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Princeton National Bancorp, Inc. Releases First Quarter 2011 Results


May 6, 2011 - Princeton, IL

Princeton National Bancorp, Inc. ("PNBC" or"the Corporation") (NASDAQ: PNBC) announced net income of $1.735 millionfor the first quarter of 2011 as a result of a continued strong netinterest margin and lower provision requirements for loan losses. Netincome available to common shareholders (net income less the accretion ofthe preferred stock discount) was $1.728 million, or $.52 per common shareavailable to common shareholders.

"The biggest driver of earnings is the level of loan loss reserves neededon a quarter by quarter basis," said Thomas Ogaard, President & C.E.O."Our recognition of problem loans in the prior two quarters had a directimpact on the improved results for the first quarter of 2011. The loanloss provision for the quarter was $1.875 million, compared to $27.250million in the fourth quarter of 2010 and $3.925 million for the firstquarter of 2010. While we believe the rate of deterioration in our loanportfolio is beginning to level off, we anticipate there being additionalprovision expense in 2011, but not to the extent of the last two years, andadditional charged off loans," continued Ogaard.

Net loan charge-offs during the first quarter totaled $1.694 million; adecline from $16.1 million in the fourth quarter of 2010. Other realestate owned as of March 31, 2011 totaled $20.6 million, unchanged fromyear-end 2010. The Corporation is very cognizant of the credit andrepayment issues which have resulted from the current economic conditions;as a result, we have continued to increase our provision for loan losses,maintaining the current reserves at 4.34% of total loans, up from 4.22% atyear-end 2010. As of March 31, 2011, the balance in the allowance for loanlosses totaled $29.9 million and there were specific loss provisions forindividual credits totaling $19.6 million, compared to $29.7 million and$12.2 million, respectively, at December 31, 2010. The Subsidiary Bankevaluates many risk factors within the loan portfolio on a monthly basisand considers the allowance for loan losses adequate to meet probablelosses as of March 31, 2011.

"Our net interest margin continues to remain robust and is the keycontributor to our ability to generate positive results," noted Ogaard."The net interest margin for the first quarter was 4.42%, an increase of 26and 52 basis points, respectively, from the fourth and first quarters of2010. This reflects our ability to drive revenue at a level sufficient tooffset expenses."

Total interest income did show a decline of 16.1% to $11.3 million whencomparing the first quarter of 2011 to the same period in 2010; however,total interest expense declined by 51.3% to $1.9 million during the sameperiod. The resulting net interest income of $9.4 million represents aminimal decrease of only 1.3% versus the same period in 2010. However,this was achieved with average interest-earning assets being $157.5 millionlower over the comparable periods. During the first quarter of 2011, thereduction in interest expense continued to be a major focus in conjunctionwith the planned reduction in assets. PNBC was able to continue tocapitalize on opportunities to lower interest expense, reducing the cost ofinterest bearing liabilities 71 basis points from 1.59% to .88%, whencomparing the first quarters of 2010 and 2011, respectively.

Non-interest income increased to $3.6 million in the first quarter of 2011from $3.2 million during the first quarter of 2010. During the quarter,the Corporation restructured a portion of its investment portfolio toreduce the level of municipal bonds and reposition mortgage backedsecurities to enhance future portfolio liquidity. As a result of the stepstaken to improve the quality of the investment portfolio and enhanceliquidity, security gains of $1.1 million were generated in the firstquarter of 2011, compared to $642,000 in the first quarter of 2010.

Non-interest expense totaled $9.4 million, up slightly from $9.3 millionduring the first quarter of 2010. When comparing the two quarters,negatively impacting other expenses were salary and insurance expenses.

Stockholders' equity was $57.7 million at March 31, 2011, up from $56.9million at December 31, 2010, resulting in a tier one capital ratio of6.19% for the first quarter of 2011 and a risk based regulatory capitalratio of 10.01%.

The Corporation ended the first quarter of 2011 with total assets of $1.081billion, a decrease of $15.7 million (1.4%) from year-end 2010.Additionally, total deposits decreased $12.3 million to $950.7 million fromyear-end 2010.

The price of PNBC stock closed at $5.39 on March 31, 2011, compared to$3.64 on December 31, 2010. While we believe the level of credit-relatedcosts will begin to decline to more historical levels in 2011, which willpositively impact operating results, the community bank stock pricescontinue to be negatively impacted by earnings due to credit related costs.

The Corporation maintains its focus on ensuring adequate controls are inplace to comply with disclosure and financial certification requirements aswell as fairly disclosing all aspects of its business in a timely andappropriate fashion.

This press release contains certain forward-looking statements, includingcertain plans, expectations, goals, and projections, which are subject tonumerous assumptions, risks, and uncertainties. These forward-lookingstatements are identified by the use of words such as 1) believes, 2)anticipates, 3) estimates, 4) expects, 5) projects or similar words. Actualresults could differ materially from those contained or implied by suchstatements for a variety of factors including: changes in economicconditions; movements in interest rates; competitive pressures on productpricing and services; success and timing of business strategies; thenature, extent and timing of governmental actions and reforms; and extendeddisruption of vital infrastructure. The figures included in this pressrelease are unaudited and may vary from audited results.


CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except share data) March 31, December 31,
2011 2010
(unaudited)
----------- -----------
ASSETS

Cash and due from banks $ 15,059 $ 12,992
Interest-bearing deposits with financial
institutions 41,152 30,888
----------- -----------
Total cash and cash equivalents 56,211 43,880

Loans held for sale, at lower of cost or market 3,240 5,515

Investment securities available-for-sale, at fair
value 242,452 248,752
Investment securities held-to-maturity, at
amortized cost 11,425 12,187
----------- -----------
Total investment securities 253,877 260,939

Loans, net of unearned interest 688,313 704,074
Allowance for loan losses (29,907) (29,726)
----------- -----------
Net loans 658,406 674,348

Premises and equipment, net 26,576 26,901
Land held for sale, at lower of cost or market 2,244 2,244
Federal Reserve and Federal Home Loan Bank stock 4,498 4,498
Bank-owned life insurance 23,646 23,416
Interest receivable 6,159 7,482
Deferred income taxes 11,817 10,512
Intangible assets, net of accumulated
amortization 2,337 2,531
Other real estate owned 20,572 20,652
Other assets 11,151 13,553
----------- -----------

TOTAL ASSETS $ 1,080,734 $ 1,096,471
=========== ===========

----------- -----------

LIABILITIES

Demand deposits $ 135,210 $ 138,683
Interest-bearing demand deposits 379,584 383,126
Savings deposits 83,191 74,817
Time deposits 352,682 366,335
----------- -----------
Total deposits 950,667 962,961

Customer repurchase agreements 35,666 35,806
Advances from the Federal Home Loan Bank 5,000 9,000
Interest-bearing demand notes issued to the U.S.
Treasury 1,064 1,753
Trust Preferred securities 25,000 25,000
----------- -----------
Total borrowings 66,730 71,559

Other liabilities 5,671 5,090
----------- -----------
Total liabilities 1,023,068 1,039,610
----------- -----------

STOCKHOLDERS' EQUITY

Preferred stock 24,993 24,986
Common stock 22,391 22,391
Common stock warrants 150 150
Additional paid-in capital 18,279 18,275
Retained earnings 13,317 11,589
Accumulated other comprehensive income (loss),
net of tax 2,095 3,064
Less: Treasury stock (23,559) (23,594)
----------- -----------
Total stockholders' equity 57,666 56,861
----------- -----------

TOTAL LIABILITIES & STOCKHOLDERS' EQUITY $ 1,080,734 $ 1,096,471
=========== ===========


CAPITAL STATISTICS (UNAUDITED)

YTD average equity to average assets 5.26% 6.62%
Tier 1 leverage capital ratio 6.19% 5.76%
Tier 1 risk-based capital ratio 8.73% 8.40%
Total risk-based capital ratio 10.01% 9.68%
Common book value per share $ 9.72 $ 9.58
Closing market price per share $ 5.39 $ 3.64
End of period shares outstanding 3,328,013 3,325,941
End of period treasury shares outstanding 1,150,282 1,152,354




CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except share data)

THREE MONTHS THREE MONTHS
ENDED ENDED
March 31, March 31,
2011 2010
(unaudited) (unaudited)
----------- -----------

INTEREST INCOME

Interest and fees on loans $ 8,859 $ 10,585
Interest and dividends on investment securities 2,414 2,843
Interest on interest-bearing time deposits in
other banks 21 32
----------- -----------
Total Interest Income 11,294 13,460
----------- -----------

INTEREST EXPENSE

Interest on deposits 1,738 3,372
Interest on borrowings 199 605
----------- -----------
Total Interest Expense 1,937 3,977
----------- -----------

Net interest income 9,357 9,483
Provision for loan losses 1,875 3,925
----------- -----------

Net interest income after provision 7,482 5,558
----------- -----------

NON-INTEREST INCOME
Trust & farm management fees 290 264
Service charges on deposit accounts 943 891
Other service charges 405 459
Gain on sales of securities available-for-sale 1,084 642
Brokerage fee income 139 189
Mortgage servicing rights recovery (impairment) 0 0
Mortgage banking income 451 496
Bank-owned life insurance income 221 229
Other operating income 67 22
----------- -----------
Total Non-Interest Income 3,600 3,192
----------- -----------

NON-INTEREST EXPENSE
Salaries and employee benefits 4,616 4,413
Occupancy 689 700
Equipment expense 781 767
Federal insurance assessments 640 698
Intangible assets amortization 194 201
Data processing 366 312
Advertising 155 176
ORE Expenses, net 582 735
Loan collection expenses 163 205
Other operating expense 1,249 1,079
----------- -----------
Total Non-Interest Expense 9,435 9,286
----------- -----------

Income before income taxes 1,647 (536)
Income tax expense (88) (795)
----------- -----------

Net income 1,735 259

Preferred stock dividends 0 314
Accretion of preferred stock discount 7 7
----------- -----------

Net income available to common stockholders $ 1,728 ($ 62)
=========== ===========

Net income (loss) per share available to common
stockholders:
BASIC $ 0.52 ($ 0.02)
DILUTED $ 0.52 ($ 0.02)

Basic weighted average shares outstanding 3,325,964 3,306,762
Diluted weighted average shares outstanding 3,335,925 3,306,762


PERFORMANCE RATIOS (annualized)

Net Income (Loss) Available to Common
Stockholders to Average Assets 0.64% -0.02%
Net Income (Loss) Available to Common
Stockholders to Average Equity 12.16% -0.32%
Net interest margin (tax-equivalent) 4.42% 3.90%
Efficiency ratio (tax-equivalent) 70.11% 69.26%


ASSET QUALITY

Net loan charge-offs $ 1,694 $ 1,366
Total non-performing loans (non-accrual, past due
over 90 days, troubled debt restructuring) $ 104,333 $ 67,291
Non-performing loans as a % of total loans 15.16% 9.08%

Inquiries should be directed to:
Lou Ann Birkey
Vice President- Investor Relations
Princeton National Bancorp, Inc.
(815) 875-4444
E-Mail address: Email Contact

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