September 30, 2003 due to the
repurchase of 105,200 shares of common stock for $2.0 million. On December 4,
2002 the Company announced that the Board of Directors authorized open-market
stock repurchases of up to 6.1%, or 85,477 shares of the Company's outstanding
stock over the one-year period ending October 23, 2003. On March 13, 2003 the
Board of Directors authorized additional open-market stock repurchases of up to
3.9%, or 46,500 shares of the Company's outstanding stock over the next one-year
period ending March 13, 2004, as in the opinion of management, market conditions
warrant. Previously, the Company had completed two repurchase programs for stock
repurchases of 143,451 shares representing 10% of the outstanding shares. As of
November 12, 2003, the Company had repurchased a cumulative total of 260,365
shares.
RESULTS OF OPERATIONS
COMPARISON OF NINE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
Net income for the nine months ended September 30, 2003 increased by $730,000 or
94.0% from $777,000 for the nine months ended September 30, 2002 to $1.5 million
for the nine months ended September 30, 2003. The increase in net income is
primarily due to an increase in noninterest income and a decrease in the
provision for loan losses, partially offset by a decrease in net interest income
and increases in noninterest expense and income tax expense.
Net interest income decreased $228,000 from $5.64 million for the nine months
ended September 30, 2002 to $5.41 million for the nine months ended September
30, 2003. The primary reason for the decrease in net interest income was a
decrease in interest and dividend income of $1.02 million partially offset by a
decrease of $789,000 in interest expense. The Company's net interest margin was
3.68% and 4.02% during the nine months ended September 30, 2003 and 2002,
respectively. The net interest margin decreased as a result of a decrease in
interest rates on interest-bearing assets, partially offset by a decrease in
interest rates on interest-bearing liabilities.
Total interest and dividend income decreased by $1.02 million or 10.3% from
$9.90 million for the nine months ended September 30, 2002 to $8.88 million for
the nine months ended September 30, 2003. The decrease was primarily due to
decreases in interest income from loans and available-for-sale securities,
partially offset by increased dividends on Federal Home Loan Bank stock.
Interest expense declined by $789,000 or 18.5% from $4.26 million for the nine
13
months ended September 30, 2002 to $3.47 million for the nine months ended
September 30, 2003. This decline was primarily due to a decrease of $951,000 in
interest on deposits, partially offset by a $162,000 increase in interest on
Federal Home Loan Bank advances.
For the nine months ended September 30, 2003 and 2002 the provision for losses
on loans was $484,000 and $663,000, respectively. The provision for the nine
months ended September 30, 2003 was based on the Company's 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 Company's management
believes that, as of September 30, 2003, its allowance for loan losses was
adequate.
Noninterest income increased $1.31 million or 64.0% from $2.05 million for the
nine months ended September 30, 2002 to $3.36 million for the nine months ended
September 30, 2003. The increase was primarily a result of a recovery of a
previously identified impairment of loan servicing rights, and increased
customer service fees and other service charges and fees, partially offset by
decreased gains on loan sales and decreased brokerage fees. An increase of $1.12
million in recovery (impairment) of loan servicing rights resulted from $802,000
identified as an impairment in the nine months ended September 30, 2002, and the
partial recovery of $316,000 of that impairment in the nine months ended
September 30, 2003. Customer service fees increased $205,000 from $370,000 for
the nine months ended September 30, 2002 to $575,000 for the nine months ended
September 30, 2003. The increase of $205,000 was primarily attributable to
increased non-sufficient funds and overdraft fees. The increase in
non-sufficient funds and overdraft fees is primarily attributable to the
"Safety-Net Checking" product which provides a pre-approved amount of
overdrafts, most often $500. At September 30, 2003 there were 1,140 "Safety Net
Checking" accounts compared to 851 at September 30, 2002. Other service charges
and fees increased from $596,000 for the nine months ended September 30, 2002 to
$677,000 for the nine months ended September 30, 2003 primarily due to fees
associated with residential mortgage loans sold into the secondary market,
increased consumer loan fees and fees earned from the use of debit cards.
Brokerage fees decreased by $81,000 from $141,000 for the nine months ended
September 30, 2002 to $60,000 for the nine months ended September 30, 2003 due
to the resignation of the broker representative in April, 2003.
Net gains on loan sales decreased by $100,000 from $760,000 for the nine months
ended September 30, 2002 to $660,000 for the nine months ended September 30,
2003 due to a reduction in capitalized servicing assets. When a loan is sold
into the secondary market and the servicing rights to that loan are retained, an
asset is created representing the future payment stream of the servicing which
is recognized as income from the loan sale. The estimated useful life used to
determine the value of the asset is estimated based on the current independent
valuation of the servicing portfolio. Although loan sales into the secondary
market for the nine months ended September 30, 2003 were $41.2 million compared
to $25.3 million for the nine months ended September 30, 2002, the gain
recognized from the creation of the servicing assets was $401,000 for the nine
months ended September 30, 2003 compared to $698,000 for the nine
14
months ended June 30, 2002. Of the $41.2 million in loans sold for the nine
months ended September 30, 2003, $4.8 million were agricultural loans, compared
to $7.2 million in agricultural loans sold for the nine months ended September
30, 2002. The gain recognized from the capitalization of the servicing related
to the agricultural loans was $133,000 for the nine months ended September 30,
2003 compared to $488,000 for the nine months ended September 30, 2002.
Total noninterest expenses were $6.0 million for the nine months ended September
30, 2003 as compared to $5.8 million for the nine months ended September 30,
2002. The primary reason for the $194,000 increase was an increase in salaries
and employee benefits of $221,000 and an increase in other expenses of $127,000,
partially offset by a decrease in amortization of loan servicing rights and a
decrease in expenses associated with foreclosed assets. Salaries and employee
benefits increased by $221,000 from $2.95 million for the nine months ended
September 30, 2002 to $3.17 million for the nine months ended September 30,
2003. The $221,000 increase in salaries and employee benefits was primarily due
to increases in salaries, FICA expenses, Employee Stock Ownership Plan ("ESOP")
expense, health insurance and employee recognition and retention expense.
Salaries increased by $102,000 due to normal pay increases, the addition of one
full-time employee, and increased commissions paid on a higher volume of loan
originations. ESOP expense increased by $44,000 due to a higher average share
price. The monthly expense for the ESOP is determined by the average share price
in the open market for the month, and as the monthly average share price
increases, the ESOP expense increases accordingly. The Recognition and Retention
Plan received shareholder approval in April, 2002, and the expense for the nine
months ended September 30, 2003 was $82,000 compared to $46,000 for the nine
months ended September 30, 2002, an increase of $37,000. FICA expense increased
by $19,000 as a result of increased taxable wages, and health insurance expense
increased by $19,000 as a result of higher premiums.
Amortization of loan servicing rights decreased by $114,000 from $782,000 for
the nine months ended September 30, 2002 to $668,000 for the nine months ended
September 30, 2003. The primary reason for the $114,000 decrease was due to the
reduction of newly capitalized servicing assets to be amortized in 2003. The
amortization reported in 2002 related to loan servicing rights with higher
values from prior years. Net foreclosed assets expense of $85,000 for the nine
months ended September 30, 2003 was $79,000 less than the $164,000 expense for
the nine months ended September 30, 2002, a result of fewer properties in
foreclosed assets during 2003. Other expenses increased by $127,000 from
$560,000 for the nine months ended September 30, 2002 to $687,000 for the nine
months ended September 30, 2003. The increase in other expense was primarily due
to loan related expenses such as filing fees, blanket insurance on vehicle loans
and fees associated with secondary market loans, and postage and scholarship
foundation expense.
Income tax expense was $801,000 for the nine months ended September 30, 2003 as
compared to $462,000 for the nine months ended September 30, 2002. The effective
tax rates were 34.7% and 37.3%, respectively, for the nine months ended
September 30, 2003 and 2002.
15
COMPARISON OF THREE MONTH PERIODS ENDED SEPTEMBER 30, 2003 AND 2002
Net income for the three months ended September 30, 2003 increased by $477,000
from $59,000 for the three months ended September 30, 2002 to $536,000 for the
three months ended September 30, 2003. The large increase in net income is
primarily due to an increase in noninterest income, partially offset by a
decrease in net interest income, and increases in noninterest expense and income
tax expense.
Net interest income decreased $237,000 or 12.1% from $1.96 million for the three
months ended September 30, 2002 to $1.73 million for the three months ended
September 30, 2003. The primary reason for the decrease in net interest income
was a decrease in interest and dividend income of $499,000 partially offset by a
decrease of $262,000 in interest expense. The Company's net interest margin was
3.46% and 3.97% during the three months ended September 30, 2003 and 2002,
respectively. The net interest margin decreased as a result of a decrease in
interest rates on interest-bearing assets, partially offset by a decrease in
interest rates on interest-bearing liabilities.
Total interest and dividend income declined by $499,000 or 14.9% from $3.36
million for the three months ended September 30, 2002 to $2.86 million for the
three months ended September 30, 2003. The decrease was primarily due to
decreases in interest income from loans and interest income from
available-for-sale securities. Interest expense declined by $262,000 or 18.8%
from $1.40 million for the three months ended September 30, 2002 to $1.13
million for the three months ended September 30, 2003. This decline was
primarily due to a decrease of $326,000 in interest on deposits resulting from
the reduction in the average rate paid on deposits, partially offset by a
$64,000 increase in interest on Federal Home Loan Bank advances.
For the three months ended September 30, 2003 and 2002, the provision for losses
on loans was $151,000 and $167,000, respectively. The provision for the three
months ended September 30, 2003 was based on the Company's 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 Company's management
believes that, as of September 30, 2003, its allowance for loan losses was
adequate.
Noninterest income increased $1.12 million from $190,000 for the three months
ended September 30, 2002 to $1.31 million for the three months ended September
30, 2003. The increase was primarily due to the recovery of loan servicing
rights that were written down as impaired in the prior year, increased customer
service fees, and increased gains on loan sales partially offset by decreased
brokerage fees. An impairment of loan servicing rights of $802,000 was
identified in the three months ended September 30, 2002, and charged against
earnings. In the three months ended September 30, 2003, $179,000 was recovered
from the previously identified impairments. Customer service fees increased
$61,000 from $148,000 for the three months ended September 30, 2002 to $209,000
for the three months ended September 30, 2003.
16
The increase of $61,000 was primarily attributable to increased non-sufficient
funds and overdraft fees. The increase in non-sufficient funds and overdraft
fees is primarily attributable to the "Safety-Net Checking" product which
provides a pre-approved amount of overdrafts, most often $500.
Net gains on loan sales increased by $75,000 from $164,000 for the three months
ended September 30, 2002 to $239,000 for the three months ended September 30,
2003 due to increased capitalized assets recognized and increased gains on cash
sales. Capitalized loan servicing assets recognized for the three months ended
September 30, 2002 were $120,000 compared to $146,000 for the three months ended
September 30, 2003, an increase of $26,000. Loan sales for the three months
ended September 30, 2003 were $13.85 million compared to $10.05 million for the
three months ended September 30, 2002. Brokerage fees declined by $48,000 from
$51,000 for the three months ended September 30, 2002 to $3,000 for the three
months ended September 30, 2003 due to the resignation of the investment
representative.
Total noninterest expenses were $2.05 million for the three months ended
September 30, 2003 as compared to $1.87 million for the three months ended
September 30, 2002. The primary reason for the $173,000 increase was a $131,000
increase in salaries and employee benefits expense, an increase in other
expenses of $57,000, an increase in amortization of loan servicing rights of
$34,000, and an increase in amortization of loan servicing rights, partially
offset by a reduction in net foreclosed assets expense of $57,000. Salaries and
employee benefits expense increased by $131,000 from $988,000 for the three
months ended September 30, 2002 to $1.12 million for the three months ended
September 30, 2003, primarily due to increased salaries and wages, increased
director fees, increased ESOP expense, and increased health insurance expense.
Amortization of loan servicing rights increased by $34,000 from $167,000 for the
three months ended September 30, 2002 compared to $201,000 for the three months
ended September 30, 2003. Net foreclosed assets expense decreased by $57,000
from $81,000 for the three months ended September 30, 2002 to $24,000 for the
three months ended September 30, 2003 due to a reduction in the number of
properties in foreclosed assets. Other expenses increased by $57,000 from
$179,000 for the three months ended September 30, 2002 to $236,000 for the three
months ended September 30, 2003. The increase in other expenses was primarily
due to loan related expenses such as blanket insurance on vehicle loans and fees
associated with secondary market loans, and increases in trust department
expense and scholarship foundation expense.
Income tax expense was $299,000 for the three months ended September 30, 2003 as
compared to $55,000 for the three months ended September 30, 2002, an increase
of $244,000. The increase in income taxes is due to an increase in income before
taxes of $721,000. The effective tax rates were 35.8% and 48.2%, respectively,
for the three months ended September 30, 2003 and 2002.
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
17
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 management's 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 in the
consolidated balance sheet. 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 September 30, 2003
and December 31, 2002, mortgage servicing rights had carrying values of $999,000
and $949,000, 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.
18
LIQUIDITY
At September 30, 2003, the Company had outstanding commitments to originate $2.0
million in loans. In addition, open-end line of credit loans had $4.5 million
available to be drawn upon. As of September 30, 2003, the total amount of
certificates scheduled to mature in the following 12 months was $47.2 million.
The Company believes that it has adequate resources to fund all of its
commitments and that it can adjust the rate on certificates of deposit to retain
deposits in changed interest environments. If the Company requires funds beyond
its internal funding capabilities, advances from the Federal Home Loan Bank of
Chicago are available as an additional source of funds.
CAPITAL RESOURCES
The Bank is subject to capital-to-asset requirements in accordance with Federal
bank regulations. The following table summarizes the Bank's regulatory capital
requirements, versus actual capital as of September 30, 2003:
----------------------------------------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL CAPITALIZED
-------------------------------------------------------------
SEPTEMBER 30, 2003 Amount % Amount % Amount %
-------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------------
Total capital (to risk-weighted
assets) $24,397 19.60 $ 9,960 8.0 $12,449 10.0
----------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted
assets) 22,837 18.34 4,980 4.0 7,470 6.0
----------------------------------------------------------------------------------------------------
Tier 1 capital (to average assets) 22,837 10.92 8,362 4.0 10,453 5.0
----------------------------------------------------------------------------------------------------
The Company's consolidated capital-to-asset requirements and actual capital as
of September 30, 2003 are summarized in the following table:
----------------------------------------------------------------------------------------------------
REQUIRED FOR TO BE WELL
ACTUAL ADEQUATE CAPITAL CAPITALIZED
-------------------------------------------------------------
SEPTEMBER 30, 2003 Amount % Amount % Amount %
-------------------------------------------------------------
(Dollars in thousands)
----------------------------------------------------------------------------------------------------
Total capital (to risk-weighted
assets) $27,167 21.60 $10,062 8.0 --- N/A
----------------------------------------------------------------------------------------------------
Tier 1 capital (to risk-weighted
assets) 25,591 20.35 5,031 4.0 --- N/A
----------------------------------------------------------------------------------------------------
Tier 1 capital (to average assets) 25,591 12.16 8,415 4.0 --- N/A
----------------------------------------------------------------------------------------------------
19
ITEM 3. CONTROLS AND PROCEDURES
The Company carried out an evaluation as of September 30, 2003, under the
supervision and with the participation of the Company's management, including
the Company's Chief Executive Officer and Chief Financial Officer, of the
effectiveness of the design and operation of the Company's disclosure controls
and procedures. Based upon that evaluation, the Chief Executive Officer and
Chief Financial Officer concluded that the Company's disclosure controls and
procedures are effective. There were no significant changes in the Company's
internal controls or in other factors that could significantly affect these
controls during the quarter ended September 30, 2003.
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 Commission's 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 Company's 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 also 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.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None
20
ITEM 5. OTHER INFORMATION.
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(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).
(b) The Company filed a Current Report on Form 8-K on August 6,
2003 related to its second quarter 2003 earnings announcement.
The Company filed a Current Report on Form 8-K on August 18,
2003 related to its 5% stock repurchase program announcement.
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: November 13, 2003 /s/ Terry J. Howard
-----------------------------------
Terry J. Howard
President and Chief Executive Officer
Date: November 13, 2003 /s/ Ellen M. Litteral
-----------------------------------
Ellen M. Litteral
Treasurer
21